When reality hits: Mayor Carter proposes scaling back St. Paul’s rent control policy yet again
When St. Paul proposed a 3 percent rent control in 2021, American Experiment warned that such a policy would be disastrous. Specifically, ACE compiled a report on existing evidence on rent control which showed that in places where it has been enacted, rent control
- Reduced the quantity and quality of the housing supply
- Disproportionately subsidized rents for middle- and high-income renters
- Reduced the mobility of renters, impacting dynamism in the economy
- Led to housing misallocation
- Reduced property values, eroding the property tax base
Unfortunately, this warning was ignored. Three years since the passage of rent control, however, the lessons cannot be ignored.
After championing an amendment that exempted new housing in 2022 because developers paused construction projects, Mayor Melvin Carter is calling to scale back St. Paul’s policy yet again. While unveiling the City’s Budget on August 13, he suggested exempting buildings constructed after 2004 from rent control, citing the slowdown in construction.
A housing crisis is marked by one clear symptom: a housing shortage. Simply put, we need much more housing to serve our residents and families.
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In keeping with this truth, and in acknowledgment that the underlying economics of maintaining a 50-year-old building are fundamentally different from the economics of constructing a new one, I propose amending our city’s rent stabilization ordinance to include only properties built on or before December 31, 2004.
This simple change would advance our values by maintaining the overwhelming majority of Saint Paul rental properties as rent stabilized, while unlocking the critical release valve that only new housing construction can offer us.
Mayor Carter is right, rent control is a harmful policy
Mayor Carter is certainly right that high housing prices are a symptom of supply not meeting demand. In St. Paul’s case, the period after the passage of rent control has been marked by low construction — an effect that St. Paul leaders, including Mayor Carter, should have seen coming. It is good, therefore, that Mayor Carter recognizes the issue with rent control.
His suggestion, however, does not go far enough. What St. Paul needs is a complete overhaul of the rent control ordinance.
Certainly, with high interest rates, the current economic landscape is likely to blame for the construction slowdown that has happened in Minneapolis, St. Paul, and the rest of Minnesota. However, Minneapolis has generally fared better than St. Paul since rent control was passed in 2021.
Looking at data, in early 2021, for example, 6-month-rolling average multi-family permits were higher in St. Paul compared to Minneapolis. That changed in August, right at a time when the ordinance was popularized. Beginning in August 2021, average monthly housing permits for Minneapolis grew. Permits in St. Paul, however, consistently stayed below 200. While average permits slightly rose beginning August 2022 in St. Paul, they remained below the pre-control level.
Figure: 6-month rolling average multi-family housing permits
St. Paul City Council should follow the evidence
The current slowdown in construction should not be an excuse to keep rent control in St. Paul. While permits are slowing down in the rest of the state, this trend has been going on longer in St. Paul than it has in Minneapolis and the rest of the state likely due to rent control.
Thanks to rent control, St, Paul has a a lot of catching up to do when it comes to housing construction. Given the challenging economic climate, getting rid of rent control would mean one less obstacle for developers and investors to have to deal with. It would also definitely be better than what the city has been doing, bailing out developers who complain about rent control by giving them subsidies.