Rent control on Minneapolis, St. Paul ballots: Here's what proposals will do

(FOX 9) - Voters in Minneapolis and St. Paul will decide in November whether both cities should restrict rent increases, though the proposals are dramatically different.

The two ballot questions come in response to a nation-leading housing shortage. But while supporters say the proposals will safeguard renters from price spikes, critics argue they will only worsen the existing housing crunch.

What's on the ballot?

Under Minnesota law, only voters can approve rent control measures.

In Minneapolis, a yes vote on Question 3 will change the city charter and give City Council permission to enact price controls in the future, either by a vote or by putting a specific proposal to voters. The permission language does not cap rent increases at a certain percentage.

St. Paul voters are considering a much more specific plan. A yes vote on Question 1 will prohibit landlords from raising rents by more than 3 percent in a 12-month period, regardless of whether there is a change in occupancy. Landlords could apply for an exemption.

How did we get here?

Minnesota is 40,000 housing units short over the next five years because of a growing population coupled with a lack of construction following the 2008 crash, the Minnesota Housing Finance Agency has estimated.

The Twin Cities region now has one of the lowest vacancy rates among the biggest U.S. metro areas, said Jonathan Schroeder, a researcher with the University of Minnesota's Institute for Social Research and Data Innovation who analyzed U.S. Census data.

Will rent control help?

Rent control supporters say some landlords have taken advantage of low vacancy rates with steep rent hikes. Price controls will provide a safety net for low-income renters whose lives can be upended by a rent increase, they say.

"If you're a renter and you have no idea what's going to happen to you 6 months from now -- your rent could go up $1,000 because there's nothing preventing that -- then strong is a good policy for someone who wants security," said Tram Hoang, campaign manager for Keep St. Paul Home, the group pushing the St. Paul ballot proposal.

But critics -- including Minnesota landlords, realtors and the North Central States Regional Council of Carpenters -- say price controls will quash development and add to the existing housing shortage.

"There are purchase agreements that are on hold right now until Nov. 3 (Election Day)," said Cecil Smith, chief executive of the landlord group Minnesota Multi-Housing. "There are purchase agreements that have clauses written into them that if these measures pass, the purchase agreement is null and void."

What does the research say?

Researchers at the University of Minnesota's Center for Urban and Regional Affairs found 200 U.S. cities and two states have some form of rent stabilization policies.

Many municipalities that have policies use Consumer Price Index to set their rent increase caps. Berkeley, California has one of the most restrictive policies, at 65 percent of CPI. Oregon has a more relaxed policy, at CPI plus 7 percent, researchers found.

Overall, the policies help maintain below-market rent levels and more moderate price increases, the study found. The researchers also determined that rent control policies generally don't negatively impact new construction.

But researchers said most cities have exemptions for new construction, allowing developers to avoid price controls for a set period or forever. St. Paul's proposed ordinance does not include a specific exemption for new construction, nor does it factor inflation.

St. Paul's ordinance

While St. Paul's proposal directs the city to set up an application process for exemptions, critics said the lack of up-front exemptions on upper-income units, vacant units and new construction is "draconian."

"The problem is that what's before the voters in St. Paul is a very blunt instrument that will seriously hurt the housing outlook," Council Member Jane Prince said at a news conference this week.

Supporters of St. Paul's rent control proposal defended their decision to include a flat 3 percent cap, saying it will be easier for renters and landlords to understand than a changing inflation benchmark. Hoang compared the 3 percent cap to a fixed-rate mortgage, which she called one of the best forms of housing price stabilization.

"That is something we've learned from other cities," she said. "Implementation can be difficult when the number is constantly changing."

Hoang said the new price controls will affect few landlords. Most have raised rents at less than 3 percent a year over the past two decades, she said.

Campaign finance reports lacking

Because of Minnesota's lax campaign finance deadlines and lack of regulatory teeth, it's hard to know how much money is being spent on the Minneapolis and St. Paul ballot questions even as political groups blanket both cities with mail pieces.

Rent control supporters have two political committees called Home To Stay Mpls and Keep St. Paul Home. Opponents have formed under the banner of Sensible Housing Ballot Committee, a political group that's active in both Minneapolis and St. Paul.

Home To Stay Mpls and Sensible Housing Ballot Committee registered with Hennepin County after the most recent reporting deadline, meaning they won't need to file reports until Oct. 26 -- one week from Election Day, said county Elections Manager Ginny Gelms.

In St. Paul, Sensible Housing Ballot Committee has reported just $18,000 from a single donor, the state's biggest landlord group -- and that was two months ago. Keep St. Paul Home reported raising and spending about $60,000 before Labor Day. The next report in Ramsey County is due Oct. 19.

At this week's news conference, the Sensible Housing Ballot Committee declined to say how much it planned to spend in opposition of the ballot questions.

Local political committees don't have to file with the state this year, but that changes in 2023 for groups operating in Hennepin County. Transparency will increase because groups must file five times that year under a new state law, said Minnesota Campaign Finance Board Executive Director Jeff Sigurdson.