Strictest Rent Controls in U.S. Going Into Effect - St.Paul MN

[James Hamling]

I have to start by saying for all the outreaching St Paul investors who thought "nah, can't be, nobody is that dumb, it won't happen", sorry friend, I feel for ya. 

For those not in the know, Saint Paul MN passed what came to famously be known as the strictest rent controls in the nation. Among some of the fun of it all, a absolute cap on rent increase at 3% per 12 month period, regardless of change in tenancy, operational expenses, really anything, just flat out capped at 3% no matter how far into the red an investor goes. 

As this is now days away from going into effect, I am curious to hear out the thoughts of area investors on such. In the months and weeks leading up to this day I have heard a lot of remaining investors saying "nah, not gonna happen" or incorrect assumptions of being "grandfathered-in" so wouldn't affect them, of my personal favorite, the fact how the stipulation allows an investor who has done upgrades to make special request to be allowed to raise rents higher then 3%, yes, it has that "ability" through a system St Paul has said they are still "considering" the mechanism to apply for such (no approval process/application = no ability to even request such). 

Remember the Wack-a-Doodle played by Woody Harrelson in the movie 2012, just knowing exactly what's coming and picks out a nice spot front row to just watch it all blow-apart, yeah, that's kinda how I feel on all this, lol. 

[Account Closed]

That worked so well in California right?  Such a shame...

[Jeff Schemmel]

here's what i'm coming across most commonly, as I work with a lot of owner-occupant investors.  If they inherit a vacant building or vacant unit and live in it, what serves as the basis for the prior lease and how would the "governing body" know what that basis was?  even if there was a lease prior to their ownership, that doesn't mean they have it or knew what it was.  If i'm an owner occupant, what serves as my "rent" basis when I move out?  In my book, I can charge what I want because a new tenant isn't going to know squat about what the rent was prior and the city won't either.  If anyone could point out where they've set guidelines for that I would really like to read it!

[Tom O.]

In Illinois the proposed law had no automatic rent increases allowed with no caps. Instead you would have to go before some Soviet style regional bureau and beg for an increase based on some formula using inflation. 

[Jonathan Stone]

@James Hamling is there a housing scarcity issue the twin cities at this point?  From the investors perspective it seems like an obvious bad move. Do you have some history on where the legal and political support for this came from?

Would seeing people buy a home as a primary to move out later and rent it become a viable strategy? House hop to skirt the rental laws?

[Jordan Moorhead]

If you're a landlord in MN now wouldn't be a bad time to capture some gains...

[Adam Tafel]

https://www.twincities.com/202...

[Bill Brandt]

Here’s a version not behind a pay wall. 

https://sports.yahoo.com/st-pa...

Looks like final rulings on Friday. Landlords SHOULD be able to raise rents up to 8% just by self certifying that costs have gone up. They MAY have figured out this version of rent control isn’t going to work by gutting the version passed by voters. 

The bill that was passed said landlords "have a right to a reasonable return on investment" and that included a higher NOI every year based on inflation since 2019. It pretty much sounds like if you bought a property that wouldn't have a "reasonable rate of return" at current rents for the price you paid, you could increase rents to get to that reasonable rate of return.

I guess more to follow Friday for our friends in the land of 10,000 taxes. 

[James Hamling]

Quote from @Jeff Schemmel:

here's what i'm coming across most commonly, as I work with a lot of owner-occupant investors.  If they inherit a vacant building or vacant unit and live in it, what serves as the basis for the prior lease and how would the "governing body" know what that basis was?  even if there was a lease prior to their ownership, that doesn't mean they have it or knew what it was.  If i'm an owner occupant, what serves as my "rent" basis when I move out?  In my book, I can charge what I want because a new tenant isn't going to know squat about what the rent was prior and the city won't either.  If anyone could point out where they've set guidelines for that I would really like to read it!

 I get where your coming from, thinking how could they know what it was. My take is I have no interest in finding out the painful way, there gov., they have access to know a scary amount of things, with or without one's consent. As for reading more: https://www.stpaul.gov/departm... 

[James Hamling]

Quote from @Jordan Moorhead:

If you're a landlord in MN now wouldn't be a bad time to capture some gains...

 100% agree for Saint Paul investors. 

Especially with suburb ring doing gangbusters as it is. Just helped a client close on MARKET price property purchase, raised rents 19% the next month, tenants thanked them for "only" raising rent's 19% first year. 0 reason to invest in St Paul. 

[Jeff Schemmel]

Quote from @James Hamling:

Quote from @Jeff Schemmel:

here's what i'm coming across most commonly, as I work with a lot of owner-occupant investors.  If they inherit a vacant building or vacant unit and live in it, what serves as the basis for the prior lease and how would the "governing body" know what that basis was?  even if there was a lease prior to their ownership, that doesn't mean they have it or knew what it was.  If i'm an owner occupant, what serves as my "rent" basis when I move out?  In my book, I can charge what I want because a new tenant isn't going to know squat about what the rent was prior and the city won't either.  If anyone could point out where they've set guidelines for that I would really like to read it!

 I get where your coming from, thinking how could they know what it was. My take is I have no interest in finding out the painful way, there gov., they have access to know a scary amount of things, with or without one's consent. As for reading more: https://www.stpaul.gov/departm... 

 man, they did a great job over-complicating this.  certainly doesn't promote more housing availability

[James Hamling]

Quote from @Jonathan Stone:

@James Hamling is there a housing scarcity issue the twin cities at this point?  From the investors perspective it seems like an obvious bad move. Do you have some history on where the legal and political support for this came from?

Would seeing people buy a home as a primary to move out later and rent it become a viable strategy? House hop to skirt the rental laws?

 There is a MASSIVE housing shortage in the Twin Cities, across the entire market for rental unit's other then apartments. 

Average time to list and lease a property is measured in hours or days. There is serious unit shortage in purchasing but in renting, it's off the charts. We have seen 20%+ annual rent increases/appreciation rather steadily, with no relent. The only limiter is incomes, and the shortage is so bad that now it's into phase where we are seeing a sharp % increase in shared/multi-generational leasing to get too affordability.     

As far as who or why behind it all, it's the same groups as ever, a polarized tunnel-vision segment who says "we know, we will just force those evil rich landlords to stop profiteering" because in there minds that's as simple as it is, an A-B thing, rents way up so it must be Landlords, zero consideration for property tax increases, zero thought of operational cost increases, insurance increase, maintenance costs going up etc etc.. There is 0 intelligence in it what so ever, the historical data is rather universal that rent control depresses a market, not improves. 

I don't blame a tenant for loving it, but those tasked with running the entire system should know better, how it will hurt the entire community, not help. 

[James Hamling]

Quote from @Tom O.:

In Illinois the proposed law had no automatic rent increases allowed with no caps. Instead you would have to go before some Soviet style regional bureau and beg for an increase based on some formula using inflation. 

 They are doing the same thing in St Paul. And I have heard rumors of a next step to the rules where it will give power of setting rents unto the same "official" city department, so to prevent anyone from attempts to skirt it. I am sure as people try various jazzy moves this will come in affect, as they will then have some justifiers for it to enforce the current existing order, there in avoiding any additional voting on such. 

[James Hamling]

Here is a better link directly to the actual order: https://library.municode.com/m...

[Travis Moe]

@James Hamling

I never understand these policies when I see them. It’s basic Econ 101: price caps create shortages. Rent control is a price cap. Ergo, rent control = shortage of the very kind of housing they purport to preserve.

These laws basically ensure that people of low to moderate means will be even more challenged by housing costs than they are now.

Name a metro where rent control has succeeded in keeping housing either affordable or plentiful.

[Jonathan Wong]

Do you guys think the rent control is going to expand to other nearby counties/cities?