Rent control has long been a contentious issue for the multifamily industry. Over the last few years, it has undertaken one of its periodic upsurges, with attempts at the federal, state, and local levels.
However, over the last year, there have been examples of governments removing rent controls after a vote in favor of them or preventing them from being presented for a popular vote. The latest development is in St. Paul. On a 4-3 vote, the City Council — acting on a plan offered by Mayor Melvin Carter, according to the MinnPost — permanently exempted rental housing built after 2004 from the existing rent control ordinance voted in by a 2021 ballot measure.
The question is how long such pushbacks can last if the politicians sufficiently anger an electorate that disagrees with their actions. As of last fall, most Americans supported rent caps.
Moves toward rent control have become increasingly popular since the pandemic and the surge in rental and housing prices. This year, they appeared in Washington, the latest state to set broad controls. Plus, there was action taken in Montgomery County and Prince George's County in Maryland, a long favorite of institutional investor landlords.
These were driven up in large part by escalating property prices during the pandemic's depths. Even now, apartment markets are set to exceed average rent growth in 2025.
Investors under zero-interest-rate policies sought returns on their money. Liquidity, driven by the Federal Reserve and Congress, has fueled many previously alternative investments, including commercial real estate. Inflation drove up operational costs, including utilities and property taxes, while climate change further increased insurance costs. The Fed’s reaction to inflation was to raise interest rates. Market yields on the 10-year shot up from 1.5% to 3% pre-pandemic to almost 4.7%. While renters felt financial pressure, which, in turn, became a long-time mainstay of inflation, so did property owners.
The concern by the St. Paul City Council and Carter was a sharp cutback in multifamily construction. Last year, the number of housing units being built was only one-fifth of the previous 2021–2023 average.
Previously, a rolling 20-year window was introduced because the initial voter-instituted provision lacked an exception for recent construction, resulting in a significant disincentive for developers. But even this wasn’t enough. The new fixed date reportedly leaves more than 90% of the city’s rental housing stock still under control. However, this may leave the majority of properties challenged to deal with increased operational costs.
Last fall, California voters rejected a ballot measure that would have allowed cities to expand rent control significantly. Minneapolis, the “twin” of St. Paul, had a provision expected for rent control, but the City Council killed a measure in 2023 that would have put it on the ballot, as AP reported. Three Muslim council members were absent to observe a religious holiday when the vote was taken. However, the City Council also banned rent algorithms earlier this year, according to a The Minnesota Daily story.
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