Federal judge upholds St. Paul rent control ordinance

Stephanie Ericsson Hinton
Stephanie Ericsson Hinton speaks at an August 2022 rally in support of St. Paul's rent stabilization measures.
Jon Collins | MPR News

A federal judge has upheld St. Paul’s rent control law. In an order this week, Judge Nancy Brasel rejected claims from two apartment building owners.

The plaintiffs, Woodstone Limited Partnership, which owns an apartment building in the Highland Park neighborhood, and the owner of the Lofts at Farmers Market, sued to block the ordinance in June.

They claimed that St. Paul’s rent control ordinance, also known as rent stabilization, prevents them from adjusting prices amid changing circumstances and market conditions and substantially diminishes the value of their properties. 

When voters first passed the measure in 2021 with a 53 percent majority, it was among the strictest in the nation. It put a three-percent annual cap on residential rent increases with little wiggle room.

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St. Paul’s Department of Safety and Inspections, which enforces the measure, soon set up a process for property owners to claim exemptions to the cap in order to get a “reasonable return” on their investments. Landlords must fill out a self-certification form to increase rent up to 8 percent, and they can increase rent up to 15 percent with city approval.  

In their lawsuit, the landlords argued that the measure deprives them of their property rights without due process and violates the Constitution’s Contracts and Takings Clauses. 

In her ruling, Brasel emphasized that it’s not her job to determine if rent control is sound public policy, only if it’s constitutional. While rent stabilization is new for Minnesota, similar laws have been on the books for much longer in other cities and have survived legal challenges.

Brasel said St. Paul’s ordinance does not deprive the landlords of their property rights in violation of the Fifth Amendment’s due process clause because it’s related to “legitimate and rational” government objectives of ensuring housing affordability.

In September, the St. Paul City Council approved some key changes, including a 20-year exemption for new construction, after Mayor Melvin Carter and some council members raised concerns the that ordinance was discouraging apartment construction and causing lenders to back out of financing deals. Many developers paused projects, and permits for multifamily buildings dropped 80 percent.

Another major change, known as vacancy decontrol, allows owners to raise rent on a unit after a tenant moves out by the rate of inflation plus eight percent. City leaders also exempted housing meant to be affordable for low-income renters.

Brasel noted that these revisions to the ordinance that voters initially passed “significantly benefited property owners.” 

St. Paul City Attorney Lyndsey Olson said in an interview with MPR News that those changes helped the city's legal case.

“It was a very interesting and also challenging situation to figure out how we walk this path of honoring the voters’ intent and also addressing tweaks that can assist the community and further the goals of our elected officials.”

Attorneys for the property owners did not respond to a request for comment.

Brasel also wrote in her decision that the rent control measure does not violate the Constitution’s Contract Clause, which curtails government interference with private contracts. She pointed to a 1921 case in which the U.S. Supreme Court rejected a Contract Clause challenge to a New York rent control.

Rent control was also on the ballot in Minneapolis in 2021. But voters did not pass an ordinance directly; they only gave the city council authority to decide the matter.

City council members have been discussing it, but backers of rent stabilization in Minneapolis are facing some headwinds. A report from city staff out last month recommends against adopting such a measure.

It acknowledges rental costs have far outpaced wages, particularly for low-income residents. But the report also says rent control wouldn’t effectively address the problem and could make things worse. It predicts a sharp drop-off in multifamily housing construction similar to what St. Paul experienced last year.

If the Minneapolis city council moves forward with rent control, members would likely need a veto-proof majority because Mayor Jacob Frey has long opposed it.