Rent Control in Saint Paul: Score Melvin Carter 2, City Council 0

 

Yet again Mayor Melvin Carter has outplayed City Council in his posturing on the recently adopted rent control  ordinance.  No matter what the Council does they look like losers and the Mayor walks away the political winner.

            Were this the first time Council was outmaneuvered it would be  shame on Carter.  But it is the second time this year Council played it wrong so shame on it.

            Earlier this year City Council  affirmed a decision by the Planning Commission to deny a permit to Alatus to develop market-rate housing on the Wilder property located at Lexington and Grand. Its decision was quasi-judicial and under most readings of Minnesota law, it was not subject to a mayoral veto.  Mayor Carter then asked the Council to memorialize the decision in a formal resolution which the mayor then vetoed (as he is allowed to do under the law).  Carter was able to turn an action by Council over which he had questionable authority to override into one which he did have authority to act.   Lacking the votes to override the veto or the will or resources to legally challenge Carter, Council gave the mayor a political victory.  Carter could argue he was championing housing and his veto sent a signal to developers during the election that he was on their side and presumably open to taking their money (which he had already done from individuals at Alatus and Wilder).  He comes out looking good, Council inept.

            Enter rent control in Saint Paul.

            Several months ago, supporters of rent control in Saint Paul secured enough signatures to place on the ballot on November 3, 2021, a proposed rent control ordinance.  It qualified for the ballot on or around June 15, 2021—nearly five months before election day.  Council knew, or should have known, it was on the ballot.   How could they not know?  They had ample opportunity to study it.  Any reasonably prudent Council would have taken some time to ask the “What if?” question.  By that, Council should have asked what if the voters approve rent control, what’s next?  When would it take effect?  How will it be enforced?  Who will enforce it?  How much money and what resources will be needed?  All these are questions the Council should have considered  but there is no indication they did, even though one could have predicted that the rent control proposal might be popular and pass.

            Enter Mayor Carter.  In October, merely a few weeks before the election, Carter announces he will vote yes on rent control but then seek to amend the proposal to exempt new construction, despite the fact that a legal opinion by the City attorney suggested that the ballot proposition probably could not be altered for at least one year under local law.  Both moves by Carter were politically smart.  Carter aligns himself as a populist  and makes it looks like he cares about renters by endorsing the proposal, thereby helping him in his re-election bid, while also sending a signal to developers he is on their side (and of course open to their political donations and support).

            Rent control passes and City Council is shocked.  It is not ready for it.  It has lots of questions—many of which it was negligent not to consider during the previous five months when  they knew it had qualified for the ballot and it could pass.  As confusion mounts over the rent  control measure, Mayor Carter is again asking Council to exempt new construction, contending that the new ordinance does not specifically refer to it.  Council has again been outmaneuvered.

            By asking Council to change the ordinance Carter has placed them in a position of doing something illegal (change the law) and run a court challenge from supporters.  Additionally, if they change the law they raise the possibility of encouraging the rath of voters who supported it when the Council members are up for re-election in 2023.  Do nothing to exempt new construction and  if developers stick to their promise to halt new projects, it is City Council that is at fault for any economic damage to Saint Paul.  Council loses no matter what.

            Carter comes out in favor of rent control and then asks to amend it.  He wins as an apparent populist by supporting it.  His call to amend it will be forgotten by most of the voters but remembered by developers.  He can tell them he is on their side and that it is the terrible City Council that failed to act if they do not vote to exempt it.  If Council does act  to exempt he then gets to blame them  for upending the will of the voters. Carter gets to be populist and a friend to developers at the same time.  Effectively, Carter has shifted the blame to the City Council while he comes out of this politically looking good.

 

Does Rent Control Make Sense for Minneapolis? What Theory and Evidence Tell Us

Minneapolis like many American cities is facing a housing affordability crisis.  Rents  are going up rapidly,  placing middle class and low income households into units beyond what they can afford, if in fact they can even find suitable unit at all.  Among solutions  being considered in Minneapolis and elsewhere is rent control or stabilization.  Is that a viable solution?

            The case for rent control is simple:  Freeze rents or limit increases  to reasonable costs plus indexed inflation.  The hope is that this will squeeze unfair profiteering out of the housing market and  eventually make units more affordable.  Evidence does suggest that rent control  helps existing tenants, including  encouraging them  to remain in their current units for years.  This may stabilize  neighborhoods in healthy ways, perhaps increasing a sense of community and the building of social capital.  Rent control done right, will possibly stem the migration of middle class out of a city, also an important goal.

            But the textbook  economist’s  answer to whether rent control works is no.  For an economist, housing is like any other commodity that responds to market forces of supply and demand.  The only way to decrease the cost of housing is to increase the supply.  However,  this solution does not always work.  Developers, left to their own devices and market incentives, will build units that yield the highest profit  margin, and that is not necessarily middle class or low income housing.  Housing markets are segregated by income or class, and simply building more units will not translate into serving the overall housing market or populations.  The best way to provide affordable middle class or low income units is to build them to serve that market.

            But economists will argue that rent control does not work because of the market externalities it produces.    One, place caps on the rent that landlords can charge, and they will delay maintenance.  Two, rent control creates disincentives to build new units since the profits will not be there.  Three, owners will convert existing rental units to condos or coops in avoid rent control, thereby exacerbating the rental shortage.  Four, developers will move housing construction outside of the rent control jurisdiction, again  aggravating shortages.  Five, rent control make encourage tenants to stay in units for too long or in units that no longer serve their needs, creating a mismatch between apartments and occupants.  Empirical studies of what happened in San Francisco, California  and Cambridge, Massachusetts lend evidence to these claims.

            Overall, economists and critics assert that while rent control might benefit current tenants or occupants, longer term its impact is more destructive.  A parallel to this is what happened in 1978 with California’s Proposition 13 that froze property taxes on existing housing.  Its impact was to shift property taxes to new construction, driving up its cost and leading to some of the rental shortage and cost problems one sees lingering to this day.

            Moreover, in the case of Minneapolis, rent control cannot be examined in isolation, but in conjunction with other policies, such as the 2040 Comprehensive Plan.  It calls for significantly new construction through the elimination of single gamily zoning. The hope is that increased densification of housing will, among other things, reduce or stabilize rents.  Simply rezoning will not necessarily produce the type of housing units that help middle class or low  income households or ensure that  historically segregated neighborhoods will equitably integrate.  Here, rent control may counteract and benefits  that come from Minneapolis 2040 by again decreasing incentives to build more units of any kind.  It may push development into higher end condos or shift development outside the city.

            Finally, rent control may work well when there is a surplus of units to prevent speculation.  But as in the case of Minneapolis where there is already a shortage of units, squeezing rents will not solve a pre-existing problem, only make it worse.

            How can one address the lack of affordable housing?  Specifically building those types of units combined with rent stabilization policies is one way to do it.   Rental subsidies are another solution.  Three, Minneapolis is part of a larger metro-wide housing market and it needs to operate in concert with other jurisdictions or the Met Council to fix the problem.  Four, consider alternative housing strategies, such as  encouraging the construction of  micro-housing.  Five, more creative development solutions, such as waivers on height or unit  numbers in return for dedicated construction of middle class or low income units, should be considered.  Six, allow for pre-fab units, which are cheaper to build, to be sited in Minneapolis.

            Rent control alone is a crude solution to a serious problem.  The real problem is that  housing is a basic human need commodified, meaning its delivery is mostly subject to the laws of marketplace.  Rent control is a band aid on a larger problem  and if implemented wrongly it produces secondary effects that distort housing markets for decades.  Used more carefully and in conjunction with  other strategies, it may serve as a partial tool to addressing the problem that a free market delivery of housing produces.