Saint Paul City Attorney's Full Remarks on Amending the Rent Control Ordinance

[From the City Council meeting yesterday.]

The Pioneer Press has the best coverage of the meeting yesterday with the City Council and the City Attorney's office, on the legal avenues for change to the proposed rent control ballot initiative. There are certainly legal takes from both the pro- and anti-rent control campaign, that are aimed mostly at the election. The City Attorney, on the other hand, should offer a relatively neutral perspective. If anything, you would think they would be trying hard to ensure that Mayor Carter's plans for a community process and quick amendment would be legally supported. (Spoiler: they do not make that case.) 

At any rate, for those who don't want to watch the video, here's a transcript:

Council President Amy Brendmoen: There’s some confusion about whether or not the City Council has the ability to change a referendum that has come to us in this manner in the chance that it is passed.

City Attorney Tierney: Thank you CP Brendmoen, I have a colleague with me here, he’s going to dig into the differences between Minneapolis and Saint Paul. I think that will be helpful. 

Attorney Steven Ernest:  My name is Steven Ernest speaking on behalf of the City Attorney's Office. There are two points before answering the question about how the rent stabilization how we got to this place. The first clarifying point is that there is a difference between an initiative and a referendum. The power of initiative is the power to have voters petition to have an ordinance placed on ballot; A referendum is kind of the opposite, voters are acting to repeal and act of Council, after the City has already acted. The ordinance in this case has been brought through the power of initiative. 

I make that distinction because the Minneapolis charter does not give initiative to their voters, but Saint Paul does. 

The second point is about Municipal leg. Power. It’s important to review it to set up why the rent stabilization came from the voters as opposed to City Council  In Minnesota there are have as our document that grants and defines power of our city government, the charter it’s like the constitution. Statutory cities are different, their uniform statuary code that’s in the Minnesota statutes. In contrast, charters can be different, which is why the charter in Saint Paul is different from the charter in Minneapolis  In general home rule charter cities with reference to local matters have all of the power the state legislature possesses w/r/t statewide matters, except when the legislature has expressly said “no," you cities cannot legislate in this area. So the default rule is home rule charter city have very broad power except when they’ve been preempted by the state in this case the city of Saint Paul very likely has the power to adopt a rent stabilization ordinance pursuant to its police powers but you can’t because the state has said in [the rent control law] that no city can adopt a rent stabilization or rent control ordinance that relegates private rents. Prior to the enactment of that law the city could have done rent stabilization but now it can’t. 

There are two exceptions to that rule, the City Council can propose an ordinance or charter amendment that gives the city council the power to authority to adopt a rent stabilization ordinance, but it’s not the ordinance itself, it gives the City Council the power to adopt the ordinance at a later date but that amendment or ordinance has to first be approved by the voters and once they approve it then the City Council can adopt the rent stabilization ordinance if they choose to. The 2nd exception is that voters themselves can petition to have the ordinance placed on the ballot, as long as the city charter gives them that power. Once its on the ballot as long as its approved, it becomes law there’s only 1 step required to meet that 2nd exception, but in the 1st exception its a 2 step process. 

In Saint Paul because we have that initiative power, once it's approved its lawfully enacted not withstanding the general prohibition. In the case of Minneapolis because their charter does not provide for the power of initiative the charter amendment gives the City Council that power. Thy’ve just pursued the 1st exception. 

Council President Amy Brendmoen: it’s definitely complex. I can understand the complexities there. It sounds like Saint Paul could have done the other route and Minneapolis had a way to do the version in Saint Paul but opted not to do that. Are there any other specific questions.

Council Member Jane Prince: Can we ask the question about whether or we are able to amend the ordinance? Is that coming up?

Council President Brendmoen: I hope so that’s one fo the questions that we ask the City Attorney's Office and that has been circulating and confusing people that would be good to understand what are the limits given this I we have in front of us. 

City Attorney Tierney: In Section 804 of our charter it says the ordinance cannot be repealed within 1 year of its approval by the voters. The ordinance can’t be repealed. The question is one that does not have a clear answer in law. We can’t repeal it, but that does not speak to whether we can amend it. 

I can tell you there is a very skinny case law about what we’re able to do, so I can only speak generally. And say that we likely have the ability to amend the ordinance or supplement the ordinance but the more substantive changes we make the more likely we are to have a risk of litigation and the more likely a court is to overturn that action. Our plan in the City Attorney's Office we will review any proposed changes and look at them for whether or not they are substantive, with the goal of looking in the lens of whether or not we have altered the will of the voters. That’s kind of the lens we will look through. 

Council President Brendmoen: [discusses substantive v. Nonspbustantive / typographical changes]

Council Member Rebecca Noecker: Understanding your point, there isn’t much case law here, I do think its important to be clear about this I’ve heard questions from residents. I’ve read the mayor talk about making changes quickly about what really can be changed, leaving aside switching As to Bs or Ands to Ifs any substantive change, because this is coming to us fully formed, any change could be seen as altering the will of the voters. The voters are voting on exact language. I just trying to figure how how your office would evaluate any changes that are more than ands to ifs to know if it was altering the will of the voters. And if you have any specific case law that shows cities being successful or not on litigation in this. 

City Attorney Tierney: Boy, do I wish there was specific case law I could point to that would give us some guidance. It simply isn’t out there. What I can say is that obviously in order to give this ordinance meaning we’re going to do a significant amount of work creating an infrastructure for the ordinance. You asked your question you used the word change. I don’t think if we were to characterize something as a change it would have an increased risk of litigation. We’ll take a look at everything, at what other states and cities have done. We will look at what other rent stabilization ordinances do ones that are similar to ours and what they look like. We’ll have to engage in some kind of comparative process and a risk analysis. I wish I had better clearer answers. We’re in a unique circumstance here. It’ll be a matter of rolling up our sleeves and reading some tea leaves to some extent. 

Council Member Chris Tolbert: Talk about the rule making process, what the city will be necessitated to do if this passes the voters rule making and implementation.

City Attorney Tierney: I’m not the best person to answer these questions Office of Financial Empowerment have been looking at what this ordinance might look like. We’ll need to create a board. You use the term rule making. We don’t have a clear process. The City Attorney's Office we have some recommendations for how departments should do rule making. Rules are under subservient to the ordinance itself. The rules can provide breadth but can’t be in conflict with the ordinance at all. With reference to what the process will look like I can’t say. That’s a much better question for [someone?]. More information about what other jurisdictions have done. He and the office of finance are working on how many staff would need to be hired and those kind of issues.

Council President Brendmoen: one other question about effective dates what is effective dates and how that relates to the 1 year piece.

City Attorney Tierney: I’m feel like I’m coming here with a lot of non answers. Under our charter an ordinance takes effect immediately after its adopted. The effective date on this ordinance is May 1, 2022. I think it is likely that a court would find this ordinance takes place immediately as a practical matter we won’t have the infrastructure in place to meaningfully enforce the ordnance but there is a private right of action in the ordinance and a court may interpret that that private right of action takes effect immediately. We don’t have any case law to guide us in this area we only have what our charter says.

The "effect date" is certainly a surprise. I'm not sure much has changed since I put up my "outcome odds" the other day. I'd say the most likely outcome - litigation clusterf**k - seems about right.

Sidewalk Poetry #67: A Hill

 In Italy, where this sort of thing can occur,

I had a vision once – though you understand

It was nothing at all like Dante's, or the visions of saints,

And perhaps not a vision at all.  I was with some friends,

Picking my way through a warm, sunlit piazza

In the early morning.  A clear fretwork of shadows

From huge umbrellas littered the pavement and made

A sort of lucent shallows in which was moored

A small navy of carts.  Books, coins, old maps,

Cheap landscapes and ugly religious prints

Were all on sale.  The colors and noise

Like the flying hands were gestures of exultation,

So that even the bargaining

Rose to the ear like a voluble godliness.

And then, when it happened, the noises suddenly stopped,

And it got darker; pushcarts and people dissolved

And even the great Farnese Palace itself

Was gone, for all its marble; in its place

Was a hill, mole-colored and bare.  It was very cold,

Close to freezing, with a promise of snow.

The trees were like old ironwork gathered for scrap

Outside a factory wall.  There was no wind,

And the only sound for a while was the little click

Of ice as it broke in the mud under my feet.

I saw a piece of ribbon snagged on a hedge,

But no other sign of life.  And then I heard

What seemed the crack of a rifle.  A hunter, I guessed;

At least I was not alone.  But just after that

Came the soft and papery crash

Of a great branch somewhere unseen falling to earth.

And that was all, except for the cold and silence

That promised to last forever, like the hill.

Then prices came through, and fingers, and I was restored

To the sunlight and my friends.  But for more than a week

I was scared by the plain bitterness of what I had seen.

All this happened about ten years ago,

And it hasn't troubled me since, but at last, today,

I remembered that hill; it lies just to the left

Of the road north of Poughkeepsie; and as a boy

I stood before it for hours in wintertime.

[Anthony Hecht, c. 1964.]

My "St. Paul: an Urban Biography" Book Talk is Now Online

Last night  I did a quick version of my St. Paul history blab, the first half anyway, for the Ramsey County Historical Society speaker series. It was co-hosted by the Roseville and East Side Freedom Libraries, and there was good attendance! Something like 80 people tuned in to hear me go through the rushed version of Saint Paul history from 1837 to 1917. This was a quick tour of some highlights of Saint Paul history, including the "Pig's Eye" origins, the founding of the railroad empire, annexation and growth, booms and busts, insecurity and the Winter Carnival, labor strife, and the difference between Saint Paul and Minneapolis.

I am going to do a "Part 2" of this talk on January 20th, that will be focused on race, immigration, and the role of city plans in creating today's urban inequality in Saint Paul.  Update: here's the link to that!

If you want to buy an autographed copy of the book, here's the link! You can also go to your local bookstore, especially if it's in Saint Paul.

[Youtube link.]

What Should We Do about Saint Paul's Housing Crisis?

[Homes for sale in my neighborhood, a part of town seeing 10+% annual increases.]

Discussing Saint Paul’s rent control proposal over the last few weeks, I've heard one reaction a few times:

"I understand what you’re saying. You’ve got a point, but we have to do something!”

Or, another long-time pro-housing, pro-rent control friend told me: 

“It’s not perfect but sometimes you have to throw spaghetti against the wall to see if it sticks.”

Given the urgency of the moment, both around housing, COVID / evictions, homelessness, and demands for racial equity, I completely understand the desire to do something about the housing crisis. 

To me, the irony with the rent control proposal on the Saint Paul ballot is that it is literally doing nothing. A 3% rent control cap that applies to new housing is trying very hard to prevent change from happening, to preserve the status quo in amber. Instead, when I think about the need to "do something", it makes me think of another famous mantra: the fundamental Hippocratic principle, “first, do no harm.” 

This is where I get frustrated with the HENS rent control proposal. The details of the proposal mean that, quite needlessly in my opinion, the policy will make the overall housing crisis worse.

Here’s the basic housing crisis in one graph:

A = we have a huge backlog of 50,000+ homes that were never built because of the ’07 crash

B = affordable housing funding is a fraction of what we need

If you solve both these problems, you can largely fix the housing crisis.

Notably, rent control does not get us closer to either of these goals. The policy doesn't build more housing, nor does it provide money for housing subsidies. If done well, it can slow the loss of natural occurring affordable housing (NOAH) while we fix these more fundamental problems. But if done poorly, rent control can make both problems A and B even worse.

That’s why the details matter and I continue to be a critical pedant when it comes to differentiating between good and bad forms of rent control. 

[A Saint Paul apartment building.]

What Should We Do?

The other question people keep asking me: "Bill, if you're so smart, what’s your plan?"

Here are a few ideas:

- actual rent stabilization

I think a pro-housing rent stabilization policy would slow the loss of NOAH and prevent displacement. And I think the details of a rent stabilization policy must be crafted to ensure we grow the housing supply and tax base. That's why the three details I wrote about six weeks ago remain the largest problems with the proposal on the ballot. If I were setting up this policy, I would get rid of all of them.

First, the new construction exemption is a no-brainer. I didn’t concoct the theory that rent control that applies to new construction will reduce the housing supply. It's the dominant, consensus opinion reflected in housing policy literature. I’ve done a lot of research, and talked to dozens of housing experts, on and off the record. If you're still unconvinced by all of that, I don’t know why you’re reading this post in the first place. 

The new construction provision is a glaring unforced error by the makers of this policy, causing all kinds of housing problems with little-to-no benefit. We need to get rid of it.

The policy's second problem is the inflation provision. I also don’t see any rational reason for an inflexible cap. I’m can only imagine that, when the folks drafting this ordinance were coming up with the 3% number, they did not envision COVID-19 happening, triggering large rent fluctuations and leading inflation to spike past 5%. 

But that’s the point! You need a policy that adapts to changing and unpredictable circumstances. If you tie the rent cap to the consumer price index (CPI), you mitigate much of that risk, which is why every other rent control and rent stabilization policy on the continent uses CPI (or something like it). Saint Paul should do the same. 

I would say (depending on the next detail) that you should cap rent increases at the CPI or CPI+3% or something in that range, and it would work OK. It would still piss off the landlords, but it would have many fewer negative consequences than the current inflexible proposal.

Third, the vacancy control question is complicated, involving pros and cons and tradeoffs no matter what you do. It’s certainly a provision worthy of deep discussion. 

A lot depends on whether or not you are optimistic you can keep apartments affordable using tools other than rent control. In other words, if you believe that “housing supply” is a lost cause, then rent control becomes your only means of providing affordability, and strict vacancy control makes sense. If you think, as I do, that building lots more housing (see below) will help keep housing affordable, then vacancy control becomes less important and its downsides - disinvestment and discrimination - are magnified. 

The way I see it, if you get rid of the vacancy decontrol, you can make the rent stabilization provision stricter, e.g. a CPI rent cap. If you keep hard vacancy control, you have to loosen the rent cap to be something like CPI + 3% or higher. Honestly, I'm still not sure about this very important policy detail, which is why I would like to have an honest conversation about it.

Finally, the other details like "cost pass-throughs" are also important. I think one glaring omission is something that accounts for tax increases. This is the kind of specific detail that makes for bad politics: if you don’t allow people to increase rents to match taxes, at least in some fashion, you’re creating a huge talking point for reactionaries. Plus, a tax levy exception sort of makes sense! At the very least it would prevent thousands of variance requests in a year like 2021, where the property tax levy is going up 11%.

Anyway, that would be where I'd start the conversation around reforming this policy. If it passes, I hope Mayor Carter and the City Council go this direction. Given what the Mayor has already said, I imagine that's likely [see below].

[New apartments under construction at Raymond and University.]

- building lots of housing

Almost every housing expert believes we need to build lots of new housing across all levels of income in the Twin Cities. That's especially true in Saint Paul, which has lagged behind Minneapolis for twenty years while seeing a lot of transit investment in the meantime.

I believe Saint Paul needs to build at least 2,000 new homes every year, and like it or not, the vast majority of them are going to be market-rate. I’d love to see a goal larger than that number, between 3,000 and 4,000 new homes per year (i.e. Minneapolis levels). If we built housing at that pace, Saint Paul would make a dent in all kinds of problems, everything from rental housing costs to the owner-occupied real estate market to climate action to pollution to tax base growth to crime prevention. It’s really important.    

- inclusionary zoning that works

When I was on the Planning Commission, I repeatedly asked staff to study inclusionary zoning and get a policy in place. Inclusionary zoning has downsides and is not a silver bullet - nothing is! - but it's a policy that, unlike rent control, produces new affordable housing for people at the levels we need. 

Unless I am wrong about how housing financing works, having an inflexible rent control policy on the books kills any chance of having a working inclusionary zoning ordinance. On the other hand, if you have an exception for new construction in a rent stabilization proposal, you can implement inclusionary zoning.  Doing so will have the extra benefit of setting reasonable affordability expectations during the public engagement process around new housing construction, a problem I have encountered repeatedly.

- tenant protections

Minneapolis has been a national leader on housing policy, and that includes passing tenant protections that have survived court challenges. Just last month, they even adopted (in committee) a new process that will provide court representation for tenants facing evictions.

Meanwhile, the Saint Paul tenant protections (pushed by the same group backing this year's rent control policy) were thrown out in court, leaving Saint Paul tenants with no new rights that help them prevent evictions, screening, and other major problems.

It would be good to follow Minneapolis’ lead, revisit tenant protections and other policies that could help keep the city’s renters secure in their homes.

- affordable housing trust funds

Ramsey County puts $11M in an annual affordable housing trust fund, and spends most of it. Minneapolis budgets around $15M per year. Saint Paul, on the other hand, has been setting aside: 

• 2019: $6 million
• 2020: $5 million
• 2021: $5 million
• 2022: $2 million

Not great! It's one reason why we need to make sure we continue to grow our city's tax base. 

Which brings me to...

- sell off stuff for privileged people to fund affordable housing

One of the best ideas to come out of Mayor Carter’s office in the last few years was when, in 2018, they floated the idea of selling a 1,170-space downtown parking ramp in order to put $10M into the city’s aforementioned affordable housing trust fund. 

This was great. The city should not be in the business of owning and operating downtown parking ramps, which run counter to Saint Paul's climate action goals. Subsidizing downtown parking overwhelmingly benefits wealthy folks coming from all over the region; instead this money would have helped provide just the kind of 30% AMI housing that we so desperately need. 

So this seemed ideal, not only for affordable housing but also in general for the city budget. Check out this quote from the Pioneer Press story:

Ramsey County property records show an estimated market value of roughly $14 million, though it could sell for more or less than that depending upon the findings of independent appraisers. The ramp pays street maintenance assessments to the city, but no property taxes. In the hands of a private owner, it’s likely that would change, and the ramp could return to the tax rolls.

So what happened? Well, the Children’s Museum cried foul and city leaders balked, citing the need to keep control over the downtown parking revenue.

Since then, especially post-COVID, parking revenue and demand downtown has fallen to less than 10% of its previous 2018 levels, with no end in sight. The city missed a golden opportunity to fund affordable housing, take climate action, and help the tax base, and balked because we lacked the courage to make a tough decision in the name of equity and social justice.

I would like to see Saint Paul sell off marginal assets for affordable housing funding, especially downtown parking ramps. We should also develop at least two the four city-owned golf courses - the most elitist and polluting park land in the city - to fund and build affordable housing. Why does the city own golf courses?

- expand existing landlord programs

The city actually has existing programs aimed at keeping housing affordable with rent caps and tax abatement. Make these more effective and widespread.

-  regional or other solutions

The housing crisis is inherently a regional problem, though because of its historic walkable fabric, great transit, and flexible zoning, Saint Paul can play a huge role. Ideally, I would love to see a metro-wide (Met Council?) tax levy set up for affordable housing funding at a regional scale, or a statewide fund. 

[The same homes for sale, from the other angle; IMO rent control will drive Frogtown home prices through the roof.]

In Conclusion: There are Different Perspectives 

The reason I’ve spent so much time writing about this rent control proposal is because it didn't take more than a few minutes of digging into its details until all kinds of red flags began popping up. Since then, I've extensively researched the topic, tried to report what I’ve found, and have shared my own relatively neutral perspective.

How you vote on this upcoming ballot measures involves weighing a lot of different factors. 

Q: How many people would be helped by the rent cap and how urgent do you think this is? 

(I tried to answer this but really we have no good information other than anecdotes and national news headlines; the average Saint Paul apartment is around $1000 a month, and so the difference between a 3% and 5% rent increases is $20 a month; the difference between 3% and 10% increase, on the other hand is $70 a month, which over a year adds up to a good chunk of change for a family that might need it. You can see the average increases for different neighborhoods in my study and figure out a rough idea of what the short-term benefits would be)

Q: How important do you you think it is to keep building market-rate housing in Saint Paul?

(IMO it's very important, for affordability and other city goals.)

Q: How much do you trust Mayor Carter and the City Attorneys Office to be able to change the ordinance? 

(This part is super unclear.)

For a lot of people, this not an issue of housing policy at all, but one of allyship, race or class solidarity, or something else. Lots of people are simply not interested in making distinctions about different kinds of rent stabilization, and are tossing both cities' proposals into the same boat.

For me, it's a housing issue. I keep coming back to the actual policy on the ballot. It's is not a good housing policy, and I have to vote against it.

If it passes, which I think is likely thanks to Mayor Carter’s support, Saint Paul will be facing intractable legal and/or policy problems. Thanks to the state law, I don't think this policy is easy to change, and I predict it will have a fate similar to the SAFE tenant protections. 

Here are my odds of what happens if the HENS proposal is approved by voters:

• 10% it is repealed within 2 years
• 15% it stays on the books as-is for at least 2 years
• 20% it is successfully amended by City Council / Mayor's Office
• 55% the City tries to amend the ordinance, but the policy is struck down in court; I don't know what happens after that

One perverse thing about most of these outcomes is that rents will be worse than if we had done nothing; I bet most Saint Paul landlords will increase rents significantly before the policy takes hold next May. In the meantime, as I wrote a month ago, it’s unfortunate that this proposal is on the ballot, giving Saint Paul voters a bad set of choices. I don't see this whole thing ending well.

[See also my short column in Minnpost about the Saint Paul ordinance and my long-read with all the research about how this rent control proposal affects housing in Saint Paul, an explainer of why a 3% rent cap blocks new housing construction, short posts on how the policy would affect rents and taxes, interviews with housing policy experts on new construction and rent control, and guesses about Mayor Carter's plan.]

Mayor Carter's Complete Mayoral Debate Statement on Rent Control

[Ffwd to about 38:00 for Carter's rent stabilization comments.]

I didn't transcribe this during my exegesis of Mayor Carter's rent control tweets, but for those that don't want to fish through the Youtube debate (which is understandable, as Bill Hosko was on the stage). So here you go:

I have almost two decades of a policy policy, decision-making experience and one of the things that every policy I’ve ever written has in common is that the first draft needed revisions. And I think that is one of the limitations of policy making through referendum, is that we sort of lock in a first draft. This proposal in front of us is absolutely a start, and there are some very clear challenges with regards to the equity of our housing market that must be addressed with urgency. We must address those things. 

I am going to be voting 'yes' on the rent stabilization proposal, not because it's perfect, but because it's a start. And our housing and our equity goals simply cannot wait another day. They are just too urgent. 

I do believe there are concerns with reference to the impact on potential new housing starts, in a time when population is growing so fast, because our city is that vibrant place that Mr. Frost was talking about, that people want to live in, that recognize that high quality in life that we have here. It’s a must for us to be able to build the new housing that we need to accommodate our rapidly growing population. And I think it’s necessary for all of us, whether this proposal passes or fails on the ballot, it’s going to be necessary for all of us to look at this as a start, and not and end, to the conversation, and all come together in a conversation about how do we want this policy, in the long term for our city, in a way that builds us toward our goals that we have. 

I don't see anything in there that contradicts what I took away from the earlier Mayoral tweets...

Notable Quotes #26: Gordon Parks describes Life on the Streets of Rondo, c. 1927

It was all behind me now. By the next day, there would be what my mother had called "another kind of world, one with more hope and promising things." She had said," Make a man of yourself up there. Put something into it, and you'll get something out of it." It was her dream for me. When I stepped onto the chilly streets of St. Paul, Minnesota, two days later, I was determined to fulfill that dream...

[My sisters house,] It was a nice house — two-storied, handsomely middle-class, with large comfortable rooms. And that night, lying in bed, I marveled at the hundreds of deer leaping the bushes on the wallpaper around me, and my thoughts were charged with vague imaginings of the future. Yet I felt that whatever security lay ahead would be of my own making. There was no feeling of permanence in the softness of the ornate bed. I sensed that this was to be an uneasy stopover, and that it owed be necessary to move on before long...

I awoke early the next day dressed and went out of the doors, eager for a look at the new surroundings. The morning was already brisk and alive, with sunshine full upon the big porch. The tree-lined avenue seemed clean and beautiful. The leaves, yielding to the first frosts, had taken on the golds and oranges of autumn. Stretching full length upon the steps, I was suddenly thankful to be in this bright new land.

People were now on the street, moving with the quickness that autumn mornings enforce. I thought that I too would have to move much faster here; otherwise I would be left behind. Maggie Lee had made pancakes and sugar for breakfast. We ate quietly, this three of us; then my brother-in-law, a Pullman porter, went away for a week — the only week that I was to know happens in this house.

I enrolled in Mechanic Arts High School, and got an evening job bussing dishes in a diner, where I was paid six dollars a week and given one meal a day. My brother-in-law took two of this for my rent and meals, yet the four dollars left seemed adequate. It was more than I had ever had at one time in my entire life. The new friends I made kidded me about my country mannerisms and dress, my shyness with the girls and my “Kansas talk.” But when basketball season came, my status grew. 

Real winter came one Friday just before Christmas. A hungry north wind knifed down like a hawk. By seven o’clock that night, the temperature had dipped to ten degrees below zero.

….

After the pool hall closed, I rode trolley cars back and forth to the ends of the line between St. Paul and Minneapolis, sleeping most of the time, using my suitcase for a pillow, waking now and then to the sound of snow and sleet pelting against the trolley windows. I was aware of people getting on and off at different stops, noting that they had someplace to go, knowing that I was only riding out the night. Once when I awoke, the car was empty and dark, the doors were open and wind and snow swept in from both ends. I sat up, rubbed frost from the window and looked out. Except for the falling snow, there was nothing — no trees, lights or landscape. The car seemed suspended the stormy blackness. Again I rubbed briskly at the window, and then there came a sputtering of bluish-white light. The trolley operator was swinging the contact pole to the power line from where it had slipped. The lights came on, and a railing came into view. We were on a bridge, high above the Mississippi River.

I rode the trolley between the Twin Cities for several weeks. The rent was reasonable, and there was always some heat. My food for those days and nights was the single meal I got at the diner, eked out by hot dogs and root beer.

[From Gordon Parks' amazing autobiography, A Choice of Weapons. Parks moved from Kansas to St. Paul at the age of 15.]

[Rondo Avenue streetcar, c. 1947.]

Mayor Carter Charts a Third Way on Rent Control in Saint Paul

[Mayor Carter at last night's Mayoral debate.]

From the beginning, my biggest frustration with the HENS rent control proposal is that it put Saint Paul voters between a rock and a hard place. On the one hand, as I first stated, the details of the proposed ordinance make for terrible housing policy for all the reasons I’ve been explaining. On the other hand, limiting rent increases would help lots of people and it just feels wrong to vote against it.

Balanced those two things had become a really difficult choice for lots people around Saint Paul, including many of the Council Members who were forced to answer “yes” or “no” to supporting the HENS rent control referendum as-written. But yesterday, the Mayor tweeted a statement that, for me, changes the situation.

His very short tweet was basically a “yes, and…” It’s a stance that helps me breathe a sigh of relief in what had become a very frustrating situation with few good outcomes. While I still think there are some unknown legal hurdles, how this debate is playing out illustrates the difference in process around how Minneapolis and Saint Paul handle difficult policy problems. 

Parsing Semantics

To re-cap what elected officials have said: Council Members Jalali and Yang have said that they support the rent control ordinance, with Jalali in particular cautioning that “we can have some revision after a period of time.” Meanwhile, Council Members Brendomen, Prince, Thao, and Tolbert all said they do not support the rent control ordinance, citing to varying degrees problems around new housing and unintended outcomes. Meanwhile Mayor Carter had remained cryptic, indirectly saying he was “studying it” through a spokesperson.

Well, that changed yesterday.

It sucks to parse a Mayoral tweet as if he’s a Federal Reserve Chairman, but in a way, he kind of is and that’s what we have here. The key part of Mayor Carter’s Tweet IMO is the following clause: “we can and must make it better, quickly”.

Those eight words say a lot! Here’s how I read them:

• “we can [change it]…” = I am working with the City Attorney and think there is a path to amend this policy without too much trouble.
• “… and must make it better” = there are specific details in this policy that I don’t agree with and don’t support. I am committing to changing them.
• "quickly” = I’m not going to wait around and leave it on the books for a year or two to see if it “works”; instead, we’re going to change this policy as soon as we legally can.

The last word “quickly” is doing a lot of work. You don’t stick a dangling adverb into your carefully-worded Tweet unless you mean it. I think Mayor has a plan to act as soon as legally possible to change this policy. (My wild guess would be that he tries to amend the ordinance before it would be enacted in June; but for purely legal reasons, it might also mean next November.)

This is likely all we have to go by. Unless I’m wrong, I doubt the Mayor will clarify unknown details before the election. During last night's League of Women Voters debate, he kept calling the policy proposal a "first draft" and "a start", and specifically mentioned new construction as a provision that bothers him, but did not say anything more specific. For Mayor Carter, there’s little to be gained by elaborating before November.

Trust, Legal Hurdles, and Process 

It’s a relief to hear that there’s a plan for changing this ordinance, and that proposed policy won’t be on the books for very long (if at all). I think that the Mayor, who will be easily and justifiably re-elected, has a lot of leverage, even more so after he’s said he will be voting “yes.” With the majority of the City Council on the record opposing the rent control ballot measure as-written, there should be few hurdles to changing the problematic details as much and as soon as they legally can. 

(More on that in a second.) 

I also trust Mayor Carter on housing issues. From the beginning of his campaign four years ago, he has been a strong supporter of pro-housing approach on the Ford Site. His recent, controversial veto of the Lexington Parkway development denial shows that his office has a good grasp over on-the-ground housing debates in Saint Paul. In short, if he says to trust him, and that his changes to the policy will work out, I’m inclined to believe him.

One frustration I’ve had about the rent stabilization/rent control debates in the two cities resolved around process. Over in Minneapolis, they’ve been studying rent stabilization for years. If Ballot Question 3 passes there, they’ll have an in-depth public hearing process process where city officials, staff, and members of the public debate and weigh in on all kinds of critical questions.

Meanwhile, in Saint Paul, we have nothing but anecdotes. There’s not even rudimentary information available on what the problem is and how different kinds of policies might work.

For example, here are things we don’t know:

• How fast are rents going up, in the short- and long-term?
• How many apartments would be affected by a 3% cap?
• Where are prices rising faster or slower?
• How many “corporate landlords” are there in the city?
• How many small-scale or BIPOC landlords are there in the city (e.g. someone who owns a duplex and “rents" it to a relative)?
• How many variance requests would the policy generate each year, depending on inflation, taxes, etc.?

Of course, I can think of lots more questions, but that's some very basic stuff!

Should the referendum pass in Saint Paul, I imagine that the Mayor will task City Staff to figure these questions out and tailor policy changes based on what they find. That’s important, because having the city’s housing policy experts use actual data on rents, and research about the pros and cons of  critical details, is a necessary and missing step. 

[This is the big legal hurdle that's still out there.]

But the other wrench I have to cautiously throw into the wind: the lawyers might win in the end. 

The ALEC-written, rent control-preemption state law is still there on the books at the State Capitol. It’s never been tested in court AFAIK. I’ve read all the relevant statues — the state law, the city charter, and the HENS ordinance — and to my eye, it is not clear if and when the City can change the ballot-approved policy. A lot depends on the legal differences between “repeal” and “amend,” or between “enact” and “renew.” Nobody knows what a judge will decide about that, especially if it’s this guy again.

For example, Minneapolis City Attorney’s office has cautioned their City Council that the legal issues around rent stabilization ordinance are vague. That’s why they have “strongly suggested” that the voters decide on, not one, but two ballot measures: the first to grant “permission” to have a policy (which is weird), and the second so that voters have a chance to approve the specific details of that policy. What this tells me is that the Saint Paul “process” here will be litigated, and likely by the same group of MHA-backed attorneys that defeated the City soundly on the tenant protection ordinance.

I don’t think anyone should be sanguine about the legal situation, and there’s still a very good chance that this whole thing is thrown out in court and renters facing steep rent hikes are left with nothing. I guess we’ll find out. 

But if it works out, much like the contrast around policing and reform, Minneapolis will be going through a drawn-out and contentious public process while Saint Paul will be hopefully crafting a good (maybe even better?) policy, without much fuss, in a back-room kind of way.

TL;DR - TBD

Mayor Carter changed the conversation last night. If you read behind the lines in his tweet, he pledged to quickly change the proposed policy, and seems confident that he can find a way through the legal hurdles. We don’t know what the details will be, but I trust Mayor Carter on housing.

In short, the Mayor’s “yes, and…” tweet comes as a relief. Unlike before, where Saint Paul voters were forced to choose between two bad situations, I look at this ordinance now as the functional equivalent of the one in Minneapolis, which I’ve supported from the beginning: we don’t know what the details will be, and I believe City Staff and elected officials can sort it out. If done right, and I’ll post in a few days what I think that means, Saint Paul can lead the way on addressing the housing crisis, climate change, and a whole bunch of other critical municipal pickles.

[See also my short column in Minnpost about the Saint Paul ordinance and my long-read with all the research about how this rent control proposal affects housing in Saint Paul, an explainer of why a 3% rent cap blocks new housing construction, short posts on how the policy would affect rents and taxes, interviews with housing policy experts on new construction and rent control, guesses about Mayor Carter's plan, and what I recommend we do about the housing crisis instead of the rent control proposal.]

Four National Housing Experts on Rent Control and New Housing Construction

[A debate about rent control and new housing.]

Seeing as there's some confusion about whether or not a strict rent control policy that applies to new housing will affect the construction of new housing, I took the liberty of reaching out to people who study this stuff for a living. I think that, when it comes to deciding whether or not the proposed Saint Paul rent control policy will help or hurt people in the city, this is the critical piece of the puzzle.

So I wrote a bunch of national researchers and institutes on housing policy to ask them the following question:

Why have rent control policies not applied to new housing in the US? Are there historical or theoretical reasons for this? 

Four people got back to me, and here's what they said:

#1. Jenny Scheutz, Brookings Institution. 

Rent control/stabilization programs almost always exempt newly built housing, because capping rents on new apartments would be a huge disincentive for new construction to occur (e.g. would hurt overall housing supply). Applying caps to rent increases on older buildings (usually 20+ years) is less of a disincentive, because the property owner is presumed to have paid down the mortgage and recouped returns from the initial construction/acquisition costs. The only way you can encourage new construction and simultaneously cap rents is to provide public subsidy (either to developer, property owner, or households).

 

One exception is inclusionary zoning programs, which you can think of as partial rent control on new construction, but the owner is expected to cross-subsidize the below-market units with higher rents on the market-rate units.

#2. Mark Treskon, The Urban Institute 

Q: So why doesn't rent control apply to new housing? Is it theoretical or economic or political, or what?

There are theoretical reasons, but there are also just small ‘p’ political reasons too, in that it doesn’t apply to new housing in particular because, if you’re looking at local politics, and people interested in local policies and zoning and new construction, developers are a big part of it. Anything that would potentially affect the ability of developers to charge costs appropriate for the market are very heavily pushed back against.

That’s one side of those things. [Then] there is an idea that if [rent control] applied to new housing, it would limit new housing construction. That’s traditionally been a big worry, even outside of the the "developer special interest", that by applying rent control to new construction, you’re going to limit developers, limit them engaging in new construction. Or [developers] will look only at the condo market. 

So there are two sides of that coin, why it hasn’t applied to [new construction].

#3. Brian Asquith, the Upjohn Institute

Q: Why doesn't rent control apply to new housing? Are there theoretical reasons for this, or historical reasons, or both? 

It’s a mix of politics and economics. Basically the high economics reason is that you don’t want to discourage new development. So in the bad old history of rent control  New York City famously had it, and a bunch of European cities had hard rent control after WWII. It was universally agreed that it mostly didn’t work. It was too inflexible and it discouraged developers from building new housing. This was during the baby boom, so they needed a lot of new housing.

In the 70s, when rent stabilization came to in play, they consciously tried to avoid the mistakes of RC by saying, before this point the building will be controlled, and after this point they won’t be controlled. It is supposed to send a signal to developers that they can build without worrying about their buildings being brought into the control system.

Q: Are there any examples of applying rent control to new housing? 

So both Oregon and California recently passed rent stabilization statewide laws. Probably double check this…. My recollection is that Oregon law has a rolling inclusion date; for the stabilization system, they exempt buildings 15 years or younger. Once they hit year 15, rent stabilization applies. 

Basically my judgement as an economist, based on my work and other people’s, is that the concern that policy makers have, that they will be disrupting new development, is a valid one. [For] the price of a building, one way to generate a market price of the building is to calculate the present value based on the rent flow in perpetuity. If you’re effectively stating from the get go that the rent flow of cash will be discounted or capped in some way, it will lower the price, and by lowering the price, it will make more developers say that it’s not worth it. I don’t think new supply will go to zero. Minneapolis and Saint Paul are a growing metro area, but on the margin it will probably discourage new development.

It depends on the details of the policy. The new California law is pretty loose. The rental increase cap is like 8%. Most people in most cases are not seeing 8% annual increases in rents even in California  So, if the folks in Saint Paul or Minneapolis had a relatively high cap, like 8 or 10%, it would probably cut down on most egregious increases without getting in the way of most landlords' normal course of business. But the devil is really in the details…

I would say that while correlation isn’t causation, it is interesting that New York City, DC, San Francisco, and Los Angeles have all had rent control for 50 years but are hardly synonymous with affordable housing. One might start to wonder whether rent control is helping or hurting. Generally if you institute a policy for 40 years that’s supposed to make renters affordable, and it doesn’t… well… 

But these systems aren’t going anywhere. They are very popular.

Well, should I say something positive about the policy?

A: Sure. Feel free!

If you are a tenant who is lucky enough to be living in one of these units when it switches to rent control, then there are benefits for people. They do save money relative to what they would have had to pay. That can have some benefits, though some don’t entirely believe it… 

Economists are very down on rent control. It’s not all downside, but it's definitely a policy that has a bad reputation among people who study it, like myself, for some very well-founded reasons. 

#4. A Professor at a Well-known University-affiliated Housing Policy Institute

The fourth person agreed to talk to me on background, because they didn't want to comment directly on a pending ballot question. In a way, it was the most interesting conversation because this person has experience in the finance industry. They agreed that, to answer my question, they would wear their "banker hat".

I asked them why rent control policies didn't apply to new construction. 

This person explained that, from the financing point of view, lenders provide some buildings with 30-year mortgages, but that for commercial buildings it’s often likely to be 10 years or less. After that, they'll keep refinancing the property. Especially if they're going to provide longer term financing, they need to have some comfort that the economics of the building will be sufficient to pay back the loan. 

They explained that one key thing banks look for in underwriting loans is sufficient cash flow, using a ratio called the "debt service coverage." The lender wants to make sure they're not lending to a building that can’t "throw off" enough revenue, based on assumptions about rents, the costs of running the building, taxes, etc. They look at the net operating income and make sure that it's at least some multiple of the debt service. 

The example they used, which were made-up numbers: if a building has $100 a month in debt service, it needs to generate at least $130 a month in income to meet a 1.3 ratio of the debt service coverage. 

This person said that in a world where expenses are going up all the time because of inflation, if they don’t know that the rents are going to go up to cover that, they're not going to lend against the building. It’s that simple. 

They said that lenders want loans, and that the pandemic offers another example of a possible problem. If there’s not enough money to pay the debt service, the last thing the bank wants to do is take the building as collateral. Banks hate it when they have to take the building because the property owner goes bankrupt.

The person told me that "banks don’t take risks, banks manage risks." They take your money, and if you want it back as deposited, they’re lending it out in a way that they think they'll have a good chance in getting it back. 

In sum: if they don't know that they'll be able to raise rents when the costs go up, they’re not likely to lend to that building.

Well, that's what I heard from people who study this stuff. Housing policy people are pretty consistent about the connection between this strict rental regulation and new housing construction.

[See also my short column in Minnpost about the Saint Paul ordinance and my long-read with all the research about how this rent control proposal affects housing in Saint Paul, an explainer of why a 3% rent cap blocks new housing construction, short posts on how the policy would affect rents and taxes, interviews with housing policy experts on new construction and rent control, guesses about Mayor Carter's plan, and what I recommend we do about the housing crisis instead of the rent control proposal.]