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A Swedish economist once remarked that rent control “appears to be the most efficient technique presently known to destroy a city—except for bombing.” Unfortunately, we may soon see the destructive consequences of laws limiting rent increases running rampant in St. Paul, Minnesota.
The city just approved a rent control measure that will limit landlords’ ability to increase rents on its 65,000+ rental properties. They will not be able to increase prices by more than 3 percent each year under the new law. Controversially, the initiative does not account for inflation and applies to new construction, not just existing properties. This makes the St. Paul rent control measure one of the strictest in the US—if not the world.
Opponents of the measure made all the usual critiques. They pointed out, for example, that a supermajority of economists, 81 percent per one survey, oppose rent control because of its long-run consequences. Yes, some renters save money in the short term by enjoying artificially low rents. But the restricted prices limit future construction and housing supply which ultimately leads to a housing shortage and less affordable housing in the long run.
In St. Paul, these consequences are already starting to materialize.
“Less than 24 hours after St. Paul voters approved one of the country’s most stringent rent control policies, Nicolle Goodman’s phone started to ring,” the Star-Tribune reports. “Developers were calling to tell the city’s director of planning and economic development they were placing projects on hold, putting hundreds of new housing units at risk.”
“We, like everybody else, are re-evaluating what — if any — future business activity we’ll be doing in St. Paul,” major developer Jim Stolpestad told the newspaper.
Another major developer, Ryan Cos, has already pulled plans for 3 new buildings, according to the Pioneer Press.
Critics of the rent control initiative, understandably, feel vindicated. But this is just the beginning. If nothing changes, investment and construction of new housing will continue to collapse thanks to this short-sighted reform.
There is still hope, though. The new law doesn’t go into effect until May 1, 2022. That means St. Paul still has 5 months to correct its grave mistake.
This article by Brad Polumbo originally appeared at FEE.org and is republished with permission. ©All rights reserved.