“Over the past few years, Minnesota’s Twin Cities have run a real-world housing experiment. St. Paul instituted strict rent control that froze development and eventually forced the city to roll back the policy. Minneapolis loosened zoning instead, unleashing a surge of new apartments and keeping rent growth below both St. Paul’s and the national average,” reports The Doomslayer.
A news article explains:
Dueling approaches over how to fix America’s housing crisis are splitting Minnesota’s Twin Cities.
In 2022, St. Paul enacted one of the strictest rent-control regimes in the country. The ordinance capped annual rent increases at 3% for most apartments, even empty ones. It didn’t adjust for inflation.
Across the Mississippi River, Minneapolis steered clear of rent control. Instead, city officials strictly focused on creating new housing. A package of land-use revisions in 2020 made it easier to build apartments, in part by removing restrictions that limited housing to single-family homes.
Now, the results are coming into focus. Permits to build apartments in St. Paul plummeted by 79% in early 2022 from the year before, according to data from the Department of Housing and Urban Development. Real-estate investment activity nearly froze. Developers halted new projects as lenders pulled back. Property values declined as investment cooled. All this compounded the existing real-estate problems brought on by the pandemic.
St. Paul officials are now walking back parts of the ordinance, voting in May to exempt new construction and properties built after 2004. Kaohly Her, the mayor-elect and herself a landlord, campaigned on re-evaluating the rent-control policy further. “The math just doesn’t work,” she said.
In Minneapolis, meanwhile, developers kept building. Housing permits surged nearly fourfold in early 2022 from the year before. Downtown hubs blossomed as new apartments hit the market and attracted young professionals.During the pandemic, Minneapolis rents grew more slowly than both St. Paul and the U.S. overall.
Rent control killed multifamily housing construction in Maryland’s most populous county. Getting rid of rent control greatly expanded the amount of rental housing in Argentina, without raising rents (one of the many reasons that occurred is that people were more willing to rent out rooms in their house if they didn’t have to worry about being prevented by rent control from raising rents in the future to cover rising costs, such as the need to renovate or pay rising utility bills). Indeed, average rents actually fell in real terms in Argentina after the end of rent control.
In 2023, The Wall Street Journal noted that “If there’s any consensus in economics, it’s that rent control achieves the opposite of its intended goal. It leads to housing shortages by discouraging new development and maintenance of existing properties.”
Even back when it was more left-leaning, the Washington Post criticized rent control, saying, “Rent-control laws can be good for some privileged beneficiaries, who are often not the people who really need help. But they are bad for many others.” For example, after San Francisco imposed rent control, “landlords responded by converting their buildings into condos they could sell or business properties they could lease without rent-control restrictions — or by demolishing their old buildings.” “And since rent-stabilization policies often tend to discourage people from moving, they harm worker mobility and the economic dynamism associated with it.”
Rent control also reduces the quality of housing over time. As even the liberal Brookings Institution noted, “Rent control can also lead to decay of the rental housing stock; landlords may not invest in maintenance because they can’t recoup these investment by raising rents.”
When landlords can’t raise rents to pay for repairs and renovations, they may let apartment buildings decay. After New York limited rent increases to pay for major capital improvements to 2 percent, landlords cut back on such improvements. A survey of rent-stabilized landlords found that when rent increases were curbed, three out of four reported cutting back on essential building-wide repairs, such as a roof or boiler replacement, since the rent law passed. Nearly 90 percent said they had forgone kitchen or bathroom renovations. Just over half decided against revamping their buildings’ security systems to include cameras or video intercoms or adding storage lockers for deliveries to thwart porch pirates. Efficiency upgrades have also been pushed to the back burner. Over 40 percent of respondents said they would not replace lighting with LED fixtures that use 90 percent less energy — a budget saver for tenants.
As the Washington Post notes, “landlords have less incentive to maintain their properties in a rent-controlled environment,” harming housing quality.
It is foolish for local governments to impose rent control, because that can reduce the value of housing stock, shrinking the property tax revenue that funds schools and local governments. “Researchers at the University of Southern California said rent control hurt property values in St. Paul, Minn. by $1.6 billion,” reported Market Watch.
