Rent Stabilization: The blueprint to affordable housing?

St. Paul residents voted on November 2, 2021, to make a significant step towards addressing the lack of housing affordability and stability in St. Paul, passing one of the nation’s strongest rent stabilization policies. This article, written by staff at the Housing Justice Center, will briefly explain what the ordinance does and how tenants can protect the rights they have won through their votes.

By Margaret Kaplan and Max Tsai

Why rent stabilization?

For years, low-income renters in St. Paul have experienced extreme rent hikes that have priced them out of their homes. The COVID-19 pandemic has only exacerbated existing inequities in the economy that have left families without a safe, stable, and affordable place to call home. In the renter-majority city of St. Paul, 39% of white residents rent, while 82% of Black residents, 64% of Native residents, 62% of Latinx residents and 58% of Asian residents do.¹ Nearly half of all St. Paul renters live in housing that is not affordable to them, meaning they pay more than 30% of their income in  rent each month.² While 31% of white households pay more than they can afford for housing, 48% of households of color are disproportionately burdened by the cost of housing.³

Rent regulations have been an effective tool for maintaining below-market rent levels and moderating price appreciation in communities across the country.⁴ At the same time, there is also little empirical evidence that shows that rent control policies negatively affect new construction. In jurisdictions such as Boston, Brookline, and Cambridge, studies found that ending rent control did not have any statistically significant short-term impact on the construction of new housing.⁵

In response to these conditions, St. Paul residents voted on November 2, 2021, to make a significant step towards addressing the lack of housing affordability and stability in St. Paul, passing one of the nation’s strongest rent stabilization policies. On May 1, 2022, the provisions of the ordinance became effective. This article will briefly explain what the ordinance does and how tenants can protect the rights they have won through their votes.

The St. Paul rent stabilization ordinance

St. Paul’s rent stabilization ordinance limits residential rent increases to 3% in any 12-month period for any residential rental properties.⁶ A residential rental property or unit includes any dwelling unit or portion of a dwelling unit that is rented or otherwise made available for rent for residential use or occupancy.

The ordinance approved by St. Paul voters includes two exemptions to the limitation on rent increases. First, the ordinance includes categorical exemptions for housing service providers reimbursed by a government entity under the Housing Support Act or where the tenant’s obligation for their rent is a specific percentage of their income.⁷

Second, the ordinance includes an exemption based on the landlord’s right to make a reasonable return on their investment. The ordinance required the City of St. Paul to create a process by which landlords can request exceptions to the limitation on rent increases based on a reasonable return on investment.

In creating a process to determine the exception process for reasonable return on investment, the ordinance provided that the city take into account:

1. increases or decreases in property taxes
2. unavoidable increases or any decreases in maintenance and operating expenses
3. the cost of planned or completed capital improvements to the rental unit where such capital improvements are necessary to bring the property into compliance or maintain compliance with applicable local code requirements and such capital improvement costs are properly amortized over the life of the improvement,
4. increases in the number of tenants, living space, furniture, furnishings, equipment, or other housing services provided, or occupancy rules,
5. substantial deterioration of a rental unit other than as a result of normal wear and tear,
6. failure to provide adequate housing services or comply with applicable state laws, local codes, or the rental agreement,
7. the pattern of recent rent increases or decreases.

All rental units must be safe and habitable to be considered for a reasonable return on investment exception to the 3% cap. The ordinance as approved by St. Paul voters requires that the city not grant exceptions to any unit where the landlord has failed to bring the rental unit into compliance with the implied covenant of habitability.

Additionally, the ordinance as adopted explicitly maintains limitations on rent increases regardless of changes in occupancy. In other words, unlike jurisdictions where the landlord can “decontrol” a unit by evicting or non-renewing a tenant, the limitations on rent increases survive unit turnover.

Implementation and rulemaking

The city’s implementation of the ordinance takes the following into consideration when deciding whether a landlord’s request for an exemption should be granted. 1) a reasonable return standard based on Maintenance of Net Operating Income (MNOI), 2) planned or completed capital improvements, 3) changes in the number of tenants, 4) changes in space or services, and 5) pattern of increases or decreases in rent relative to changes in the Consumer Price Index (CPI).

The city implemented a process for landlords to request the reasonable return on investment exception to the limit on rent increases through two mechanisms: self-certification and staff determination. The mechanism for requesting a rent increase above the 3% limit is determined by the extent of the proposed rent increase. The maximum increase in rent for a self-certified exception is 8% above the existing rent. If the landlord intends to request an exception above 8%, they must use the staff determination process.

Both self-certification and staff determination exception requests require the landlord to fill out an online form. The form asks that the landlord supply identifying information and contact information for the landlord, a company if they represent one, and the property itself. The online form then requires the landlord to state the reasons they believe the property should be exempted and whether they are self-certifying or utilizing staff determination for the exemption.

Regardless of the extent of the proposed increase, landlords requesting an exemption to the 3% limitation of rent increases are required to fill out a Maintenance of Net Operating Income (MNOI) worksheet. Landlords using the staff determination process must submit the MNOI worksheet, while landlords using the self-certification route must retain the MNOI worksheet and any other forms related to factors selected in the Exception Request form in case of a city audit. The MNOI worksheet provides the city with required income and expense information related to the rental property that the landlord is asking to be exempted from the 3% limitation on rent increases. All self-certification exception requests are subject to audit.

Enforcing tenant and landlord rights under the ordinance

There are several ways for tenants and landlords to enforce their rights under the ordinance. Landlords and tenants both have a right to appeal determinations made by the city. For instance, if the city grants or denies a request for an exemption based on a reasonable return on investment, the landlord can appeal the denial of that request, or the tenant can appeal the granting of that request. Appeals can be sent by mail or by email, or the appeal can be filed in person. An appeal must be submitted within 21 business days of the city’s determination.

Tenants can also file a complaint to city staff to ask them to investigate potential violations of the rent stabilization ordinance. The ordinance also provides a private right of action for any tenant whose landlord is not in compliance with the ordinance. Finally, all lease provisions that waive or purport to waive any right created by the ordinance are voided by the ordinance’s prohibition of waiver.

Under the ordinance and the rules adopted by the city, many fees are considered rent if they are collected for use of the rental unit. Any benefit, privilege, or facility connected with the use or occupancy of the rental unit is included under the definition of “rent” that was passed by the St. Paul City Council in April of this year. That includes but is not limited to maintenance, pet rent, month-to-month fees, trash removal, parking, utilities paid by the landlord, administrative fees, janitorial services, laundry, painting, light, hot and cold water, elevator service, window shades and screens, storage units, and telephone services.

Current status and future developments

The St. Paul rent stabilization ordinance continues to be the subject of ongoing legal advocacy and policy discussions. The City of St. Paul convened a working group to examine the ordinance in the context of policies across the country and to look at the potential long-term recommendations for adjustments to the policy. The committee sent a set of recommendations to the city in July 2022. A number of the recommendations, including a 3% rent cap were consistent with the ordinance approved by St. Paul voters. Other recommendations, including a blanket exception for new construction, represent a notable change to the policy as adopted. Other recommendations of the group addressed issues that the ordinance was silent on, including creating Just Cause nonrenewal protections and creating explicit tenant notification requirements.

Based in part on the recommendations of the committee, there are several proposed amendments to the ordinance that are being considered by the St. Paul City Council. While some of the amendments are consistent with the purpose and meaning of the ordinance, others would create substantial departures from the policy that was approved by St. Paul voters. Most notably, the proposed amendments include a broad blanket exemption for affordable housing properties, removing almost 8,000 housing units that are home to approximately 20,000 St. Paul renters from the limitation on rent increases. This proposed amendment would disproportionately remove BIPOC households, people with disabilities, and families with children from protections under the rent stabilization ordinance. Other proposed amendments include creating more specificity about utility payments, establishing a narrow Just Cause provision, exempting properties from rent stabilization protections for the first 20 years after they receive their initial certificate of occupancy, and creating a clear notice provision for renters facing rent increases above the 3% limit. The proposed amendments will be the subject of heated debate over the next several weeks as the city council seeks consensus on a set of amendments to the policy that serve the broad range of needs in St. Paul. If any amendments are adopted by the council, the changes are scheduled to go into effect in January of 2023.

The ordinance is also the subject of a lawsuit filed in June by landlords who own properties in St. Paul. Woodstone v. St. Paul raises claims under both the state and federal constitution. There are also several administrative hearings on the calendar in the City of St. Paul challenging the validity of rent increases and fee charges filed by tenants using the city’s appeals process. The outcomes of these cases and appeals will shape the implementation of the ordinance in the coming months and years.

Meanwhile, in a tumultuous economy and an uncertain housing market, thousands of St. Paul renters now have recourse when faced with egregious rent hikes and can budget around predictable housing costs for years to come.

1. American Community Survey, 2019

2. HousingLink

3. City of St. Paul

4. https://www.cura.umn.edu/research/minneapolis-rent-stabilization-study

5. https://www.cura.umn.edu/sites/cura.umn.edu/files/2021-08/Minneapolis-Rent-Stabilization-Study-web.pdf

6. Sec. 193A

7. Sec. 193A

Max Tsai graduated from the University of Minnesota School of Law in 2021 and is currently a Housing Attorney at Mid-Minnesota Legal Aid in their Minneapolis office. Before joining MMLA, Max was a staff attorney at Housing Justice Center. Max is originally from Ames, Iowa and before law school, he worked as an AmeriCorps member with Iowa Legal Aid‘s Iowa City office. Max lives in Minneapolis and enjoys board games and trying out new restaurants. Contact Max at mtsai@mylegalaid.org.