St. Paul City Council poised to exempt new construction from rent control

The St. Paul City Council is one step closer to changing the city's rent-control ordinance to exempt new housing construction for 20 years.

Though the seven-person elected body has yet to approve a final set of amendments to the law, members on Wednesday debated and voted on a handful of proposed changes to the policy, which caps residential rent increases at 3%.

Since voters approved the city ordinance in November, developers have urged elected officials to exempt new housing, citing projects they paused or canceled after the law's passage prompted investors to back out. Because St. Paul is perhaps the only U.S. city to apply rent control to new construction, they say they are moving their money to less risky markets.

Supporters of the policy have pushed back, accusing developers of fear mongering. They also said such an exemption could incentivize property owners to tear down and rebuild existing housing to reset rents.

Data on construction permits, and what the numbers imply about the policy's early impacts on development, have complicated the debate. Rent-control opponents used figures to claim permits are down as much as 80%, while supporters of the law pointed to different numbers to argue that applications for permits have risen in 2022.

The conflicting claims came about because data sets from the city and federal Department of Housing and Urban Development included duplicate permit counts, said Nicolle Goodman, director of St. Paul's Department of Planning and Economic Development.

City analysts cleaned up the data to present a more accurate picture of permitting trends in St. Paul. But Goodman cautioned officials that the data "should be considered with many caveats and with the understanding, always, that correlation does not necessarily indicate causation."

"Another caution is that a number of other market factors influence whether or not a project moves forward at any given time — cost of labor, materials, availability of subsidies, interest rates, etc.," she said.

According to the new data, permits were issued for 515 housing units in St. Paul between January and July of this year, Goodman told the council. That figure is down 31% compared with a four-year average of data collected during the same months in 2018 through 2021.

"That decline could be even more than is apparent because production may have increased if not for the passage of an ordinance that doesn't exempt new construction," said Goodman, who — along with Mayor Melvin Carter — has long expressed support for amending the law.

She noted that through August of this year, builders across the Twin Cities metro have received permits to construct 39% more units compared with the same time period in 2021, according to data from Housing First Minnesota.

"We know that now that an exemption for new construction has been publicly proposed, momentum on several of the sort of stalled projects is picking up," Goodman said. "We need for these new construction projects to move forward to add to our housing supply."

By a 4-3 split vote, the council indicated support for a 20-year exemption for new housing construction. Council Members Mitra Jalali, Nelsie Yang and Russel Balenger made a failed push to shorten the exemption to 15 years. Their proposal also sought to exclude all housing built before 2023 from the exemption.

Jalali argued that St. Paul should not exempt new housing simply because other cities have done so. She also noted an advisory group appointed by the mayor recommended the exemption period be 15 years.

Council President Amy Brendmoen noted that multiple St. Paul development firms have sent letters to the council saying only a 30-year exemption could assuage the concerns of investors.

"There is a consequence to being too far ahead of the curve," she said. "We as a council talk endlessly and invest endlessly in programs and policies to increase housing production. So to me, hearing that overall metrowide building permits are up and in St. Paul they're down is concerning."

The council also voted 4-3 in favor of a proposal allowing landlords to raise rents as much as they want after a tenant moves out or is evicted for just cause.

Jalali — who opposed the proposal, along with Yang and Council Member Rebecca Noecker — said the amendment could incentivize landlords to drive out renters.

The council unanimously voted in support of more minor changes to the law, including stronger tenant notification requirements. The group's final vote on a substantial package of amendments will likely take place next Wednesday, Brendmoen said.

Some additional tweaks to the ordinance — including proposals to exempt affordable housing from rent control — will be debated and voted upon at a later date.