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What you need to know about St. Paul's new rent control policy

30 April 2022

In November, St. Paul voters passed the Midwest’s first rent control policy. The 3% cap on annual rent increases they approved takes effect Sunday.

While city leaders continue to explore substantial changes to the ordinance crafted by advocates, St. Paul’s Department of Safety and Inspections on Friday released a set of rules laying out definitions and processes for landlords.

How did we get here? What still needs to be worked out? Here’s what you need to know about St. Paul’s rent control program.

What does the policy say?

St. Paul’s is considered among the most stringent policies of its kind. It prevents landlords from raising residential rents more than 3% per year. The cap applies even if a tenant moves out and is not tied to inflation. And unlike most other cities with rent control programs, the ordinance does not include an exemption for new construction. Landlords may request exceptions based on a limited set of criteria.

What’s the status of rent control in St. Paul?

The ordinance takes effect Sunday, but the law could still undergo significant changes. In February, Mayor Melvin Carter convened a stakeholder group of landlords, renters, homeowners and policy experts to identify “considerations on improving and enhancing rent stabilization.” The group will give recommendations to city officials in late June.Meetings are livestreamed and posted at stpaul.gov/departments/mayors-office/rent-stabilization-stakeholder-group.

The City Council approved a $635,000 budget to hire five full-time employees to oversee the rent control program through the end of the year.

What changes are being proposed?

Carter wants to exempt new housing units from the rent cap for 15 years after construction. Other changes being considered include: adjustments to the 3% cap and allowing landlords to raise rents by more than 3% after a tenant moves out.

Activists who crafted and campaigned for the policy argue these changes would defy the will of voters. The City Council would have to sign off any changes.

Why was this law passed by voters instead of the City Council?

A 1984 state law prohibits local governments from enacting rent regulations unless approved by voters in a general election. Rent control advocates in St. Paul designed a policy for the city to implement.

Minneapolis voted to authorize its City Council to enact its own rent control ordinance or put a policy before voters. The city recently convened an advisory group to offer recommendations by the end of the year, but no specific policy has been proposed.

How has St. Paul’s ordinance affected the housing market?

The short answer: It’s too soon to tell.

Several developers halted housing projects after the ordinance’s passage, saying lenders withdrew financing from a market now considered risky; rent control proponents characterized such behavior as fear mongering. Some landlords preemptively raised rents or sold their properties, citing concerns they may not be able to keep up with expenses.

An early study says the policy has lowered gains on home values, though local experts say it’s too soon to draw definitive conclusions. On the other hand, tenant advocates said they have pushed back against large rent hikes.

I’ve heard of rent control in cities like New York. Why now in the Twin Cities?

The first rent control laws in the U.S. came during World War I to prevent profiteering. Since then, various iterations have gained and lost popularity, often in response to economic and social trends.

The latest interest picked up steam as the country saw a rapid increase in rents amidst a housing shortage that followed the Great Recession. The COVID-19 pandemic caused another recession in 2020 and rents again skyrocketed in many U.S. cities.

Minnesota hasn’t seen the extreme rent increases other cities have. The average rent in St. Paul at the end of last year was $1,267, unchanged from a year earlier, according to Marquette Advisors, which tracks market-rate rentals. That was nearly $100 less than the metro, which saw rents increase 2.5%.

But a 2021 study of Minneapolis by the University of Minnesota’s Center for Urban and Regional Affairs (CURA) showed low-income renters and people of color faced significantly higher rent increases, which far outpaced their wage growth in recent years — trends that helped spark local efforts.

What are the arguments for rent control?

Proponents say the policy will prevent those facing large rent hikes from having to move away from neighborhoods they call home — allowing families to maintain community ties, stay in the same schools and manage commutes.

Advocates also point to the CURA study, noting researchers estimate median rent in Minneapolis did not increase by more than 3% annually over the last 10 years.

Proponents also hope the policy will deter large investors from snapping up single-family homes, a trend which a 2021 report from the Urban Institute says fueled the Twin Cities’ racial homeownership gap, the largest in the nation.

What are the arguments against rent control?

A main criticism is that the law discourages development in cities that desperately need more housing. Some have said the law will also prompt some landlords to remove them from the rental market, exacerbating existing supply shortages.

Others say landlords will have less incentive to perform maintenance or make improvements, leading to a deterioration of the housing stock.

Additionally, some landlords said they will now automatically raise rents 3% annually — more than they might have otherwise done — to prepare for potential changes in inflation or future events.

I’m a renter in St. Paul. What should I do if I think my landlord is raising my rent illegally?

Tenants can file complaints against landlords they believe are violating the ordinance using an online form on the city’s website. City staff will investigate those complaints and issue a determination, which tenants or landlords can appeal to a hearing officer. That officer would make a recommendation to City Council, which would vote on a final decision. Landlords could face criminal citations or administrative fines if complaints are substantiated.

Tenants can also take private action against their landlord in court, where a judge could issue an order for restitution.

I’m a landlord in St. Paul. How can I request an exemption from the 3% cap?

Be prepared to prove why you need it. Landlords have the right to “a reasonable rate of return on their investment,” which the city will generally define as the property’s net operating income in 2019 adjusted by subsequent changes in the Consumer Price Index (CPI) — though landlords can make a case that extraordinary factors affected their property.

The city’s newly published rules lay out the factors officials take into account when considering exception requests, such as an increase in taxes or operating expenses, or improvement projects.

Landlords requesting increases between 3 and 8% can “self-certify” their requests by filling out a worksheet and online form. Those forms will be available on the city’s website and may be subject to an audit.

Requests for rent increases greater than 8% — using the same forms — will be examined by city staff, though landlords can appeal decisions.

No landlord can increase a tenant’s rent more than 15% in one year, though justified increases beyond that limit can be deferred to subsequent years.

This post was originally published on this site

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