A lot of noise has been made about a controversial rent stabilization proposal that St. Paul residents will find on their ballots on the November 2nd election this year. Due to a 1984 state law, the ordinance had to be passed through a referendum, creating a lot of confusion about the proposal’s details, its effects, and why people support it.
The proponents of this ordinance know that there are things the opponents aren’t saying, and the opponents of rent stabilization know that there are things the proponents aren’t saying. To put my cards on the table, I support the policy in question and plan to vote “Yes” on Question 1, but I want to look at some common objections and see if I can clarify my reasons for voting yes.
1. The Policy
The language on the ballot is as follows:
“The Ordinance limits residential rent increases to no more than 3% in a 12-month period, regardless of whether there is a change of occupancy. The Ordinance also directs the City to create a process for landlords to request an exemption to the 3% limit based on the right to a reasonable return on investment.”
2. Common Objections
(2.1) Shouldn’t the limit on rent increases be tied to inflation?
One of the first objections you’ll hear to the ballot proposal is about the 3% cap on rent increases, which critics point out is not tied to inflation the way other rent stabilization policies are. I was confused about this myself, so I reached out to Dr. Edward Goetz, director of the Center for Urban and Regional Affairs at the University of Minnesota, who has conducted research on the economic literature surrounding rent regulation.
“The 3% flat rate, as you note, does not peg the cap to inflation,” writes Goetz. “Two things to remember here: first, there are other stricter rent stabilization programs (in Berkeley where the cap is set at 65% of CPI [consumer price index] and Santa Monica, [where I think] it is set at 75% of CPI).” He points out that in these cases, the cap will never equal inflation, but the rental markets in those cities seem to be doing fine.
In addition, the St. Paul program has a “right to a reasonable return” which allows landlords to appeal the 3% cap if it ends up getting in the way of a reasonable return on investment. The proposed ordinance lists seven factors the city will take into account when evaluating deviations, including property taxes, maintenance, and capital improvements.
Importantly, the reason the limit was set at 3% is because the median rent increase in the metro area is between 2.3% and 2.7%, meaning in most cases landlords are unaffected by the program. Goetz stresses that the program will mostly serve to restrain rent gouging in the marketplace.
(2.2) Won’t the quality of rental properties decrease?
While deterioration of a rental unit is listed as a possible cause for exemption from the 3% cap, whether properties will see a reduction in quality is a perfectly valid concern.
Economic theory suggests that rent regulations will cause maintenance of rental properties to worsen. However, empirical results are starting to challenge economic models. In Goetz’s research (in collaboration with Dr. Anthony Damiano and Jeff Matson), the researchers find little evidence that rent regulations cause a reduction in housing quality. For example, a study in Washington D.C. found that 80% of tenants in rent-controlled buildings believed that maintenance was either good or better than it would be without rent regulation. They mention that Kutty (1996) found that programs which allow for responses to changes in the quality of housing services (like the St. Paul proposal) largely prevent declines in maintenance.
Think Twice Saint Paul argues that the quality of controlled properties in New York City took a downward turn, and while researchers like Gyourko and Linneman (1989) did find a correlation between controlled units and “deteriorating” or “dilapidated” conditions, they do not claim that this is causal. Rather, all of the rent-controlled units they surveyed were not only subjected to hard caps (whereas St. Paul is allowing for increases), they were all significantly older buildings.
(2.3) Won’t the supply of available housing decrease?
Rent stabilization’s effect on the quantity of affordable housing might be the single most contentious issue surrounding this proposal. Urban geographer Dr. Bill Lindeke expressed this concern in a recent MinnPost article, saying that “Because of the policy details around new construction, inflation and vacant apartments … It’s an open question what it would do to the city’s housing market.” To Lindeke’s credit, he is not unanimously against rent regulation, and he makes good use of the work done by Shane Phillips, author of The Affordable City.
He worries that because the rent stabilization proposal does not exempt newly built housing, prospective developers will overlook the city. St. Paul is pretty much alone here, with most programs not applying to new buildings. Oregon waits 15 years, New Jersey waits 30 years, California exempts buildings prior to 1995, and New York exempts those from before 1974.
Lindeke goes on to talk about vacancy decontrol, which refers to a provision that allows for rents to be raised by any amount when a rental unit becomes vacant. St. Paul’s ballot proposal features vacancy control, meaning the limit on rent increases holds true even when occupancy changes. “I don’t come out firmly 100% against vacancy control,” says Shane Phillips, “but I think it’s quite the leap to go from zero rent stabilization to hard vacancy control.” He worries that landlords will find other ways to pick their tenants, potentially preferring white, higher-income families.
However, the literature on vacancy control is not so straightforward. A 2000 study from California found that cities with vacancy controls had lower rent levels on average than cities without vacancy control or with no rent control at all. Overall, Goetz’s study finds that programs that include vacancy control tend to fare better than those that do not.
But what about housing quantity? Rent regulation may reduce the supply of rental housing (while there is no evidence that the overall supply is affected) if it is easy for landlords to convert apartments into non-rental housing. Economist J. W. Mason proposes restrictions on these kinds of conversions. Mason and Goetz agree that the existing literature fails to demonstrate that rent regulation reduces new housing construction, and Mason proposes a number of reasons why this might be the case. For one, the housing market is inelastic, meaning the supply of housing does not always reliably respond to changes in price. In many cases, the supply of housing is more limited by factors like zoning. There are even instances where rent control increases the supply of rental units, as it incentivizes landlords to subdivide larger units.
It needs to be stressed, however, that most of the programs studied do not immediately apply to new housing construction. For this reason, Lindeke is right to point out that in a city like St. Paul which already struggles with housing, the ordinance in its present form may not be sufficient. Mason argues that rent control needs to be combined with measures like subsidies, reforms to land-use rules, and public investment in housing.
Goetz remains uncertain on what the effects on the overall housing market will be if this ordinance passes. His research mostly applied to programs with exemptions for new construction, though he states that “it is not at all clear to me that this provision is a new construction killer. It might be, but we just don’t know.”
The research on rent regulation is still ripe, but one of the early trends we’re seeing is a displacement of standard economic dogmas. In Mason’s words, “You may still see textbooks saying that as a price control, rent regulation will reduce the supply of housing. But as the share of Americans renting their homes has increased, more and more jurisdictions are considering or implementing rent regulation. This has brought new attention from economists … we are finding that the simple supply-and-demand story doesn’t capture what happens in the real world.”
3. Why I’m Voting “Yes.”
As I alluded to at the start, there are things that the opposition is failing to address. Organizations like Think Twice Saint Paul tend to focus on the quantity and quality of housing (though not always accurately), but this fails to even mention the real issue motivating advocates for rent control: housing price and stability.
Goetz’s research finds widespread agreement in the economic literature that rent regulation increases housing stability, maintains below-market rent levels, and moderates price appreciation. His paper also points out that cities with stronger programs have had more success preventing large price appreciation than cities with weaker programs.
St. Paul is a renter-majority city. More than 50% of its residents are renting, including 82% of Black residents, 64% of Indigenous residents, 62% of Latinx residents, and 58% of Asian residents. Taylor Sibthorp and Nolan Manz from The Mac Weekly quote activist Carolyn Szczepanski as saying, “we know that it’s fundamentally a racial justice issue… It’s not affordable to the median income renter of any race. It’s certainly not affordable to BIPOC renters in our community.”
When it comes to whether or not to vote for the policy, I am with Mayor Melvin Carter, who tweeted, “I am voting ‘yes’ for rent stabilization. Not because the policy is flawless as drafted – we can and must make it better, quickly – but because it’s a start. (1/2) … Bold action on our housing and equity goals cannot wait.”
To put it bluntly, legislation on this front has already been made difficult, and unwillingness to accept an imperfect policy seems to me like a cheap excuse to shut down the progress made by grassroots movements. Carter expressed this sentiment himself, saying, “One of the challenges of policymaking by referendum is we sort of lock in a first draft… I do believe there are concerns with regard to potential housing starts, at a time when our population is growing so fast.” Carter and I are in agreement that getting this policy passed needs to be our first priority, while find-tuning it can come later.
It’s not clear when the policy can be amended. In a previous version of this article I claimed it was after one year, but after taking the time to read Lindeke’s more recent blog posts, it seems possible that it could be amended sooner. In his own words, “I look at this ordinance now as the functional equivalent of the one in Minneapolis, which I’ve supported from the beginning: we don’t know what the details will be, and I believe City Staff and elected officials can sort it out.” With one caveat, though, as he worries that if the St. Paul proposal is passed and amended it could become the target of litigation and the policy might be lost.
Let’s keep in mind that the policy is not completely broken. In fact, as I’ve tried to show, it’s far from it. A cap based on inflation may be better than a flat 3%, and we may want to reconsider an exemption for new housing, but we should ask ourselves if these improvements can wait while we get our foot in the door.
Goetz concluded his correspondence by saying, “it is my strong suspicion that the St. Paul City Council, a majority of whom are against this ballot question, will amend the program about as soon as they are statutorily allowed to.”
It is for these reasons that, despite concerns, I will still be voting “Yes” on Question 1 to implement rent stabilization in St. Paul, and I encourage you to consider doing the same.