When a Utah firm bought the fourplex he’s called home since 2012, Marcus Troy learned his rent would go from $850 to $925 per month, a 9 percent rent hike.
Troy, a lifelong resident of St. Paul’s West Side, is hoping that a proposal to limit annual rent increases in the capital city will help more of his neighbors remain in the neighborhood as it gentrifies. Rent stabilization, in his eyes, could “keep the locals local and not have landlords from out of state come in, buy up the properties and then remove us.”
After moving six times in eight years, recent college graduate Jamila Mame knows what it means to be pulled away from schools, friends and nearby relatives because rents are unaffordable. “It’s a lot for a high school student,” said Mame, a St. Paul resident who recently ran for school board. “I don’t want my sister’s kids to go through what we went through — always having to make new friends, always having to readjust.”
Like Mame, school teacher Erin Balcom is also on board with a proposal to cap annual rent increases in both St. Paul and Minneapolis at 3 percent.
“It’s just a pretty critical issue of concern for me that we have stable housing for people at lower income levels,” said Balcom, during a petition signing in St. Paul a week ago. “As a teacher, I see the impact for children when their housing is disrupted.”
ADVOCATES COLLECT PETITIONS
Led by housing advocates such as the Alliance, TakeAction Minnesota and the West Side Community Organization, the Housing Equity Now St. Paul (HENS) coalition plans to submit upwards of 5,000 signatures from St. Paul voters to Ramsey County Elections on June 15, the first step toward putting a “rent stabilization” question on the city’s November ballot.
HENS advocates say they hope to submit twice as many signatures as required in an effort to bring fundamental housing concerns to the fore: Are rents too high? And if so, is the best solution across-the-board government intervention commonly referred to as rent control?
Twin Cities rents indeed appear pandemic-proof. According to the listing service HousingLink, the median monthly rent for a two-bedroom apartment in St. Paul increased 11 percent, from $1,200 to $1,335, between April 2020 and April 2021.
Even in areas where rents softened during the pandemic, they didn’t soften much. In the same timeframe, the median monthly rent for a one-bedroom apartment in Minneapolis went down just 1.5 percent, or $16, from $1,049 to $1,033.
CRITICS RESPOND
The question of rent stabilization, however, has inspired a wide variety of reaction, with even some left-of-center political leaders and housing advocates approaching the concept with a critical eye.
Neither St. Paul Mayor Melvin Carter nor Minneapolis Mayor Jacob Frey have rallied to support it. Some critics call it a blunt tool that will benefit the rich as much, if not more so, than the poor, while potentially limiting the city’s tax base or raising taxes on other properties.
Realtors worry a new mandate will scare away reputable landlords, who will see little point in investing in rental properties for limited potential gains, or even in putting extra dollars into upkeep for properties they already own. And a decrease in rental housing supply — especially quality rental housing — helps no one.
Could rent stabilization backfire? In the early 1990s, a poll of economists found 93 percent thought such policies reduce both the quantity and quality of housing.
“It just doesn’t work,” said Mark Mason, a civil engineer by training who is now president-elect of the St. Paul Area Association of Realtors. “Every study we looked at (came to the same conclusion). Stanford did a study in 2019 that showed a 15 percent reduction in housing supply in the smaller one- to four-unit properties. And the reason for that is small landlords didn’t want to deal with it, so they sold them to owner-occupants.”
In fact, said Mason, studies show renter “mobility,” or movement to new homes, declined 20 percent when rent control rolled out. “Specifically in San Francisco, renters didn’t want to move, because they’d lose their rent-controlled apartment,” he said. To pull a profit, developers there focused their energy on building higher-end units, entering the market with even fewer affordable options than before.
NEW YORK’S EXAMPLE
Rent control has proven to be unpopular with traditional economists, who point to examples such as New York City, which has operated under some form of rent control since 1920, followed by major city- and state-driven changes implemented in 1969, 1997 and again in more recent years.
The result is a confusing patchwork quilt of rules that keep rents relatively low in many older units but do nothing to stop high-end properties from opening next door. As of May, the median monthly rent for a one-bedroom apartment in New York City was $2,500.
Instead of increasing affordability, New York families tend to hold onto rent-controlled apartments for generations, effectively removing those apartments from circulation in the housing market. Again, the result is a decrease in mobility and rental housing supply.
Some see the proposed 3 percent cap on rent increases as a deal-breaker for small landlords.
“You have to factor into your budget upkeep, and taxes, and rental registration fees and things that a normal homeowner wouldn’t have,” said Sue Nichols, a Realtor who rents out multiple homes at $500 per bedroom. “Insurance is crazy for landlords. A lot of people are doing it as a long-term investment. The goal isn’t to make money month-to-month. … (A 3 percent cap) is going to prevent a lot of people from becoming landlords. The small mom-and-pop landlords have other jobs.”
COULD A NEW APPROACH FIX WHAT HASN’T WORKED?
Members of the HENS coalition say their proposal gets around those and other concerns by implementing their 3 percent annual cap on rents across the board, regardless of whether the building is old or new construction.
The St. Paul ordinance instructs the city to establish a process by which a landlord can request a special exemption from the cap “based on the right to a reasonable return on investment.” That would likely entail crafting single-year exceptions for landlords whose property taxes increase by more than 3 percent in that given year, or who invest in elaborate improvements.
Unlike rent control in Oregon and New York City, however, there is no plan to exempt properties once all leaseholders have left a unit. Between tenants, there’s no limit to how much rents can go up under those systems. “De-controlling” vacant units has added to the mishmash of rent limits in New York City.
“We wanted to be very intentional about learning from the mistakes of other cities. You hear elected officials say, ‘other cities have rent control, and rents always go up.’ Well, that’s because there’s so many exceptions,” said Tram Hoang, a policy advocate with the Alliance. “We can agree that parts of rent control in New York don’t work, and we can fix them with this policy. … That’s why our policy is written the way it is, to make sure people don’t fall through the cracks.”
HENS advocates note that in a typical year, most Twin Cities landlords keep rent increases below 3 percent anyway. The cap is intended to prevent predatory practices, such as overnight rent increases, without punishing honest property owners.
“This doesn’t prevent someone from building a building,” said Margaret Kaplan, president of the Housing Justice Center. “They can establish their rents wherever they want to. … It prevents that bait and switch, where you move in and suddenly you experience a ‘bait-and-switch’ rent increase. Landlords are setting a rent at a place where they’re going to make a healthy return on their investment.”
Hoang noted that St. Paul has become a renter-majority city, and rent increases impact and displace communities of color most heavily. Black residents in particular are under-represented in the ranks of homeowners, adding a level of transience and housing vulnerability. “I very recently purchased a home, and it basically gives me rent stabilization, because I know what my mortgage payments are going to be for the next 30 years, with some changes for property taxes,” Hoang said.
“It’s just a pretty critical issue of concern for me that we have stable housing for people at lower income levels. As a teacher I see the impact for children when their housing is disrupted.” – Erin Balcom, signing pic.twitter.com/J1hlEUTSk7
— Frederick Melo, Reporter (@FrederickMelo) June 6, 2021
‘A SOMEWHAT BLUNT POLICY TOOL’
Some liberal economists and social scientists probing recent experiments with rent stabilization have chronicled mixed results, especially when landlords exploit loopholes to remove properties from the regulations. For instance, in San Francisco, where rent stabilization went into effect in 1994, beneficiaries were 10 percent to 20 percent more likely to stay in their homes long term, even though affordable-housing supply decreased overall. The result was good news for existing renters, but a tough housing market for newcomers.
“Rent regulations were found to confer nearly $3 billion in benefits on incumbent renters in the form of lower rents, but these welfare benefits were offset by decreases in available units … and subsequent rent increases in decontrolled units,” reads a 2018 report called “Rent Matters” co-authored by Manuel Pastor, an American studies professor at the University of Southern California.
He called rent protections “a somewhat blunt policy tool,” meaning they benefit the rich — who may not need rent help at all — at least as much as the poor.
That said, “there is a general consensus that tenants in rent-regulated apartments stay in their apartments longer and typically benefit from rent discounts,” Pastor wrote. “(Other) benefits are often not quantified but they can be particularly important for lower-income people and people of color who are disproportionately impacted by housing instability, evictions and forced relocation.”
