Posted on by John Edwards

Rent Stabilization Not Getting An Honest Analysis in Minneapolis

Back on December 14, the appointed group of volunteers serving on the City of Minneapolis’s Rent Stabilization Work Group completed their work and made a recommendation. Hours later, Mayor Frey delivered his rebuttal: “It’s not happening.” And four months later, Frey’s administration presented a report to the City Council reinforcing his opposition, recommending against enacting any version of a rent stabilization policy. Under our new government structure, even when they’re doing work in service of the City Council’s legislative function, city departments answer exclusively to the Mayor.

The analysis in the staff report is narrow, focusing on competing recommendations from the city’s work group. One side of the work group was made up largely of tenant advocates pushing for a maximal rent control policy. The other faction was tilted towards landlords and developers who recommended a more lax policy. Differences between the two sides’ recommendations go well beyond just capping rents at different percentages. It’s more complicated than that.

Here’s the key: Both sides recommended a rent stabilization policy. In response, Frey’s executive branch rejected the idea of having any rent stabilization at all.

Instead of highlighting the best pieces from these two competing recommendations, the staff report focuses on the worst — pretending they couldn’t just make other choices. In the below example, the report reaches a “negative” verdict by pointing to Framework 5’s lack of rent banking. Then they reach the same “negative” conclusion by pointing to Framework 7’s lack of vacancy control. They’ve cherry-picked the worst from each recommendation, rather than showing how a policy could be constructed to help people and minimize negative consequences.

Differences between the Rent Stabilization Work Group’s majority (Framework 5) and minority (Framework 7) recommendations.

Then there’s the report’s focus on St. Paul, whose voters adopted the strictest rent stabilization policy in the country in November 2021. While our twin city would seem to make for a good comparison — that’s only if we restrict ourselves to making the same choices. Unlike other rent control policies across the country, St. Paul’s ballot question didn’t exempt new construction (one of a number of policy choices they have since modified). It’s fair to argue this had a significant effect on new housing construction in St. Paul. And yes, new housing is vital to a healthy local housing supply. But if you look at other cities, there’s a lack of evidence that rent control with new housing exemptions has a negative impact on construction (1, 2, 3).

It’s also a problem that a lot of what’s driving staff conclusions in this report are conversations with local “real estate market participants.” There’s a limit to how useful this information is. The Minnesota Multi Housing Association and the larger landlord lobby have pushed hard against renter protections in the last several years. During the last Council term, developers told us inclusionary zoning would drive them out of Minneapolis. The city adopted those policies anyway and currently touts IZ as an affordable housing success story.

One last thing, unrelated to what’s in the staff report: the longstanding institutional resistance to passing big new housing policy in Minneapolis. Here’s former Council President Lisa Bender describing her experience during eight years in office, before the shift to a strong mayor system.

The Inclusionary Zoning Experience

In light of this conflict between the Mayor’s preferences and the City Council’s need for independent research, you’d expect this analysis to have been contracted to a third party (there’s some dispute about how hard the city tried to do this). That’s how the legislative process worked four years ago on a different housing issue: enacting affordability mandates for new construction called “inclusionary zoning.” In 2019, a non-profit consulting group hired by the city looked at IZ policies from 258 jurisdictions. They noted how the rules for developers could be made more or less strict; the upsides and downsides; and the varying methods of compliance. It was the sort of full picture presentation the City Council is not currently receiving on rent stabilization.

During a presentation to the Council in 2019, an expert hired by the city answered a question about developer feedback on the various elements of the policy: “[The developers’] position was that because the IZ policy in their minds was not financially feasible that there was no point in talking about the plan’s alternatives.” The Council was made aware of the widespread industry opposition and passed an ordinance anyway.

Slide from a 2019 inclusionary zoning presentation to the Minneapolis City Council

I should note that the city’s inclusionary zoning policy is mentioned in the rent stabilization staff report — as a success story now under threat. “Due to Inclusionary Zoning, lost market production = lost affordable production.” That is to say, rent stabilization puts IZ at risk. But if we’d taken “real estate market participants” at face value in 2019, the city never would have adopted IZ in the first place.

For the Full Picture, Look Beyond St. Paul

Minneapolis voters passed the ballot measure creating a mechanism to enact rent stabilization 18 months ago. It had more support than the ballot question creating a new strong mayor government structure. While the Mayor and City Council moved quickly to pass ordinances giving the mayor a more streamlined executive branch org chart, rent stabilization was left to linger. The April 2022 Council resolution initiating the legislative process on rent stabilization noted key dates and the need for urgency to get it on the ballot: “the absolute latest date that a proposal needs to be completed is early In the first quarter of 2023.” Here we are on May 2, and the Council is still receiving staff analysis — it’s on the agenda for a committee meeting later today. It may already be too late to develop a proposal and put it on the ballot this year.

None of this is to say that we should blindly follow St. Paul into a maximal version of rent stabilization. There are lessons we can learn, not just from St. Paul, but from other jurisdictions. We can absolutely mess this up if we’re not careful. But if you’re worried about stifling new construction, you can enact a policy that exempts it. If you’re worried about landlords maxing out rent increases to the limit every year, let them have rent banking. If you think vacancy decontrol incentivizes evictions, choose vacancy control. If you think this policy needs to be paired with strong just cause eviction standards, please do. The list of choices to be made goes on.

In this useful piece from a former rent control skeptic, Jurusalem Demsas describes how economists used to be “largely unified against minimum wage policies.” But we eventually arrived at a consensus that it’s worth intervening in the market to set a lower limit on wages. We may not agree what that limit is, but we agree it exists.

Rent stabilization may not be the singular solution to our housing problems, but it is an important tool to keep people housed who would otherwise be displaced. I had hoped city hall would give us a real debate over what the limit is when it comes to rent increases. Instead Mayor Frey and his City Council allies may succeed in running out the clock.