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With opposing sides dug in, rent stabilization seemingly headed to an impasse in Minneapolis

This week, the City Council moved forward with a strict rent control policy. But with an election looming in the fall, and no sign of flexibility from Mayor Jacob Frey, there’s little chance for passage.

Members of the Minneapolis City Council
Members of the Minneapolis City Council
MinnPost photo by Craig Lassig

The fight over rent stabilization in Minneapolis opened a new chapter this week when the City Council passed a resolution to draft language on a strict rent control policy. It’s part of a yearslong push by housing advocates and some key City Council supporters to enact a strongest-in-the-country policy limiting rent increases, at the expense of the city’s housing supply.

The move came on the heels of a report last month that signaled Mayor Jacob Frey wants to ditch rent stabilization altogether. Because of the impending election, with only the council seats on November ballot, the impasse vacates the middle ground for potential compromise. Instead, the most likely outcome is that rent stabilization remains a dead letter, a disappointment to those who supported the ballot measure

The story so far

In 2021, both Minneapolis and St. Paul saw groundbreaking movement on rent stabilization, part of a coordinated push in the Twin Cities by housing advocates. Both St. Paul and Minneapolis voted on ballot measures that passed, though with one key technical difference: St. Paul’s policy was enacted immediately, while Minneapolis’ referendum only gave license for the city to act, without a specific policy.

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As a result, Minneapolis’ government last summer put together a 25-member committee to discuss and recommend a rent stabilization policy. The results led to anything but consensus: two committee factions put forward starkly different recommendations for rent stabilization.

The first proposal, officially forwarded this week by the Minneapolis City Council, mirrored language on the St. Paul city ballot (but later amended). It would be one of the strictest in the country for three reasons: it includes almost no exceptions, even for new construction; it has “vacancy control”, so that rent increases stay limited even when an apartment is empty); and it does not account for inflation.

The second proposal coming out of the group was more flexible and decidedly weaker. It introduced inflation modifications and exceptions that watered down the policy. Rather than strict rent control, the end result would better be described as an anti-rent gouging rule, preventing the most extreme increases in some specific cases.

Back in April, city staff weighed in with an analysis of the two proposals, focusing on fiscal impacts to the city budget and tax base. The resulting 67-page document sets a grim tone for future negotiations. 

What the new Minneapolis study gets right and wrong

There’s no question that the Minneapolis report paints rent stabilization in a bad light. Compiled by staff from key departments, the analysis includes few charitable words about rent stabilization. It’s so dour that that, reading through it, you’d think there were no benefits for anyone in the city, an absurd thing to say about a policy that explicitly limits rent increases.

Instead, there’s a litany of fiscal problems created by the two rent stabilization proposals that moved out of the public committee. For example, the Minneapolis report argues that both rent control proposals would cost the city millions per year, anywhere from $46 million to $117 million annually, depending on best- and worst-case scenarios of the two polices. (For comparison, the overall city annual budget is about $1.6 billion.) 

Needless to say, that’s a huge number.

The eye-popping total stems mostly from three things: a loss in development fees, a devaluation of rental property assessments, and a loss of tax base growth from new development. The argument hinges, then, on the idea that rent stabilization policies hurt the construction of new apartments through the loss of financing and developer interest.

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This is precisely the issue I wrote about when the St. Paul policy was put on the ballot almost two years ago. At the time, the conventional wisdom was that rent control policies, especially ones lacking exceptions for new construction or vacancy, have dramatic impacts on investment. At the time, others were arguing that the proposed policy was flexible enough to not affect financing.

Based on HUD data compared with national trends, housing construction in St. Paul has been greatly reduced. During a boom year for housing nationally, by my best guess, St. Paul saw thousands of new homes either halted or paused. It’s still an open question whether the reforms passed by the City Council in September 2022 will return investment to key sites like Highland Bridge, where market-rate housing officially remains on hold.

That said, the sums included in the Minneapolis report still seem overblown. The Minneapolis report suggests new housing construction would drop off to zero under the strict policy, but would be less impacted with the flexible option. In both cases, the analysis assumes that new housing construction dips as financing and markets adjust to new regulations, costing the city thousands of new homes over the next 10 years.

City of Minneapolis

Political cover sheet

Even if you cut fiscal projections in half, they’re alarming. The increase in tax base that comes from every new five-story apartment building in Uptown, Downtown, or Stadium Village add up, keeping property taxes lower. For fiscal reasons alone, reducing new housing would be a costly outcome, not to mention other social impacts like transit or the overall housing shortage.

Yet there’s no world where even strict rent control policies reduce Minneapolis construction to zero. Both small-scale projects with local financing and subsidized low-income housing would continue; the impact would be mostly felt with large-scale, market-rate apartments. That’s still significant, because Minneapolis has long led the state in absolute construction of new housing. It has a long way to fall if a strict rent control policy were adopted.

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The second alternative, termed “Framework 7” by the committee, is conversely so flexible that it covers very few apartments. The result is that only 2,100 of the city’s  107,000 apartments would be controlled under the stabilization guidelines. At that rate, the question becomes whether or not the rent stabilization policy is even worth the time and effort.

City of Minneapolis
Click on the graphic above to view a larger version of the Cumulative Financial Cost chart.
Finally, the Minneapolis report earmarks about one to one-and-a-half million for annual administrative overhead. All told, the study argues that the opportunity cost of this policy outweighs its (barely mentioned) benefits. Instead, the city would be better off strengthening alternative approaches to affordable housing.  

It’s not even that Minneapolis report is wrong; based on the evidence from St. Paul and other cities, it seems correct in its broad strokes. It simply doesn’t do justice to both sides of the argument. Instead, the study seems designed to be cover for a promised veto of any rent stabilization plan by Frey. Given the billion-plus dollars worth of projected losses to the city’s bottom line, waving this document around offers license to reject rent stabilization altogether.

This matters because, if Frey vetoes the council action, and the council cannot muster nine votes needed to override, the policy dies after a mid-August deadline. It seems that Minneapolis can’t put politics aside these days, in favor of good policy outcomes. The fight over rent stabilization has been deeply politicized from the start. In both of the Twin Cities, the public committee meetings, which were in theory meant to build consent and compromise, instead were little more than partisan fights.

One of the casualties of the tumult of the last few years was the ideological room for consensus in Minneapolis around urban policy. Years ago, it was possible for the different political factions in Minneapolis to come together around shared housing and transportation values.

These days, things are different. Agreement about significant urban policies seems unlikely between the opposing sides represented by the mayor and the council progressives, and rent stabilization is a perfect example. The era of (nearly) unanimous votes on sweeping reforms like the Minneapolis 2040 comprehensive plan seems over, and that’s a shame.

This week, the City Council moved forward with a strict rent control policy, with the help of Council President Jenkins’ reluctant swing vote. But with an election looming in the fall, and no sign of flexibility from Frey, there’s little chance for passage. Neither has there been movement around any compromise policy that could mediate between these two extremes. 

Instead, look for the issue to be a heated campaign promise and political cudgel in Minneapolis, for both the city’s progressives and conservatives, likely for years to come.