The Nation's Worst Rent Control Law Gets a Few Moderating Fixes

The St. Paul City Council passed a series of amendments to a voter-passed rent stabilization ordinance that exempt new construction and make it easier for landlords to factor inflation into rent increases.

The nation's harshest rent control law has become less so after the city council of St. Paul, Minnesota, approved a slew of moderating reforms to a voter-passed ordinance that had initially capped rent increases at 3 percent—no ifs, ands, or buts.

The severity of St. Paul's rent cap saw new building permit applications plunge and developers freeze in-progress housing projects, totaling thousands of units, as their financing partners skipped town. Landlords hiked rents in anticipation of the coming 3 percent cap or started adding separate fees for utilities and trash pickup.

The new amendments passed Wednesday are intended to coax developers back to St. Paul by softening that 3 percent cap on rent increases, while also cracking down on landlords' ability to evade the law.

It exempts buildings under 20 years old from rent control. Landlords can now also raise rents by 8 percent plus inflation after a tenant moves out or is evicted for "just cause"—such as repeated late payment or damaging the unit. Landlords who file an application with the city can also raise rents by rents by 3 percent plus inflation on existing tenants.

Since May, the city has allowed landlords to apply for exemptions to the 3 percent rent cap, and had been automatically greenlighting rent increases of up to 8 percent.

But housing providers complained that the process was cumbersome and required them to provide extensive documentation of their expenses to justify nominal rent increases. The owners of two St. Paul apartment buildings filed a lawsuit arguing the exemption process was arbitrary and unconstitutional.

Republican state lawmakers had pushed a bill that would have nullified St. Paul's ordinance, but that effort failed.

Wednesday's updates are intended to clarify and simplify the exemption process. The five city council members who supported the changes argued they struck the right balance between the interests of developers, landlords, and tenants.

The ordinance passed Wednesday forbids landlords from charging tenants new utility charges to evade the rent caps.

But supporters of the original rent stabilization ordinance, which 53 percent of voters approved in November 2021, argued that the policy was being essentially gutted.

"We shouldn't sacrifice racial equity for growth," said Councilmember Mitra Jalali, one of two councilmembers to oppose the amendments, at Wednesday's hearing.

While some adjustments to rent stabilization were necessary, many of the changes went "too far in stripping rent stabilization protections from large groups of renters that I represent," said Jalali.

In total, the changes approved Wednesday bring St. Paul's rent control in line with more moderate state-level rent control policies recently passed in California and Oregon. That doesn't make the city's rules harmless

So long as rent control achieves its purpose of stopping rent increases landlords would otherwise charge, it will have harmful secondary effects. On the margins, developers will be less likely to build new housing, and existing property owners will be less likely to rent units out or maintain the units they do own.

The fact that rent control policies are typically bundled with exemptions for inflation, vacancies, and new construction all tacitly concede that the policy is damaging. If rent control didn't suppress supply or discourage maintenance, these exemptions wouldn't be necessary.

St. Paul's rent control law is no longer the disaster it once was, but it's hardly an optimal policy.