St. Paul needs to reform its rent stabilization policy to revive development

Yahoo

10-04-2025

An apartment building under construction in St. Paul in February 2020. Photo by Max Nesterak/Minnesota Reformer.
In St. Paul, a debate has been brewing about whether the city should update its rent stabilization policies.
The city first implemented a strict rent stabilization policy after a 2021 ballot initiative. A year later, the City Council rewrote the ordinance, exempting new buildings for the first 20 years and allowing landlords to raise rents by more than the 3% limit after a tenant leaves.
After seeing a large decline in housing production — rent in St. Paul has actually grown slightly faster than in Minneapolis since 2021 — the mayor and some councilmembers are looking to rewrite the ordinance by exempting all buildings built after 2005.
Although the explanations behind St. Paul's current economic development struggles are multiple, this is a step in the right direction for the city.
There's no denying St. Paul's development downturn over the past few years. Housing markets are complex systems, and this slowdown has multiple causes. Though opinions may vary on which is the biggest factor, there is broad consensus that high interest rates, high construction costs, and rent stabilization are all major contributors to our housing production slowdown.
Interest rates are elevated, raising the borrowing costs for developers. COVID-related supply chain shocks led to two years of rapidly rising construction costs. As I've recently argued elsewhere, low rent growth in Minneapolis and St. Paul — which is in many ways a positive outcome — has likely also reduced development in the Twin Cities, because developers want to build in markets with rising rents.
Although construction has slowed throughout the Twin Cities metro recently, the municipal and county-level permitting numbers tell a more complicated story. Consider the figure below, which shows multifamily housing permits — specifically, buildings with 5 or more units — in St. Paul, Minneapolis, and the rest of Hennepin and Ramsey Counties.
Although development has cooled off from a hot post-COVID period everywhere, development in St. Paul fell faster and earlier than its neighbors, starting just before rent stabilization was passed. Only in 2023 did Minneapolis's development really start to slow.
St. Paul City Council candidate Cole Hanson has argued that homelessness and public health challenges are the primary factor discouraging local housing development, citing problems near Allianz Field, where new development has stalled. No doubt, these are important barriers to development, and Hanson is right to focus on humanely assisting St. Paulites forced to sleep on our streets.
But can this really explain why housing development has slowed down so much across the city, with developments struggling in Highland Bridge and the West Seventh neighborhood?
Hanson also pointed to zoning and permitting. There's no doubt that St. Paul could stand to further improve its zoning laws to encourage more housing and streamline administrative processes for new development. However, this can't explain why there has been a particular slowdown in development recently — especially considering that St. Paul's zoning and land use policies have become increasingly supportive of new housing in recent years, as the city has legalized fourplexes citywide and eliminated minimum parking requirements (I recently covered some anecdotal cases of new development responding to these reforms).
Still, for the sake of argument, let's say St. Paul is burdened by red tape and that developers are passing on St. Paul and hopping over to Bloomington or Minneapolis to build more easily. If you buy that argument, then surely rent stabilization is also disadvantaging St. Paul relative to its neighbors, none of whom have rent stabilization.
The world is messy, and we will likely never have a study that can precisely isolate the impacts of St. Paul's series of rent stabilization policies. But a consideration of various factors suggests that rent stabilization — particularly in its strongest form — has meaningfully contributed to St. Paul's decline in housing development.
A corollary of all this complexity is that making a modest change to rent stabilization will hardly transform the near-term state of housing development. Indeed, it's likely that there will continue to be some development disappointments even if the city permanently exempts new housing from rent stabilization.
By their very nature, however, macroeconomic conditions are not forever — while local policymakers cannot change interest rates themselves, they can count on interest rates to change eventually.
St. Paul seemed to miss out on much of the last housing development boom. When interest rates eventually fall and developers start building again, will St. Paul miss out again?
Fundamentally, cities must balance multiple precarious and often-contradictory goals. These include providing renters with stability, increasing the supply of subsidized affordable housing, building more overall housing supply to keep market pressures in check, and growing the city's tax base to support city services.
That's a tough challenge for any city, and it's especially tough for a place like St. Paul as it reels from a host of challenges in recent years. While it's possible for a well-designed rent stabilization policy to be a part of this mix, the current policy has almost certainly certainly depressed development and tax revenue.
Proposed reforms of the policy will hardly fix all of St. Paul's challenges, but it's a worthwhile first step.
SUPPORT: YOU MAKE OUR WORK POSSIBLE