Why National Rent Control Proposals Are Counterproductive: Lessons from Minneapolis/St. Paul

Commentary by TCHA Executive Director Cathy Capone Bennett:

Many qualified economists have provided insightful analysis of the challenges and negative externalities of rent control policies in response to recent proposals for a national rent cap. As the Executive Director of the Twin Cities Housing Alliance, I want to draw attention to how these issues resonate locally in the Minneapolis/St. Paul area and why we believe there are many programs and policies that provide targeted assistance to those with income insecurity without impacting the housing market’s ability to deliver housing options and opportunities.

In our region, housing affordability remains a pressing issue, and while the intent behind rent control may seem beneficial, the practical outcomes can often be counterproductive. Here’s why:

1. Economic Consensus Against Rent Control: Echoing Jay Parson’s points, many economists, including President Obama’s former top economist Jason Furman, argue that rent control is fundamentally flawed. It discourages new development, which exacerbates the housing supply crisis. In Minneapolis/St. Paul, we’ve seen that policies restricting rental increases lead to reduced housing availability and maintenance issues, ultimately harming tenants in the long run​ (Shelterforce)​​ (MinnPost)​​ (NAAHQ)​.

2. Local Impact on Housing Supply: Recent studies in our area show that rent control measures in St. Paul led to a significant drop in new housing starts. Data from the U.S. Department of Housing and Urban Development revealed a 48% decline in building permits in St. Paul after the implementation of strict rent control measures in 2021​ (MinnPost)​​ (Planetizen)​. This reduction in supply drives up costs and limits options for renters, contrary to the intended relief such policies aim to provide.

3. Alternative Solutions for Affordability: At the Twin Cities Housing Alliance, we advocate for policies that directly support renters without stifling supply. Rental assistance programs and affordable housing development initiatives can provide targeted relief and increase overall housing availability. For instance, rental vouchers and subsidies effectively aid low-income families without the adverse side effects of rent control​ (Minnesota Reformer)​​ (Upjohn Institute)​.

4. Increasing Production to Curb Inflation: It's important to highlight that Minneapolis has successfully managed to curb rent prices and inflation through increased housing production. The Minneapolis 2040 Plan, which includes policies such as eliminating parking minimums and promoting higher density near transit corridors, has led to significant housing construction. This increase in supply has helped stabilize rents and curb inflation, demonstrating a viable alternative to rent control. Data shows that Minneapolis has issued a substantial number of housing permits in recent years, contributing to lower rent increases compared to the national average and other cities in the region​ (Minneapolis Fed)​​ (Brown Political Review) (Bloomberg)​​​.

5. Encouraging Development: We must also focus on incentivizing new construction and rehabilitation of existing units. The Biden administration's proposed efforts to repurpose public land for affordable housing, if implemented efficiently, could be a boon for our local housing market. This requires significant coordination and investment at the local level, something we are eager to support and develop​ (Upjohn Institute)​​ (Minnesota Reformer)​.

6. Addressing the True Costs of Rent Control: The administrative and enforcement costs associated with rent control are high, often resulting in frequent legal disputes between landlords and tenants. Moreover, rent control can lead to a decrease in property values and tax revenues, as seen in St. Paul, where property values dropped, resulting in higher taxes for other property owners to compensate for the lost revenue​. (Homes and Community Renewal)​​ (NMHC)​ (Minneapolis Fed)​​ (The Minnesota Daily)​

7. Preserving Existing Housing: Preserving existing housing units is critical for maintaining affordability. Rent control can disincentivize reinvestments in these properties, resulting in deteriorating living conditions and displacement. Effective policies include offering property tax breaks in exchange for income restricted units and providing capital and operating subsidies for reinvestment and rehabilitation​​.

In summary, while addressing housing affordability is crucial, the methods chosen must foster an environment conducive to growth and development. Rent control risks long-term harm to the very individuals it aims to help. By focusing on comprehensive solutions that include rental assistance, robust housing policies, and increasing housing production, we can work towards a more sustainable and equitable housing market in Minneapolis/St. Paul and nationally.