St. Paul’s rent control vote caused home sale prices to lag, study finds

According to an analysis of real estate transactions conducted by researchers at the University of Southern California, early evidence suggests that the passage of St. Paul’s new rent control law caused a delay in the rate of growth of values residential properties compared to other cities.

As the city’s housing market remains competitive, with a dearth of listings driving up prices in recent months, economists Kenneth Ahern and Marco Giacoletti have studied geographic and seasonal trends, building age, floor area, square feet and other variables to compare the evolution of real estate in Saint-Paul. prices after voters approved rent control in November relative to what other markets have seen over the same period.

They estimate that if voters hadn’t passed a 3% annual cap on rent increases, residential property values ​​would be 6-7% higher, or a total of $1.6 billion.

“Prices tend to reflect what happens in the future,” Ahern said. “We know that in the future rents are going to change. If, as an investor, I anticipate that, I’m not going to pay that much today for something that will have less cash flow in the future. to come up.”

Ahern and Giacoletti used data from Redfin, an online real estate brokerage firm, to examine nearly 150,000 transactions in the Twin Cities area that took place between January 2018 and January 2022. The analysis focuses on properties from one to four units and do not include large apartment buildings.

A handful of economists from other institutions noted that while the paper — which has yet to be peer-reviewed — seemed methodologically sound, the results represent a relatively short period.

St. Paul Mayor Melvin Carter has previously asked a 41-person stakeholder group to recommend ways to improve or improve the city’s rent control ordinance, and future changes to the policy would likely affect house prices.

“This study provides reasonable evidence … although we need more time and more research before drawing firm conclusions,” said Evan Mast, an economist at the University of Notre Dame.

Attracting attention

St. Paul’s policy, which takes effect May 1, has drawn attention from outside Minnesota as the first rent control measure in the Midwest and a particularly tough law. It’s not linked to inflation, doesn’t allow landlords to raise rents by more than 3% once a tenant moves out, and – perhaps most unusually – doesn’t exempt construction. new accommodations.

That’s what caught the attention of USC researchers, who said academic studies often don’t examine the impacts of policy decisions until years after they’re made. With soaring inflation and skyrocketing rents in many US cities, rent control has gained what experts call a third wave of popularity.

In Minneapolis, where voters last fall signaled they would like city leaders to draft rent control legislation, elected officials said they were closely watching the rollout of the St. Paul. Advocates in both cities launched campaigns for the policy last year after University of Minnesota research showed low-income residents and people of color in Minneapolis were more likely to experience rent increases drastic.

“We have intense affordability issues in most American cities,” said Ed Goetz, director of the university’s Center for Urban and Regional Affairs, which leads St. Paul’s rent control group. “While it is true that some of this is caused by lack of supply, it is unrealistic to think that tenants are going to sit around and pay 6-8% more every year, hoping that in 15 years , we will have added enough inventory that their rent will finally be reasonable.”

Long-term questions persist

In their study, Ahern and Giacoletti observed a greater decline in rental property values, which they identified using data from the nonprofit HousingLink and the city’s fire certificates of occupancy. town.

Compared to suburbs in Twin Cities and five other markets — Denver, Indianapolis, Kansas City, Mo., Nashville and St. Louis — St. Paul saw a statistically significant increase in sales volume after the November vote, wrote the authors. They did not include data from Minneapolis to avoid the potentially confounding effects of the city’s concurrent voting measures.

The document suggests the price drop was driven by landlords selling properties to avoid future rent caps. That’s not surprising, economists say, given previous studies of the effects of some rent control programs.

“I think the results are very eye-catching because they were so immediate,” said Salim Furth, an economist at George Mason University. “It’s a red flag, a flashing light, telling the government, ‘Hey, you’ve done something that the landlords here expect to make worse in the city.’ “

Realtors said that while the average buyer or seller of a St. to sell. The tight market could sway some who are on the fence, especially landlords with single-family rentals attractive to future homeowners, said St. Paul Area Association of Realtors board member Robbie Grossman.

“I don’t have enough common sense to say if there’s some sort of trend, but I know it’s happening,” he said.

Tram Hoang, who led St. Paul’s campaign for rent control and is director of policy and research for the Housing Justice Center, called the study “a bit premature” because it’s based on just one quarter. of data before the entry into force of the ordinance. She added that she doesn’t think the authors provide a convincing argument that the difference between the St. Paul market and other cities is solely attributable to rent control.

Appraiser Josh Folland, senior managing director of St. Paul-based Valbridge Property Advisors, said he also thought it was too early to draw conclusions.

The last few months have been marked by confusion over the ordinance, and changes to the policy seem likely – the mayor has repeatedly said he wants to change the law to exempt new housing construction, and the council municipal recently tasked the stakeholder group with a list of issues to consider when preparing recommendations on how to improve the ordinance.

“St. Paul’s rent control and its effect on the market is a living, breathing thing, changing every day,” Folland said. “Trying to measure the initial shock of the nation’s toughest rent control policy just four months after it was approved could overstate its long-term impact.”

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