Unless something turns around this fall, St. Paul is on pace for the worst residential construction season since 2010 or 2011, when the city was still recovering from the Great Recession.

Builders pulling permits for new apartment buildings and other types of multi-family housing have given St. Paul a wide berth this year, slowing planned construction to about one-tenth the momentum of a year ago. That’s according to building permit data on file with the U.S. Department of Housing and Urban Development, or HUD, which shows about 140 housing units were issued permits in new multi-family buildings in the first half of this year, compared to roughly 1,025 residential building permits issued in St. Paul during the same period last year.

The city’s own housing production dashboard, which tracks housing permits somewhat differently, is no more rosy.

Many observers have blamed high interest rates, a tightened lending market and a growing willingness to live well outside urban areas in the era of remote work. The pandemic, a record increase in homelessness and a spike in violent crime have made city centers across the country a lot less fun, and construction costs have gone up.

Nationally, CBRE — the world’s largest commercial real estate services and investment firm — forecasts that multi-family housing starts could fall by 45% this year compared to their pre-pandemic average, and drop by 70% across the country compared to the 2022 apartment building boom.

On top of those concerns, developers say St. Paul’s “rent stabilization” policy — which caps residential rent increases at 3% annually — has made it especially difficult to obtain financing or pitch projects to national developers. In a high-poverty city, rent control is seen as an added weight to bear in an already shaky boat.

Alarmed by the construction slowdown, St. Paul Mayor Melvin Carter said he would ask the city council to lift voter-approved rent-control restrictions from any housing built after 2004. In other words, new construction would be permanently exempt from rent control, as would anything built within the past 20 years. The mayor called it a necessary part of his wide-ranging “portfolio” approach toward boosting first-time homebuyers and encouraging the preservation and production of affordable housing, as well as new housing at all income levels.

“A housing crisis is marked by one clear symptom: a housing shortage,” said Carter, during the mayor’s budget address in August. “The underlying economics of maintaining a 50-year-old building are fundamentally different from the economics of constructing a new one. … This simple change would advance our values by maintaining the overwhelming majority of St. Paul rental properties as rent stabilized while unlocking the critical release valve that only new housing construction can offer us.”

Pushback likely against the mayor’s proposal

Carter has said that given the age of the city’s housing stock, most of St. Paul’s rental properties will still be subject to rent restrictions if his proposal goes through, which is a big if. The city council could make its decision by the end of the year, and several council members seem dedicated to preserving rent control.

Housing advocates note that citing inflation, property tax increases and other operating costs, property owners have submitted hundreds of requests each year for one-time exemptions to rent control. And the vast majority have been granted. The city council has already exempted subsidized or deed-restricted affordable housing from rent control entirely, as well as housing that is less than 20 years old. Newly vacant units also get a partial exemption.

“I think that rent stabilization has become a very convenient piñata to pin things on,” said Daniel Suitor, a tenants rights attorney for Home Line, a Bloomington-based nonprofit advocacy organization. “I would say inflation and high interest rates are the things that are killing development more than anything else. You get a couple drinks in a developer and that’s what they’ll say first.”

“St. Paul’s population, depending upon what statistics you choose to believe, is either flat or falling,” Suitor said. “Reduced demand is going to drive so much of the loss in construction. I think you’re looking at a confluence of factors. Of course, it would be arrogant to say rent control has no impact (on construction).”

Observers note that Minneapolis and other cities that have not instituted rent control also have experienced a housing slowdown.

In Minneapolis, where builders have pulled permits for 3,000 to 3,600 housing units in multi-family buildings each year since 2020, the numbers slowed to 1,500 units by the end of last year, and then down to only 321 newly permitted units in the first half of this year. In Indianapolis, developers pulled permits for just 155 units in the first half of this year, compared to more than 1,500 by the end of 2023.

Still, St. Paul’s slowdown started before many others, and not every city has suffered the same fate. Rochester, Minn., is having one of its best residential construction years in 25 years. In the first half of 2024, developers pulled permits for 818 multi-family housing units in Rochester, compared to 551 units in all of 2023, according to HUD data.

Here are a few different perspectives on the mayor’s proposal to permanently exempt new construction from rent-control restrictions:

Austin Altenburg, landlord

Austin Altenburg owns and manages seven rental units in St. Paul, mostly in the West Seventh and Summit-University neighborhoods.

“The biggest problem is supply, and the goal should always be to increase supply in any way that we can,” Altenburg said. “Re-evaluating the (rent control) policy is a good first step, but it doesn’t actually address the root problem. To maintain properties, it costs money. (Rent control) disincentivizes that investment, which is bad for neighborhoods, bad for everybody. It limits supply. In a city with a large percentage of really old homes — and St. Paul is known for its older Victorians — that is going to put stress on those really old homes. These changes are accommodating to the large developers, but a large percentage of rental properties in St. Paul are held by people with fewer than 10 units.”

Daniel Suitor, tenants rights attorney

Suitor is a housing attorney with Home Line, a statewide housing nonprofit and tenants rights organization. Suitor, who advises tenants on all of the St. Paul rent-stabilization questions that come to Home Line, believes St. Paul’s rent control has been watered down enough in favor of landlords.

A year ago, through the state’s data practices act, he reviewed the number of appeals of rent hikes — or limits on rent hikes — filed to the city of St. Paul by landlords and tenants, and found that tenants rarely win those battles.

“I didn’t find a single case of them declining a rent increase when the landlord filled out any paperwork,” Suitor said. “They’ve made it incredibly difficult for tenants to appeal. They made it so landlords don’t even have to show information for increases up to 8%. It’s ‘trust me, I’m a landlord.’ They can self-certify. Most of the landlords have stopped complaining about this law because they know it’s not being enforced. They know they can raise their rents. It’s not that difficult.”

“While (the mayor has) paid lip service to the rent-stabilization ordinance, he doesn’t like it. … Landlords in St. Paul will openly say, ‘we don’t care, we’re raising your rent 15%,’ and the city says to tenants, ‘well, I guess you could sue.’ That’s all at the foot of the mayor. To my knowledge, there’s only been one private lawsuit around the rent-stabilization law and it was settled off the record, privately.”

Meghan Elliott, historic preservation consultant

Meghan Elliott is the founding principal of New History, a Minneapolis-based consulting firm that works with developers throughout the Midwest on historic preservation projects. She is also the founder of Jillpine, a real estate development company focused on historic properties. She said most developers and lenders looking at St. Paul’s rent-control policy are uncertain about the nuances, or what amendments may be on the horizon, and that makes financing tricky projects an even trickier conversation with the banks.

“(The mayor’s rent-control rewrite) will bring some certainty to St. Paul for a period of time, but it doesn’t solve the overall problem of needing more housing in St. Paul, and creating housing is hard and expensive,” Elliott said. “That’s the bigger challenge of rent control. In any city it’s ever been implemented in, it typically has the opposite effect of what’s intended, which is the creation of more affordable housing. Housing is a loss leader for downtowns. It’s the most expensive thing to build, but you need it to drive economic development, jobs and a 24/7 city. Rent control does the exact opposite by making new housing creation impossible and housing preservation unsustainable.”

St. Paul City Council President Mitra Jalali

St. Paul City Council President Mitra Jalali was elected to the council in 2018 on a platform that included renters’ rights. She’s been an advocate for tenant protections, including rent control, at a time when the rent-stabilization ballot question was unpopular with the previous city council. The November 2023 election brought four new faces to the seven-member council, potentially changing the outlook.

“(Council members) expect and are open to a discussion about how to comprehensively protect renters and support housing development in our city. I don’t think it’s a ‘minds made up’ decision. There needs to be an evaluation of the housing landscape and all the factors affecting it. We know that nationwide, multi-family housing construction is down. I would always want to look at St. Paul data in the totality of everything else happening, but that’s not to say there’s nothing here.”

“The Twin Cities as a whole region really plummeted in multi-family construction, and I’ve been able to travel around the country this summer and talk to other city leaders who say that’s a major factor in what they’re trying to address. The federal government is trying to battle inflation, and we’ve seen inflation in construction and materials. We have had a few years in this rough housing market, and we need to look at all of it, right from enforcement and implementation in terms of the renter’s experience.”

“Since we don’t have (the mayor’s) idea in writing, it’s more a discussion about an idea. We already have an exemption for new construction in St. Paul. The biggest challenge is (the mayor is proposing) an indefinite exemption, and right now we have a rolling exemption. How do we get investment without displacing people who need homes now? We’ve already done a lot. We eliminated single-family-only zoning citywide. We expanded multi-family zoning near transit nodes. We changed the definition of family to be more inclusive. We eliminated parking minimums. There’s a lot that already makes St. Paul a competitive housing market to build in.”

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