St. Paul ordinance set 3 percent cap on rent increases — but exemption requests are mounting

Last fall, it looked simple. Voters in St. Paul approved a strict new rule for raising rents in the city.

"We're the taxpayers, we're the citizens. This is a democracy. We said 3 percent," said Hannah Gray, who lives in Union Flats, a 217-unit subsidized housing development a block off of University Avenue near Highway 280.

Gray backed the rent control proposal to cap rent increases at 3 percent, which supporters said would help keep housing affordable. It's considered the strictest in the nation: it doesn't reset when tenants move out. It isn't indexed to inflation.

But implementation is proving tricky. There are paths for property owners to seek exemptions allowing rent increases much higher than the cap.

Gray got a letter June 1 saying her rent was going up $89 a month — more than double the 3 percent limit.

"I was appalled," she said.

Katherine Banbury, who lives in an apartment building on East Seventh Street in St. Paul, got a similar letter.

"I live in a senior building. Many of my neighbors are on fixed income, their income doesn't go up more than 5.9 percent and they're asking us to pay 8 percent, or whatever the highest amount that they have done in the past — so it doesn't make sense," she said. "These seniors, many of them don't have anywhere else to go."

Banbury and Gray are appealing the rent increases and argued their case at a city hearing Tuesday. It could be the first of many.

With the ordinance in place, how are far greater rent increases possible?

Part of it is exemptions in city regulations that allow landlords to ask the city for permission for bigger rent hikes to recoup the cost of repairs, tax increases or remodeling — or even to reflect recent rent trends in the market.

City regulations even allow property owners to literally "self certify" that increases between 3 and 8 percent are necessary, without city review — and even more if they make the case to city officials. Those exemptions are part of an allowance to let property owners make money and stay in the rental business — called a "reasonable return" on investments.

That's already brought 76 applications for exemptions since the ordinance went into effect in May.

And there's more: the company that built and owns the buildings where Gray and Banbury live — and about 1,000 other affordable apartments in the city — says it doesn't think the cap applies at all.

Plymouth-based Dominium says it has longstanding, voluminous agreements with the city and federal government that dictate rents — agreements intended to keep rents below market rate for hundreds of apartments for decades, and leverage low-income tax credits to finance construction.

Voters can't just rip up those deals, Dominium senior vice president Owen Metz argued at the hearing at City Hall on Tuesday.

He said abandoning those agreements could reduce the incentive for anyone to build subsidized housing, and could bankrupt what's already been built. Capping rent increases at 3 percent won't keep the lights on, Metz said in an interview after the hearing.

"With inflation at 8, absolutely not," he said. "Eventually if you play that out, these deals go into foreclosure. And they're going to market."

As in up for sale, eventually with market-rate rents.

"No one wants that. I don't think the city wants that. We don't want that," Metz said.

Tenants don't believe him. Jack Cann, an attorney with the St. Paul-based Housing Justice Center, told city officials property owners shouldn't be allowed to decide for themselves what's reasonable.

"What they're asking for is a procedure in setting their exemptions that would guarantee them a return that is ridiculously higher than a reasonable return," he said.

The city is weighing those arguments and will have another hearing on the two tenant appeals in August.

As that process continues, there are other challenges and changes to the rent control ordinance in the works.

Two property owners have filed suit in federal court challenging the ordinance, citing a study by University of Southern California economists that suggests rental property in St. Paul may have already lost more than 10 percent of its market value because of the new ordinance. The suit calls the city's appeal process "complex and futile" and says it amounts to taking value from their property without due process.

And a blue-ribbon panel set up to review the ordinance has recommended the city add another exemption, for all housing less than 15 years old, retroactively. Mayor Melvin Carter backed that idea earlier this year.

All of those developments are being watched closely by rent control supporters and opponents in other cities weighing similar policies — including Minneapolis.

In the meantime, another St. Paul landlord already has preliminary approval for a 15 percent rent increase, set for a city council hearing on Wednesday afternoon. That could touch off a separate wave of appeals and court battles.

The city already says it plans to hire a new full-time staffer just to process the rent ordinance appeals.

• St. Cloud looks to bring new life, connections to revitalize city's downtown
• Minneapolis celebrates first large-scale affordable housing project in more than 20 years
• Volunteers to survey people experiencing homelessness for the first time since 2018