What Critics Get Wrong about a New Housing Exemption from Rent Control

[A long-vacant lot on University Avenue.]

During the campaign over the HENS rent control ballot measure, I was perplexed about why an exemption for new construction was not part of the policy. Apart from the naive belief that rent control would not affect development, there seemed to be no positive justification for including it. 

Post election, I've heard an explicit rationale for not applying rent control to new construction, most recently during a panel conversation about rent control hosted by John Manillo's group, St. Paul STRONG. Here’s the best articulation of that in a Highland Villager editorial, from Jim Poradek of the Housing Justice Center. He writes:

When new construction is exempted, it can incentivize developers to tear down older buildings to start all over — reducing affordable housing stock and catalyzing displacement.

To be fair to Mr. Poradek, this kind of displacement is a legitimate problem in California, New York City and some other places. However, Saint Paul is different from those coastal cities in a number of important ways that, in my opinion, make this issue much less concerning. Because of these differences, the potential harms caused by any potential displacement remain far outweighed by the costs of bringing new housing construction to a halt.

Here are the key reasons why Saint Paul's potential policy would be different from those in California:

Rolling Window v. Fixed Date

In California and New York City, rent controlled housing was set by a firm date: for California, it's 1995, and for New York City, it's 1974. What that means is that, under those rent control policies, there was always a fixed, limited amount of rent controlled housing. Nobody was ever going to make any more. 

It also meant that the total supply of rent controlled housing in those places shrinks every year. Because of the lack of vacant sites, most new housing developments inherently come at the expense of rent controlled homes. For example, if someone built a 20-unit apartment building on the site of a 4-unit LA “dingbat”, it meant the permanent loss of rent controlled housing, even though it was a net gain of 15 homes.

This kind of policy explicitly pits housing supply against affordability, and leads the sort of toxic housing politics that are par for the course in expensive coastal cities. For nearly every new apartment building, YIMBYs fight with PHIMBYs over housing construction, all in the midst of a severe housing shortage and affordability crisis.

This problem is why, instead of a fixed date, almost all newer rent stablization policies, including the proposal from Mayor Carter, use a rolling time window to differentiate between rent controlled and decontrolled housing. In this case, it’s a 15-year window, meaning that any new housing built in Saint Paul would become rent controlled after 15 years on the market. This solves one of the big problems created by California-style rent control policies: each year there’s new rent controlled housing that becomes available, and any new housing built today will, eventually, fall under a rent stablization or rent control policy.

For Mayor Carter's proposal, specifically, here’s how that would look. Under a 15-year window, there would be about 9,000 uncontrolled apartments, the sum total of everything built in Saint Paul over the last 15 years. (By the way, that number is far too low!) Each year some of them would enter the rent control scheme even as more housing is built. For some context, that’s about 20% of the city’s total stock of 46,000 rented homes. 

But, unlike in New York City or California, that 20% number would stay fairly steady as new homes were built and entered into rent control. For example, in 2012 there were 729 apartments built in Saint Paul; these would become rent controlled apartments in 2027. In 2028, there would be 27 new rent controlled homes added, and 412 in 2029, etc. This kind of policy means that building housing is not a zero-sum game, and building new housing does not mean the permanent destruction of rent controlled homes in the city.

[This large apartment complex on the West Side would enter rent control in 2029.]

Housing Costs and Infill Potential

[Housing afffordability; MSP metro is 3rd from bottom.]

Believe it or not, housing costs in Saint Paul are not that high, from a national perspective. By contrast, the real estate pressure on the coasts is off the charts; comparing how real estate works in San Francisco and Brooklyn to Saint Paul is a bit silly. In those markets, the insane prices of land and housing create all kinds of perverse incentives that don't yet exist here.

For example, if developers could make vast sums of money tearing down existing apartments to build new ones in Saint Paul, they’d have been doing that for years. Apart from a few spots on Marshall Avenue, which were mostly existing single-family homes, demolishing apartments to build new, larger apartments is not that common. In nine years on the Planning Commission, it was very rare to see apartments being torn down for development; the O'Gara's project is the only case I can think of: 20 apartments replaced with 163 apartments.

That’s partly because we don't have out-of-control housing costs (though if we needlessly exacerbate our housing shortage, we might move up the rankings). There is a lot of unused land in Saint Paul -- parking lots, vacant lots, empty storefronts, little-used warehouses -- and if you want land for infill development, you have choices all over town. There are still vacant lots on Selby in one of the city's hottest neighborhoods, not to mention all along University Avenue or large parts of the East Side. 

Costs of Not Doing a New Housing Exemption

It’s pretty obvious by now that the concerns that myself and most housing experts had about a strict, exemption-free rent control policy were legitimate. Housing financing has vanished all across the city, as Mayor Carter and most of the City Council well know. The specific resolution language in his new housing exemption proposal are just one small example of this; for example, he talks about the impact on the city's Tax-increment Financing (TIF) districts, how non-profit developers cannot get financing. From everything I’ve seen so far (see this thread), it’s no exaggeration to think of the rent control ordinance as a de facto moratorium on new market-rate housing. 

Without the new housing exemption, we'll have little new housing supply. That triggers a cascade of problems that get worse every year. First, it exacerbates the housing shortage which will, more than anything else, lead to the erosion of rental housing in Saint Paul as owner-occupied prices quickly escalate. As the gap between rent controlled housing and owner-occupied housing grows larger each year, what’s to stop condo or single-family conversions, for example? Absolutely nothing, which is why we should be doing all we can to avoid making the city’s housing shortage worse.

[2022 housing construction in other cities; IMO St. Paul will be lucky to see 500 homes built in 2022, most of which will be highly subsidized.]

One report this week declared that 2022 is going to be a banner year for new housing construction across the country. With a new construction exemption, we could be seeing thousands of new, unsubsidized apartments rising up across Saint Paul right now. Instead, we are likely to see a number that's very close to zero. New homes built in the East Metro will be in the suburbs, places without meaningful transit or walkable neighborhoods, and with far larger carbon footprints. It also means little to no growth in the city’s tax base, which upends the Tax-Increment / Affordable Housing financing balance in the city. 

In short, the potential problems with new housing exemption are based mostly on logic that applies only in expensive coastal cities with antiquated rent control policies, and are not very likely in Saint Paul under Mayor Carter's proposal. Meanwhile, the costs of not having a new housing exemption on the books are real and immediate, and are already harming Saint Paul housing supply, overall affordability, climate action, and the city's bottom line. 

This problem is not going to magically disappear. The sooner that the City Council and Mayor can agree to pass a new housing exemption, the better.


Twin City Bike Parking #43

[Lowertown, St. Paul.]

[East Lake Street, Minneapolis.]

[Lowertown, St. Paul.]

[Lowertown, St. Paul.]

[University Avenue, St. Paul.]

[University Avenue, St. Paul.]

[Cedar Avenue, Minneapolis.]

[Snelling Avenue, Minneapolis.]


Mayor Carter's Statement on New Construction, and the Proposed Exemption Ordinance

[Mayor Melvin Carter III at the 2022 State of the City Address.]

I have the honor of being on Mayor Carter's 41-member "stakeholder group" on Rent Stabilization, and am happy to report it's a diverse group of thoughtful people. We held the first of many two-hour meetings yesterday, and Mayor Carter gave a brief statement to inaugurate our proceedings. 

As a part of my participation in the Task Force, I asked the Mayor's Office to focus on the parts of the rent stabilization policy debate that are not about a new construction exception. I believe that issue is largely separate from other key tradeoffs that come with rent control in US cities, things like disinvestment, discrimination, access, and regulatory expense. 

It seems that Mayor Carter agrees. Here's the part of his opening remarks that covered his thoughts on exemptions for new construction in a city rent control policy. He was describing what he called the three parallel tracks happening right now around the city's rent control policy: implementation, short-term political changes, and a longer-term policy discussion.  

This is a rough transcript some of his remarks to the stakeholder group:

Mayor Carter: We did have an ordinance passed by voters, and anticipated a May 1st implementation. We have a group of staff leaders moving forward to implementation, to be able to accept petitions from both renters and landlords, to have a process to process hearings, to help put that administrative process in place. That’s a piece [of the puzzle] at the staff level.

Also we are working through, at a political level with the City Council, a process to ask our City Council to establish and ordinance that would clarify exemption for new housing construction. It's important to me on a number of levels owe. We have thousands of units [of potential new housing] right now that are on pause, as we sort this through. I’m confident that everyone on this call, most of everyone in this entire conversation, actively desires to have a community where people can live with dignity in our city. As someone who navigates the challenges of a shortage of affordable housing every day, it's impossible for us to meet those goals in a city that cannot move forward with new housing construction.  

Even more so, authentic engagement [like this task force] means me not wasting your time. I've developed a practice that, if I’ve already come to a conclusion on something, I’m not going to ask you to spend three weeks or a month to come up with recommendations about something where I’m already made up my mind to move forward. We’ve may agree or disagree on a policy, but I’m going to be respectful of your time.

Then there are … deliberations. I think there were a significant number people who read everything they could about rent stabilization and voted because the believed in the policy, but there were also a significant number who wanted to move forward this conversation [more generally]. From my perspective, those [issues] are questions that none of us should see as challenging or threatening to us. One of the habits we have in our office and administration is that we critically question everything we see. That critical questioning is something that helps us to hone our ideas and sharpen our concepts. Placing the outcomes we desire over the sides we get ourselves stuck in allows for engagement in a spirit of dialogue.

The Mayor continued, describing the scope and vision for our group, before we dove into introductions and our upcoming schedule. 

It was good timing because yesterday Mayor Carter proposed language for a new construction exemption after his State of the City speech. (I'm attaching it below.)  

Facing a severe housing shortage at all income levels, I believe this exemption is important for St. Paul. We need to grow the housing supply in order to prevent more rapid escalation of housing prices, especially the owner-occupied homes that are, by far, the primary way that most Americans get access to wealth. We also need to keep housing prices in check in order to prevent some of the downsides that come with rent control in cities with severe housing shortages, ones that lead directly to a decrease in the stock of affordable housing. I also believe that it's critical to build new housing in the city to address both St. Paul's insufficient tax base, and to meet the urgent need for climate action.

To be fair, there is an argument about why new construction exemption is a bad idea, but it's not very compelling. When I have time, I'll go into detail about why the reasoning laid out by the Housing Justice Center does not really apply in the case of housing in St. Paul. Stay tuned.

In the meantime, whether you agree with Mayor Carter's stance on the HENS ballot measure or not (and I was one of the latter), he has been consistent since October, well before the election, about his stance on a new construction exemption. If you care about the big picture of housing in St. Paul -- ensuring abundant affordable housing of all kinds and across a wide spectrum of income levels -- the sooner we get an exemption on the books, the better. Without one, developers of all stripes cannot get access to the funding they need to grow the city's housing supply, triggering a cascade of problems.

I hope the City Council acts quickly on this question and, as a city, we can move on to the more difficult questions surrounding the future of our rent stabilization policy. 


My Blab on Cities and COVID-19 for Minnesota Public Radio is Online

[Blackduck Main Street.]

I was honored to be invited to discuss urbanism and the ongoing COVID-19 pandemic on Angela Davis' morning call-in program. I was joined by Dr. Fernando Burga from the UMN Humphrey School, who was a delightful interlocutor.

I was surprised to hear so many calls from small-town Minnesota, including one woman complaining about the parking problems in downtown Blackduck (population 880). I guess they should install some parking meters? I'd be happy to come up there and consult for a small fee. I've been to Blackduck and would enjoy another stroll around the Lost 40.

Anyway, here's the link! Enjoy.


Part II of the "St. Paul History" Book Talk at the Ramsey County Historical Society

Here's the second half of my blab on St. Paul history for you. I went over some under examined stories about what makes St. Paul the way it is, focusing on groups often excluded from the narrative. The Underground Railroad, the pilgrims of the Northerner, the origins of Mexican-American St. Paul, racist housing policy, Hmong immigration, and more.

People seemed to like it, and maybe you will too!

Thanks to Ramsey County Historical Society and the East Side Freedom Library for hosting it.

[Youtube link.]

Part I is here if you missed it! Also, buy my book -- I'll sign it for you.