The Saint Paul STRONG rental housing panel brought together experts to explore the issues that led to the November 3rd referendum and suggest how we can move forward.
With no official action in over 3 months since the rent control referendum passed on November 3rd, Saint Paul STRONG convened a panel discussion on February 8 with six affordable housing experts in the hope of starting a broader public conversation on an important issue. The panel was live streamed on YouTube (replay available) and broadcast on SPNN.
The panel identified several key issues that contribute to pricing renters out of affordable housing, as well as offering several of their own solutions at the city, state, and federal level.
Saint Paul STRONG encourages the 41 members of the Mayor’s Advisory Committee to take note of what the six panelists had to say – as the start of a longer discussion on how to work together to find solutions.
Lack of supply and institutional landlords create pressure on rents
The panel identified the difficulties inherent in providing deeply affordable housing as a key concern. Deeply affordable housing is targeted to those living at 30% of Area Median Income (AMI) – a better fit for much of Saint Paul than the standard 60% AMI definition of affordability.
Little to none of this type of housing is available or planned, because developers usually require financial incentives to include such housing units in new developments. 25% of Saint Paul’s renters are at 30% AMI or below, and it is this group that has been seeing the highest rent increases. This reality played a large part in the passage of the rent control referendum; the main goal was to keep rents affordable for those tenants.
The past decade has seen an onslaught of “institutional landlords” – Wall St. syndicates known as “REITs” (Real Estate Investment Trusts). REITs flip properties to generate profits and do “pyramiding” while owning them. (Pyramiding is passing on maintenance and other costs, on top of rent increases.) It used to be that “NOAH” (Naturally Occurring Affordable Housing) was an important piece of St. Paul’s affordable housing stock, but NOAH is one of the main targets for redevelopment by institutional landlords.
Several new apartment housing developments have been paused or terminated since the measure was passed in November, including high profile projects at Lexington Station and Highland Bridge. Investors such as pension funds that back projects like these have decided to invest in other locales where their chances of making a reasonable return are not threatened by a fixed 3% cap on rent increases in the face of unknown future property tax increases etc.
Tailored exemptions could work, but getting them right will be tricky
The biggest, most immediate, issues the panelists discussed were:
- How to do non-blanket exemptions?
- How to avoid the unintended consequences of decreased property values, increased property taxes, and ending up with less affordable housing?
- How to target “bad landlords” without adversely affecting our “good landlords”?
The two panelists who were housing developers both stated that the investors behind their projects would put the money back on the table if the City amends the current ordinance with a blanket exemption for new construction. The two panelists who were renters worried that would cause tear-downs of existing NOAH. One of the panelists said “It has to be a blanket exemption – tinkering just further complicates things.” Another panelist said, “Keeping the 3% without any blanket exemptions is exactly what will drive the institutional landlords out of Saint Paul … but maybe there’s some tinkering that can be done to help keep the supply of NOAH.”
The two panelists who were landlords would like to see a non-blanket vacancy de-control exemption. (Vacancy de-control is where the 3% cap does not apply when a rental unit becomes vacant – when a tenant moves or the lease expires.) The tenant panelists believe any vacancy de-control will result in tenants being evicted just to raise rents.
All the panelists except one were sure that market values will go down for all rental properties in Saint Paul, that the decrease in the property tax base will be passed on to homeowners, and that the property tax base would be enhanced by new construction.
Finally, all the panelists agreed that the newly enacted ordinance has some maneuverability built in: “The City shall establish a process for exceptions to the 3% based on … [landlords getting] a reasonable return on their investments, being able to cover increased taxes, maintenance,” etc.
Panelists agree more ambitious solutions are needed
All of this highlights the limitations of rent control as a solution. The panelists were in agreement that other tools are needed – not just at the city level, but at the state and federal levels too.
For example, all six panelists (including developers, landlords and tenants) agreed that the City should lobby the State Legislature and Congress to eliminate the capital gains tax for “Mom & Pop” landlords who sell their duplexes, fourplexes, and other NOAH units to non-profits who agree to maintain affordable rents.
Other ideas beyond the City level were also discussed, such as lobbying the State Legislature for the $1B proposed by Gov. Walz to mimic the federal Sec. 8 program.
Other ideas at the City level (over and above enacting rent control) were also proposed. One area of focus was increased / enhanced housing code enforcement. For example, by making greater use of City Initiated Tenant Remedies Actions, which allow tenants to force repairs with court and City supervision. Or changing the licensing system to owner-by-owner instead of building-by-building, as Minneapolis does, a system which is both more efficient to administer and allows the City to tackle problematic landlords more effectively.
When we put together our panel, we hoped it would spark the broader public conversation that needs to happen on this issue. We will be exploring ideas for tackling this issue in depth over the coming weeks and months, and welcome written contributions from people on all sides of this issue for publication.