As Minneapolis faces rent control vote, experts caution it's not a cure-all

A rent stabilization policy in California's coastal city of Santa Monica kept average rents down, researchers found, but stagnant incomes meant people were still priced out of the market eventually.

In Oregon, some landlords rushed to increase rents before a statewide rental cap law went into effect, according to a university report.

And in New York, leaders have implemented several iterations of rent caps since World War II, illustrating the difficulty of getting the details right.

Minneapolis voters will soon decide whether to join the ranks of hundreds of cities that have adopted varying laws to keep their housing affordable to low-income people, with mixed results. Housing leaders and researchers who study the effects of rent regulations warn that, while rent-capping laws can help in some cases, they won't solve the affordable housing problem in Minneapolis in the long term.

The supply of low-cost housing will still need to increase, they point out. And too much rent regulation could push some landlords into deferring building maintenance or even getting out of the rental business by converting apartments to condominiums, as has happened in other cities, they said.

"[Rent control] is a Band-Aid," said Shane Phillips, a project manager with the Lewis Center for Regional Policy Studies at the University of California, Los Angeles. "And sometimes you need a Band-Aid, but you actually have to address the underlying cause as well."

A November ballot question will ask Minneapolis voters to give the City Council the authority to adopt a rent control ordinance, explained as "to regulate rents on private residential property." But it does not give details of how the rent cap would work locally. Council members said if voters approve the question, leaders will then figure out the specifics.

Housing researchers suggest that Minneapolis would likely adopt a form of rent stabilization favored recently in other cities: tying allowable rent increases to inflation, exempting newer dwellings and, possibly, including provisions that allow rents to jump to market rates after a tenant vacates an apartment. But they warn leaders to implement it with a careful balance for both renters and landlords.

"Our review of studies from across the country showed that rent control does, on balance, result in lower rent than would otherwise have occurred in markets," said Edward Goetz, a University of Minnesota professor and director of the Center for Urban and Regional Affairs (CURA). "And it can do so without adversely affecting the quality of the housing, and it can do so without adversely affecting the rate of new construction."

Some council members contend that restrictions on rent is the last missing piece of the puzzle to ease the city's housing crisis and to "help keep people safely and stably housed," Council President Lisa Bender said.

Greg Russ, who left the Minneapolis Public Housing Authority in 2019 to lead the New York City Housing Authority, offered a different view, calling rent regulation an "awful idea" that can suppress the supply and upkeep of affordable housing stock over time.

Russ said he has seen some of those drawbacks in New York and at his previous job in Cambridge, Mass., where restrictions priced landlords out of doing business and prevented much-needed capital improvements.

Russ said Minneapolis leaders should instead provide more subsidies to low-income renters. Well-funded subsidy programs help boost the housing supply and give eligible renters more choices of where to live, he said.

"Rent control is very popular now with a generation that has never lived in rent control," Russ said. "When you establish rent control, you're really interfering with the economics of a market."

Minneapolis has already tried various tactics to help struggling renters, including policies that subsidize rent and encourage the construction of more affordable housing.

The Stable Homes Stable Schools program, for instance, gives housing rental assistance to homeless elementary students' families and incentivizes landlords who provide affordable units.

The City Council also enacted a zoning ordinance that requires affordable housing units to be included in new developments as part of the city's 2040 Comprehensive Plan. More recently, city leaders allocated money to help provide legal services to families facing eviction and passed a city ordinance that requires landlords to give tenants written notice at least two weeks before going to court to evict them for unpaid rent.

The long-running debate over imposing rent limits in Minneapolis became more urgent in 2010, when the number of renters surpassed homeowners. But a decade later, racial and economic disparity heightened by the COVID-19 pandemic is lending a fresh urgency to the city's push to put restrictions on landlords and protect tenants from being displaced. According to an apartment trend report issued in 2019 by the Residential Analytics Group of Marquette Advisors, the average rent for a two-bedroom apartment in Minneapolis was $1,847. More than half of the city's renters earn less than 60% of the area median income.

While rent control advocates in Minneapolis are still debating specific proposals, advocates in St. Paul want to cap rent increases there at 3% annually.

Although the terms are often used interchangeably, rent control and rent stabilization policies are technically different in their strength and sometimes in their scope, according to a CURA report. Rent control — which is the less popular and more stringent version of the two systems because it imposes price ceilings on rent — gained popularity after World War II. It can only be found in New York City and its rules apply to buildings built before 1947.

Rent stabilization laws, on the other hand, appeared in the 1970s and have different types of regulations with varying terms. Seen as more moderate forms of regulation, they allow rent increases to be capped at a certain percentage each year and in most cases exempt single-family homes and new construction either completely or for some period of time. In Minnesota, a 1984 state law prohibits local governments from enacting rent regulations unless approved by voters in a general election, a common stance around the country.

In the last decade or so, cities and states across the U.S. have been giving it the go-ahead. In 2019, Oregon became the first state in the nation to pass a statewide rent stabilization law, limiting rent increases to 7% each year plus inflation and exempting subsidized rent and new construction. That same year, California capped annual rent hikes at 5% plus inflation or 10%, whichever is less. Some local jurisdictions in California, including Los Angeles, have their own stronger regulations that supersede the state's rule. In Jersey City, N.J., the allowable increase is limited to 4%, and is directly tied to the change in cost of living during a lease.

New York passed sweeping statewide reforms in 2019 that allow expanded protections for tenants and limited opportunity for regulated rents to rise at rates higher than the annual limits set by a Rent Guidelines Board, according to the New York University Furman Center. The changes, which apply to both rent-controlled and rent-stabilized apartments, eliminated policies that allowed rent to be raised any amount when a tenant vacates a unit and placed limits on preferential rent, a practice where landlords initially offer a lower rent but later bump it up to market rate when a tenant renews a lease. About 50% of rental units in New York City are rent-stabilized, according to the CURA report.

Goetz said regulating rents in Minneapolis over the past couple of decades would have helped people of color in particular. Between 2006 and 2019, for instance, African Americans saw a 44% increase in their rent and almost no increase in their income, the CURA study found. Meanwhile, those who were most well-off — mostly white residents — saw a significant increase in income, but not rent, according to the study.

"The rental market was operating pretty well for many people," Goetz said. "But there is a significant segment of the market where rent control would have been very helpful."

Faiza Mahamud • 612-673-4203