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St. Paul rent proposal offers predictability for renters and landlords alike

Lindeke’s argument against vacancy control is misguided at best.

apartments
MinnPost photo by Corey Anderson
This November, St. Paul voters will have the chance to pass a rent stabilization policy that will lead the nation in rewriting the outdated and unfair rules that give landlords unlimited power to economically exploit their tenants. And voters need to know the facts about the necessity and impact of this vital proposal.

As an attorney and president of the Housing Justice Center and former staffer at the Minnesota Housing Finance Agency, I understand the finer points and legal implications of public policy as well as the complexity of housing development.

Unfortunately, Bill Lindeke’s Cityscape commentary earlier this month was a theoretical thought exercise masquerading as journalism and a disservice to honest public dialogue about this critical issue. His fundamental understanding of the policy is flawed, and his arguments — as he readily admits — are mostly conjecture. He entirely overlooks the real displacement experienced by renters who are Black, Indigenous and People of Color (BIPOC) by privileging the hollow threats of landlords that, unless they have the unfettered ability to raise rents, they will not operate housing in the city of St. Paul.

The Keep St. Paul Home campaign continues a decades-long legacy of community-based organizations working directly with tenants most impacted by housing and economic injustice. In keeping with this tradition, we collaborated with renters, homeowners, landlords and researchers across the region to create a rent stabilization proposal that protects all St. Paulites, addressing the loopholes that have limited the effectiveness of rent stabilization policies around the country.

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3% for racial justice

The Keep St. Paul Home rent stabilization policy caps annual rent increases at 3%, a number chosen specifically to advance racial justice in our city. According to research from the University of Minnesota’s Center for Urban and Regional Affairs, median rent increases in Minneapolis have been below 3% annually for the past 20 years. Minneapolis is the closest relevant comparison for St. Paul’s rental market, and this percentage means the policy won’t impact the vast majority of property owners.

Unfortunately, when we disaggregate the data, we learn that low-wealth, BIPOC renters are the most likely to experience egregious rent spikes well above 3%. Overall, BIPOC households saw a cumulative rent increase of 32% over the past two decades, while white households saw a cumulative increase of just 18%. This policy is meant to protect BIPOC renters first and foremost — in doing so, it benefits us all by reducing the many impacts of housing instability.

As Lindeke himself notes, if this ordinance had been in place for the past 20 years, median rents would be where they are today — however, we would have been able to protect our most vulnerable community members from displacement and homelessness.

Lindeke mixes percentages in ways that easily confuse the average resident. For instance, what if inflation increases or property taxes spike? Due to the basic principle of proportionality, it’s more complicated than simply comparing numbers one-to-one. For example, an increase of 5% in property taxes for the landlord does not result in an identical 5% increase in the total costs for the landlord. According to the Minnesota Department of Revenue, property taxes constitute 15.5% of rent in St. Paul — meaning any increase in property tax only impacts that relevant portion of the total operating costs.

Inflation has very little to do with the two factors that most heavily influence how much rent costs and how much someone can pay: the property owner’s mortgage and the renter’s wages. When a tenant pays the rent, it covers many things — mortgage, property taxes, insurance, maintenance, capital improvement and investor profits. But the mortgage is by far the largest piece of that pie, and it’s immune from inflation by nature of what an amortized mortgage is: a loan with a predictable interest rate.

Vacancy control is key

Vacancy control limits rent increases between tenants, eliminating the potential for predatory investing in rental housing. Without vacancy control, corporate landlords have a clear economic incentive to force out current renters in order to jack up the rent for future tenants. This undermines our local mom-and-pop property owners by fueling outside speculators coming into our market because they know they can make a quick buck by sending our neighbors packing.

Lindeke makes an odd argument against vacancy control, citing Shane Phillips, who speculates that landlords would screen their tenants through racial and ethnic biases, if they can’t raise rents as much as they want. This is misguided analysis at best, and a red herring at worst — today, landlords already make decisions based on credit, income, rental history and criminal history. Lindeke’s reasoning assumes that landlords intentionally discriminate through rent increases, and if we remove their ability to do that, they’ll use alternative mechanisms to discriminate. Even as someone who invokes the federal Fair Housing Act in my work almost every day, I am less inclined to assume discriminatory intent. But the fact of the matter is that discriminatory screening practices are already a pervasive issue in the rental market, and stabilizing rents will not create or exacerbate forms of discrimination.

Contrary to Lindeke’s fear-mongering, rent stabilization will address one of the most significant barriers faced by renters: cost. Without creating reasonable guardrails for landlords, we are choosing to discriminate against low-wealth renters, or workers whose wages have stagnated, every day. And without vacancy control, we would bleed out affordability whenever someone moves out.

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New construction included

Whether you rent a $1,500 per month “affordable micro-unit” built in 2020 or a $1,500 one-bedroom built in 1920, no one should be subjected to price gouging. That’s why our policy applies to every residential building in St. Paul, including new construction.

The landlord lobby and its messengers perpetuate the myth that rent stabilization would halt new development. But there’s little evidence to suggest this is the case.

Lindeke makes a paternalistic argument on behalf of developers. According to his logic, rent stabilization will make it so they can’t plan for the future. I know a thing or two about financing development from reviewing and approving hundreds of pro-formas at Minnesota Housing. When a developer explores financing options, they create a pro-forma that projects costs and income for a minimum of 15 years, and build in a number of reserves and contingencies including any vacancy loss and maintenance reserves.

Margaret Kaplan
Margaret Kaplan
The only thing that matters to commercial lenders is the ability of the borrower to repay the mortgage. Regardless of whether the development is luxury or LIHTC, from a lender perspective, any developer who needs to rapidly increase rent every year beyond what the market is experiencing is seen as a risk. A developer who stays within historic market margins — like 3% — is a safer place to invest your money. I have seen countless projects fail to access private financing because their projected cash flow was predicated solely on “pushing the rents.”

The fact of the matter is, new construction development should have predictable costs from the outset, allowing landlords to set rents in a manner that creates a healthy return on their investment. If it doesn’t, it’s a risky investment that we don’t want in our city.

And, once again, our policy is not a rent freeze or a rent ceiling. New developers can charge as much as they want; they are simply prohibited from spiking rents once a tenant moves in and calls that place home. Whether you’re a lender or a renter, stability and predictability are essential.

Adaptable to the needs of St. Paul

Lindeke also breathlessly announces that our policy would be “the strictest in the world,” locking St. Paul into a system that can’t adapt to changing circumstances. The opposite is true. It is a strong ordinance — and purposely so — but it is not inflexible. It allows for exceptions and, like all city ordinances, can be amended to address the needs of our community.

We can’t predict every conceivable outcome from this policy. But we also can’t be complicit with the status quo, endlessly ruminating while our neighbors are exploited and priced out. The lives of everyone in St. Paul will be impacted by this vote, whether we rent or own our homes. But those of us who are white, who are homeowners or stably housed, must recognize the urgency to take meaningful action now, and act according to the real impacts — not fear mongering and catastrophizing — of our deeply researched, community-informed policy.

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Every week I hear from tenants who have been displaced by price gouging, and every week I have to tell them it’s perfectly legal. In November, St. Paul voters can be at the forefront of smart, measured and, yes, innovative public policy to bring these practices to an end. When we vote yes for rent stabilization, we can start to tackle this complex issue together and Keep St. Paul Home for everyone.

Margaret Kaplan is president of the Housing Justice Center, a St. Paul-based organization. She lives in St. Paul.

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