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 and proposed a property tax increase of about 8%. In between the budget details and after a long list of progressive housing policy ideas came the big announcement: another change to the city’s unique rent control ordinance.
This is a new twist in a story that has been playing out for four years about whether the Rent Control Ordinance should provide exemptions for new construction. The new amendment changes this detail of the policy by removing a rolling 20-year window and replacing it with a fixed cut-off date of December 31, 2004. Any housing built after that date would be exempt from the Rent Control Ordinance.
In his budget address, the mayor described the housing shortage in the city and argued that the measure was a “simple change” that would “open the crucial valve that only the construction of new housing can provide us.”
An “appetite to build”
Mayor Carter’s speech failed to mention that the previous compromise on rent control – the 20-year exemption that was implemented in 2022 – did not go far enough to remove the barriers to housing construction. As I explained at the time, the original voter-approved policy did not include such an exemption, making St. Paul’s ordinance unique in North America and setting off alarm bells among policy experts. That’s why the mayor and city council revised the ordinance in late 2022 to add a “rolling” exemption for new construction that gives new construction a 20-year window in which to adjust rents to market conditions.
The new policy proposal now further separates controlled and uncontrolled housing by setting a fixed, unchangeable date. As Mayor Carter correctly points out, choosing the final day in 2004 as the cutoff date leaves over 90% of St. Paul’s rental housing stock protected by the policy, so this change is nominally marginal. But it is hoped that a simpler policy will be more popular with the anxious investors that developers rely on to finance housing.
“There is still interest in building in St. Paul, people still see an opportunity,” Carter told me in an interview last week.
“To say that nothing is being built is perhaps a bit of an exaggeration,” he added. “We are building, but the projects are not progressing at the pace I would like. The developers tell us that they are having great difficulty financing projects in the city.”
New York, LA, St. Paul?
From a policy perspective, the new proposal is a double-edged sword. Setting a clear date for rent-controlled housing—a cutoff point before which rent control applies and after which it doesn’t—is not a new idea. This is how most rent controls of the late 20th century were implemented, most notably in places like California and New York City, where they used 1995 and 1947 as cutoff dates, respectively. (Both policies have been amended in the past five years to remove these thresholds.)
The advantage of this approach is that it is not confusing: either a building was built before 2005 or it wasn’t. There is no complexity to adjust or change policies, which reassures cautious investors. The disadvantage of this policy is that it ensures that the share of rent-controlled housing in the city only decreases over time. This is especially a problem in places with expensive rental markets, notably California or New York, where almost every new development involves the demolition of old housing.
In theory, the difference between a fixed limit and the “sliding window” seems important. At least in the 20-year window model, the total stock of controlled housing in a city will eventually increase. In practice, however, especially in a city like St. Paul, the difference seems more marginal. Unlike New York City, St. Paul has plenty of undeveloped land that has been waiting for investment for decades. As the slow pace of change along the Green Line shows, if very little new housing is being built anyway, is there no reason to focus on whether it will eventually increase the controlled housing stock?
Instead, St. Paul’s bigger problem remains a lack of investment. Acres of vacant land await buyers, and half of downtown appears to be for rent or sale. Against this backdrop, improving the balance between regulation and incentives seems a no-brainer.
Deciphering housing numbers
The caveat is that there is no hard evidence that rent control has destroyed housing in St. Paul. The first problem is that the data is not particularly good. There are multiple sources — e.g., the city vs. HUD, building permits vs. housing starts — and even within those numbers there are many different types of housing. For example, it is very important to distinguish subsidized from unsubsidized (market rate) housing, but almost no reporting on housing in St. Paul does so. (The best source is the city itself, which has a great housing tracking website.)
Second, it’s too easy to extrapolate big trends from the market because housing production in St. Paul is so small and volatile anyway. One or two large projects skew these numbers significantly, so analyses should at least use multi-month averages. Even these cannot capture the long, multi-year timeframes of housing finance. The apartment building still being built near my house was first proposed over five years ago.
After all, there is no way to prove a “counterfactual” — “what might have happened if X or Y had happened,” and comparing St. Paul to Minneapolis only gets you so far. So many factors influence housing production, not least general interest rates, that small samples of data are rarely conclusive.
But if you compile housing data, talk to finance experts, and look at the track record of certain projects like Highland Bridge, you can draw conclusions about the relationship between rent policy and housing. 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 developers want to downgrade the project. If you read into the details, I’d bet the proposed policy goes a long way toward achieving that goal.
Looking back, my 2021 warning about the impact of a tax exemption policy is quite accurate, and I stand by it. In the thousands of words I wrote, I pointed out that new construction is the easiest way to increase the city’s tax revenue and avoid large increases in property taxes.
In retrospect, the timing of the original 2021 ordinance hurt the city’s housing supply. This was a post-COVID moment when investment in new housing was ramping up across the country. Instead, due to concerns about strict rent control policies, St. Paul missed out on that wave of funding, likely halting thousands of new apartments. Since then, existing policies have led to increasing demand for city subsidies for all new development projects—for example, $21 million to remodel the apartments at Landmark Tower—so the policy is a drag on the city’s bottom line in both revenue and expenditure.
In 2024, all of that is history. Today, everyone seems to agree that St. Paul needs more investment. Throw a dart at a map and you’ll have a good chance of hitting a vacant lot: the acres of open space in the United Village at Snelling and University, the unfulfilled promise of the 133-acre Ford Site, the West Side Flats, the State Capitol area, or a dozen other spots near the underdeveloped downtown that are crying out for new construction.
The political challenge is that the mayor must convince a majority of the City Council to support him in revising a policy approved by voters. That’s a tall order, especially when working with a largely new group of elected officials, but it must be urgent.
That’s likely why Carter announced his policy proposal only after a long list of renter-friendly housing plans he hopes to implement, ranging from funding weatherization measures to expanding the city’s inheritance fund to down payment assistance and expanded renter protections. All of these plans cost money, and housing problems will inevitably be exacerbated by the ongoing shortage, which is why new construction is critical to the city’s tax revenues to weather the post-COVID economic shift.
