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.]