Opinion: St. Paul's Proposed Rent Control Law Would Halt New Development

Rent control is a popular response to the ongoing housing affordability crisis in many parts of the United States, but there is still a chorus of economists and planners who argue that rent control can do more harm than good to housing affordability.

Read Time: 2 minutes

September 24, 2021, 5:00 AM PDT

By James Brasuell @CasualBrasuell

An image of St. Paul, Minnesota and the Mississippi River at nightfall.

Paul Brady Photography / Shutterstock

Bill Lindeke writes for the twin cities sidewalks blog to make the case that the Housing Equity Now Saint Paul (HENS) rent control proposal, which would cap rent increases at 3 percent annually, would stop new housing from being built—a "de facto ban on housing," as it's described here.

Earlier this month, Lindeke reported for the MinnPost that St. Paul voters are faced with the prospect of approving the country's most aggressive rent control policy in the November election. To recap the summary of the HENS proposal provided in that article:

The law would cap rent increases for all of the city’s 65,000 rented homes at 3% per year, but includes a complicated list of factors that allow landlords to apply for a variances — things like property taxes, maintenance issues, capital improvements (only if needed to bring a building to code), and a few others. The process for applying for the variances is yet to be determined. The ordinance exempts only subsidized housing from the caps.

In the blog post for twin cities sidewalks, Lindeke explains that the question that keeps coming up since the MinnPost article is as follows: "Why does a 3% rent cap stop new housing from being built?"

Lindeke's answer, which you should click through below to read in full, hinges on

  1. The difference between landlords and developers: "3% is usually fine for a landlord but a huge limit for someone leasing out a new building."
  2. Inflation: "If inflation is close to or higher than 3%, you're just plain screwed. Not only can’t you move rents around to fill a building, you're actually forced to lower rents in real dollars." 

The 3 percent cap on rent therefore, according to Lindeke, "greatly increases the risk of loans for new housing construction."  

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