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Minneapolis city staff presented a lengthy report to some City Council members Tuesday, recommending against the implementation of rent control because of its potential impact on city finances and the housing supply.
The 67-page report noted that “a small percentage of renters” would benefit from rent control, but that overall, the negatives would outweigh the positives.
Rent stabilization would decrease city revenues, decrease market value of rental properties, and decrease the construction of new rental units, according to the report presented at Tuesday’s meeting of the Business, Inspections, Housing and Zoning Committee. In addition, the city’s spending would increase to enforce rent stabilization.
“We approached this more like a fiscal note than like an academic study,” Amelia Cruver, the city’s budget director, said of the report.
The report is part of the city’s effort to address the worsening problem of renters who spend 30 percent of their income on rent, which is also described as “cost-burdened.” Most Minneapolis residents are renters.
According to Minnesota Housing Partnership’s May 2022 Renter Snapshot, Minnesota renters of color are more cost-burdened than white renters. Fifty-eight percent of Black renters in the state are cost-burdened. For Hispanic renters, that number is 53 percent and for Indigenous renters, it’s 52 percent. Forty-four percent of white renters are cost-burdened. The report did not include information about Asian renters.
Minneapolis residents voted in November 2021 to grant city leaders control over rent on private residential property. The city also appointed 25 renters, rental owners and housing organizers to form a Housing/Rent Stabilization Working Group aimed at creating a rent stabilization policy. The group, which operates as an advisory body to the City Council, developed two policies—Framework 5 and Framework 7. Its policies are separate and independent from Tuesday’s report.
Fourteen of the working group’s members previously voted for Framework 5, which proposed capping annual rent increases at 3 percent. It also proposed enforcing stricter rules for landlords who seek exemptions from the cap. Eleven members voted for Framework 7, which proposed implementing a more flexible rent cap and allowing exemptions for new construction, subsidized affordable housing, and owner-occupied housing.
The report also includes a recommendation for the city to “continue supporting, and explore deepening investment, in known effective strategies to relieve renter cost-burden.”
One strategy listed in the report is to look further into implementing a Guaranteed Basic Income program, which provides a direct cash benefit to people for basic needs, regardless of employment status.
Tuesday’s report evaluated legal challenges on rent control and the city’s fiscal budget, and included insights from experts at the Federal Reserve Bank of Minneapolis. It also incorporated discussions with St. Paul city staff; St. Paul’s rent stabilization policy is currently being challenged in federal court.
Other findings in Tuesday’s report include:
- Renters may face higher rent increases as landlords could raise rents to the maximum allowed.
- Housing quality could deteriorate as landlords become disincentivized to maintain their properties because they can’t raise rents to match their costs.
- Over a 10-year period, 25,000 fewer new rental units would be constructed under Framework 5, and 9,900 fewer new rental units would be constructed due to rent regulations.
- It would cost the city $1.5 million per year to enforce and implement Framework 5, and $1 million for Framework 7.
Supporters of rent stabilization, including members of the city working group who voted for Framework 5, attended Tuesday’s meeting and pushed city leaders on the issue. Nichole Buehler and Stacey Gurian-Sherman, members of Minneapolis United for Rent Control coalition, stood behind city staffers who presented the report’s findings and held up a sign that read “Minneapolis Demands Strong Rent Control.”
The report also highlights data and findings from a 2021 Minneapolis Rent Stabilization report created by the University of Minnesota’s Center for Urban Regional Affairs (CURA) that covered rent regulation in other cities, Minneapolis’ housing market, and economic analysis.
“There is widespread agreement in the empirical literature that rent regulation increases housing stability for tenants who live in regulated units,” read the University of Minnesota report.
Edward Goetz, director at the University of Minnesota’s Center for Urban Regional Affairs, said in an interview with Sahan Journal that the center’s research on the impacts of rent stabilization across the country “would lead to slightly different conclusions than I saw” in the Minneapolis staff report Tuesday.
He also said the city report assumes “a large and significant impact” on new construction and housing quality.
“There is little empirical evidence to show that rent control policies negatively impact new construction,” read the University of Minnesota report. “Construction rates are highly dependent on localized economic cycles and credit markets, and most rent stabilization programs exclude new construction.”
City Council Member Elliott Payne said at the Tuesday meeting he was disappointed that the staff analysis did not dig deeper into empirical evidence and “move beyond the narrative.”
City Council Member Jason Chavez said that city council members “weren’t engaged” with staff’s work on the report as it was happening.
He also raised concerns that the city could not find an external party to conduct the report presented Tuesday. He added that it “would make sense” to continue to engage and communicate with researchers from the University of Minnesota’s Center for Urban Regional Affairs on research.
In response to Chavez’s question about how the city tried to find an external party to execute Tuesday’s report, Joey Dobson, Housing & Equitable Development Policy Coordinator, said the city looked for bids to conduct the work but received none.
City Council members will have an hour to discuss the city report at the next Business, Inspections, Housing and Zoning Committee meeting on May 2, 2023. More discussions on the issue will be held at future committee meetings.
If the City Council votes at a later date to approve rent stabilization, Minneapolis residents will have a chance in November to vote whether to adopt the policy.
“Whatever policy that we come up with—and I want to see something to happen for these very challenged members of our community—[it] has to be targeted, it has to be direct,” said Council Member President Andrea Jenkins. “It cannot exacerbate the problem that our community members are suffering from currently.”