Fearing a spike, tenant advocates keep a close eye on St. Paul rents

Pao Xiong paid $1,000 a month to rent a duplex on St. Paul's East Side for three years until a new landlord bought his building and raised his rent to $1,150.

The 43-year-old father of two wasn't happy about the hike but figured he and his wife could make the finances work. But 12 days later — less than two weeks after St. Paul voters passed the Midwest's first rent control measure — Xiong received an email saying his rent would increase to $1,850 in March.

The landlord didn't say why she was raising rents, but Xiong said friends and legal experts he consulted suspected rent control was a factor.

"It's stressful," he said. "We're in a place where we can try to fight this rent increase, but it feels sort of like an uphill battle."

More than 30,000 St. Paul residents — about 53% of voters — approved an ordinance by referendum earlier this month that will cap annual rent increases at 3%. The city has yet to hammer out the finer points of its new policy, which has been pegged as one of the most stringent rent control measures in the nation because it does not allow landlords to raise rents once a tenant moves out, does not exempt new construction and is not tied to inflation.

Already some landlords are teeing up rent hikes, saying they want to align with market rates before the May 1 effective date written into the ordinance. In response, tenant advocates are urging residents to report rent increases greater than 3%, which they say might be ripe for legal challenges.

But in the short time since the St. Paul ballot measure passed, few renters have come forward to report experiences like Xiong's.

"There's some intimidation happening to put some fear into people's minds about what could happen," said Eric Hauge, executive director of Home Line, a nonprofit offering free legal help to tenants. "But in reality landlords have to set their rents based on what the market can take."

The average monthly rent in St. Paul at the end of September — $1,258 — was the same as a year prior, according to a report from Marquette Advisors, which tracks rents for more than 160,000 market-rate apartments across the Twin Cities' seven-county metro.

But in other parts of the country, rents are rising quickly. Landlords point to that and other trends — including higher inflation and property tax levy increases — to make the case that 3% annual increases won't be enough to cover their expenses.

"Landlords are going to be working to get their rents closer to market rate for the start of this ordinance because we're worried about falling behind in the future," said Joe Hughes, who owns more than 150 apartment units throughout St. Paul.

Hughes, a St. Paul landlord for two decades, has kept the rents of some long-time tenants stable — even as they dropped $100 or $200 below market rate — to save on turnover costs and help reliable tenants who can't afford steeper housing costs. Now, he's worried those shows of good faith could set him back.

Normally, Hughes would adjust prices once such tenants move out, but St. Paul's ordinance will prohibit him from doing that. As he plans to preemptively raise rents, he's expecting tough conversations with tenants who will see the largest increases. He said he will offer them other units that might better suit their budgets.

However, not all of Hughes' leases end before May 1. The city plans to develop a way for landlords to ask for permission to raise rents more than 3%, but it's unclear how that will work.

Margaret Kaplan of the nonprofit Housing Justice Center, who helped craft and campaign for the ordinance voters approved, said she encourages landlords to participate in community conversations about the policy's rollout instead of rushing drastic rent hikes.

Though Kaplan and others are keeping an eagle eye out for overreaction, she said Twin Cities renters — especially people of color and low-income residents — have experienced disproportionately large rent increases for years. It's what prompted activists to petition for the change in the first place.

"The intention is not to have that 3% be really onerous — the ordinance says people should be able to get a reasonable return on their investment," Kaplan said. "But I think it's much harder to make the case that you deserve an exemption if you're slapping somebody with a 20% rent increase."

Kaplan said advocates will see if tenants facing large rent increases in the coming months have grounds for legal challenges on the grounds of retaliatory behavior, failure to meet habitability standards or violations of basic tenant-landlord laws.

There is also some uncertainty surrounding the ordinance's effective date that could allow renters to argue that rent control went into effect the day it passed, but tenant advocates said they are less inclined to mount lawsuits on that basis alone.

Peter Leggett, communications director for Mayor Melvin Carter, said in a statement Thursday: "While the city cannot provide legal counsel to private individuals or entities, we encourage members of our community with legal questions to consult with an attorney. We're encouraged that community members are eager to engage and help answer critical questions like these and expect to commission a group in the coming weeks."

People on both sides of the rent control debate have expressed frustration with Carter since he proposed an exemption for new construction after developers threatened to pull projects from St. Paul. Those who campaigned for the ordinance say the mayor is feeding into a "disaster narrative" being spun by opponents; property owners accuse Carter of jumping to assuage the fears of wealthy corporations while leaving mom-and-pop landlords out to dry.

"We were never looking to make a fortune," said Jim McCorkell, who with his wife owns five St. Paul duplexes — including one in which they live. "For us, it was a way to have some retirement income when we're ready to retire."

McCorkell said he believes the city's lack of housing — particularly affordable units — is a huge problem, but that rent control is the wrong solution. He wonders if the city could find a different way to target price-gouging landlords.

Some landlords say the ordinance will prompt them to raise rents 3% every year, defer maintenance and explore ways to pass on bills for water, trash, laundry or other services renters may not be covering.

As a last resort, McCorkell said he would consider selling his properties, though he worries they could be snapped up by a large corporate landlord with less stake in the community.

Xiong, the East Side renter, reached out to a real estate agent this week to explore whether he might be able to buy a home — something he planned to do, but not this quickly. He and his family will enter a market in which houses are still selling quickly, and at high prices.

"Are we going to be able to afford this? I don't know," Xiong said. "I'm not totally sure what we're going to do."