I will NOT be voting for the rent-stabilization measure for the primary reasons:
- Worsen Housing Market: Reduce long-term housing development and increase the rental market-rate price
- Added Bureaucracy: excess city resources/staff to manage and enforce policy in such a short amount of time [also additional expense to taxpayers]
A better housing policy can be hashed out from the city council that may mitigate the harmful effects.
City Demographics/ Housing Market
In the city of Saint Paul, the 2020 census has shown that the population has increased to 320,000 (historical high) and within the last two decades there has been an steady increase in the number of renting units that it surpass owner occupancy for the first time at approximately 52%. The number of renters has been increasing steadily for years due to new multi-unit developments, and decrease of owner-occupied homes due to poor economic conditions and high concentrations of crime. In 2019, vacancy rates are trending downward with 1.5% for owner occupied units and 3.7% for rental units. Rental markets are typically considered stable at 5% vacancy, and with low available housing supply and increased housing demand, there is upward pressure on rents. [Source: Section 1.1]
In 2021, the multi-neighborhood/ group coalition, Housing Equity Now St. Paul (HENS), were able to get thousands of signatures to get a ballot measure in Saint Paul to enact a local ordinance that would have the strictest rent stability/control measure in the country by capping rent increases in a given year by 3% though property owners can seek exemptions. This measure is meant to explicitly benefit renters by stabilizing their long-term rent and will disproportionately favor people of color (POC) who are mostly renters. Normally, the city council will draft and vote on passing a housing ordinance. Instead, it’s a ballot measure to reduce the perceived influence of developers weighing on city council members. If the measure is passed, the ordinance is in effect by May 1st 2022, which gives roughly six months for the city council to budget, hire appropriate staff, draft procedures, to enact this measure. Currently, there are two city councilmembers that have publicly support this measure which includes, Councilmember Nelson (Ward 4) and Councilmember Yang (Ward 6).
I’m currently a renter. I have a Masters of Science in Agricultural and Resource Economics from UC Berkeley and have taught Introductory Economics at UC Berkeley for roughly a year, which gives me an initial bias against rent control policies as they typically reduce the supply of housing and/or increase the market rate. I’ve reached out to HENS organizers for more information and did not get a response. My final decision has been solidified after reading a well-written and researched article by a local urban geographer, Bill.
When it comes to housing policy, there is often unintended consequences that can worsen the current housing market. It is essential for citizens to understand how a general housing markets work so an informed vote can be made. The following graph shows the demand curve for rental units and the supply curve of rental units, when these two curves intersect, it reaches equilibrium. We can determine the rental market-rate price (Pi) and total rental units supplied (Qi). At the equilibrium, additional rental units are not supplied because the remaining renters cannot afford the market-rate price. For a growing renter population, you reduce the rental market-rate price by increasing housing supply.
Rent Stabilization Measure Will Decrease Housing Supply
The rent stability measure will almost certainly decrease the supply of housing. Not only is the 3% cap on the increase of rent is the strictest policy in the country, in the fineprint, it will apply to vacant properties and new housing developments. Normally, after a rental lease is discontinued, a vacant unit can go back to market-rate. This ordinance will lock the rental price on how much they can charge even for new tenants. If property owners cannot make a reasonable profit, the rental unit may be abandoned semi-permanently, as the costs of renovations cannot be made up from the flat rental rate. With only six months to adjust, some property owners may be trapped. The longer a rental property stays vacant, greater the financial burden. Overall, this measure will likely decrease existing housing supply.
For new housing development, developers need to make a profit or otherwise they will not build. Profit, includes making up the costs for building new construction. Typically for rent stability/control policies, they exempt new development for 15 to 20 years so developers can make a healthy profit. This measure is unprecedented (no other city has done this), and for developers to make a profit they would have to charge a price premium on top of the market rate housing, and the premium may be even greater if there is requirement of affordable housing units as local residents will certainly demand. Why would developers want to build in Saint Paul, especially after the fiasco in the Alatus development?
There is potential for other negative feedback loops, but will not disclose as it could lead to a self-fulfilled prophecy. The graphical representation is what the impact of the rent stability measure has on the market; notice rental market-rate price increases.
Administrative Cost and Bureaucracy
In the last two year, median rent has increased nearly 2.5%, but there is wide variation. The ordinance does not consider inflation, which is at 5.4% and expected to increase further. The property owner can seek exemptions to increase the rent greater than 3%, though it’s their responsibility to prove their case to the city. For these reasons, there will likely be many exemption cases handled by the city [see graph to right; though not Saint Paul, they have similar market]. Preliminary suggestions is that the staff handling the cases will go under the Office of Financial Empowerment. In real terms, this means citizens will be paying additional taxes for staffing/enforcement and the cost of bureaucracy is an additional cost to property owners potentially decreasing housing supply even further.
I encourage citizens to vote No on the ballot measure. There is a reason why economists have consensus against rent control and you can observe the impacts of progressive housing policies in the coastal cities where the rental market-rate price is high, and high-rates of homelessness. If the ballot measure is passed, and I’m elected to Mayor, I’ll consult with the city council and citizens in making adjustments to the ordinance.