At his annual budget address last week at St. Paul’s Ordway theater, Mayor Melvin Carter laid out his proposal for the city’s $855 million annual spending plan, suggesting a property tax levy increase of around 8%. Interspersed with the budget details, and after a long list of progressive housing policy ideas, was the big announcement: another change to the city’s unique rent stabilization ordinance.
It’s a new twist in a story that’s been unfolding for four years about whether the rent stabilization ordinance should make exceptions for newly-constructed buildings. The new tweak changes that policy detail, removing a rolling twenty-year window and replacing it with a hard cut-off date of Dec. 31, 2004. Any housing built after that date would be exempt from the rent control ordinance.
Describing the city’s housing shortage in his budget address, the mayor argued that the policy is a “simple change” that would “unlock the critical release valve that only new housing construction can offer us.”
An ‘appetite to build’
Left unsaid in Mayor Carter’s speech was that the previous rent control compromise — the 20-year exemption window instituted in 2022 — did not go far enough to undo disincentives to building housing. As I explained at the time, the original voter-approved policy did not include such an exception, making St. Paul’s ordinance unique in North America and raising red flags with policy experts. This is why the mayor and City Council tweaked the ordinance in late 2022 to add a “rolling” new construction exemption, providing new buildings with a 20-year window whereby they could move rents to match market conditions.
Now, the new policy proposal further divides controlled and non-controlled housing by adopting a firm, unchanging date. As Mayor Carter rightly points out, choosing the last day of 2004 as a cut-off leaves over 90% of St. Paul’s rental housing stock protected by the policy, making this change nominally marginal. But the hope is that a simpler policy will have greater purchase with the skittish investors that developers rely on to fund housing construction.
“There’s still an appetite to build in St. Paul, folks still see an opportunity,” Carter told me in an interview last week.
“To say that nothing’s getting built is maybe a little bit exaggerated,” he added. “We are building, but just not getting projects moving forward at the pace that I want to. The developers are telling us that they are having a tough time financing projects in the city.”
New York, L.A., St. Paul?
From a policy perspective, the new proposal is a mixed bag. Setting a clear date for rent-stabilized housing — a line before which falls under the policy and after which it does not — is not a new idea. This is how most late-20th century rent control policies were set up, most notably in places like California and New York City, where they used 1995 and 1947, respectively, as cut-off dates. (Both policies were changed the last five years to remove those thresholds.)
The advantage to this approach is that it isn’t confusing: A building is either built before 2005 or it’s not. There’s no complexity around which policies could be tweaked or changed, which is comfort to cautious investors. The disadvantage of the policy is that it ensures that the percentage of rent-controlled housing stock in the city will only shrink over time. This is particularly a problem in places with high-priced rental markets, especially California or New York, where almost every new development involves tearing down old housing.
In theory, the difference between a firm cut-off and the “rolling window” seems important. At least under the 20-year-window model, eventually the total stock of controlled housing in a city will go up. In practice, especially in a city like St. Paul, the distinction seems more marginal. Unlike New York City, St. Paul has plenty of vacant land that’s been waiting for investment for decades. As the slow pace of change along the Green Line shows, if very little new housing is getting built in the first place, is there much reason to focus on whether it will eventually add to the controlled housing stock?
Instead, St. Paul’s larger problem remains the lack of overall investment. Acres of vacant land wait for buyers, and half of downtown seems to be for lease or for sale. In this light, tweaking the balancing of regulation and incentives seems like an easy move.
Untangling housing numbers
The caveat is that there’s no great piece of evidence definitively “proving” that rent control gutted housing construction in St. Paul. The first problem is that the data is not great. There are multiple sources — e.g. the city vs. HUD, housing permits versus housing starts — and even within those figures, there are many different types of housing. For example, it’s very important to separate out subsidized versus unsubsidized (market-rate) housing, but almost no news coverage of St. Paul housing does this. (The best source is the city itself, which has a great website tracking housing.)
Second, because housing production in St. Paul is so small and volatile in the first place, it’s too easy to extrapolate large trends based on what amounts to noise. One or two large projects greatly skew these numbers, which is why at the very least analyses should use multi-month averages Even those fail to capture the long, multi-year timelines of housing financing; the apartment building still under construction near my house was first proposed over five years ago.
Finally, there’s no way to prove a “counterfactual”, i.e. “what might have happened if X or Y,” and comparing St. Paul with Minneapolis only gets you so far. So many factors influence housing production, not least the overall interest rates, that a small samples of data are rarely conclusive.
That said, if you piece together housing data alongside conversations with financing experts and the track record of specific projects like Highland Bridge, you can sketch conclusions about the relationship between rent policy and housing production. It’s not a flattering picture. During our conversation, Mayor Carter insisted that 4,000 housing units are still planned for the Highland Bridge site, despite an alarming article suggesting that its developers want to downzone the project. Reading into the weeds, I would bet the proposed policy has a lot to do with achieving that goal.
Looking back, my 2021 column warning about the effects of an exemption-free policy holds up pretty well, and I stand by it. Amongst the thousands of words I wrote, I pointed out that new construction is the easiest way to grow the city’s tax base, to avoid large hikes in property taxes.
In retrospect, the timing of the initial 2021 ordinance damaged the city’s housing supply. This was a post-COVID moment that saw increased investment in new housing across the country. Instead, because of concerns about the strict rent control policy, St. Paul missed out on that wave of funding, likely halting thousands of new apartments. Since then, the existing policy has led to an increasing demand for city subsidies of any new development projects — for example, $21 million for the Landmark Tower apartment conversions — so that the policy strains the city’s balance sheet both coming in and going out.
In 2024, that’s all water under the Highland Bridge. Today, the one thing everyone seems to agree on is that St. Paul needs more investment. Throw a dart at a map and you have good odds to hit a vacant lot: the acres of open space at United Village at Snelling and University, the unfulfilled promise of the 133-acre Ford Site, the West Side Flats, the State Capitol area, or any of a dozen spots near the underdeveloped downtown crying for new construction.
The political challenge here is that the mayor has to convince a City Council majority to support him in tweaking, again, a voter-approved policy. It’s a big lift, especially when working with a largely new set of elected officials, but it’s one that must seem urgent.
That’s probably why Carter announced his policy proposal only after a long list of pro-renter housing plans he hopes to implement, everything from weatherization funding to expanding the city’s inheritance fund to down payment assistance to expanded tenant protections. All of those cost money, and housing problems are inevitably made worse by the ongoing shortage, which is why new construction is key to the city’s tax base surviving the post-COVID economic shift.
