As rent control looms, small St. Paul landlords sell low-cost units, hike rents

Feb. 13—Andrea Suchy-Shinn owns six rental properties in St. Paul, at least half of them open to low-income tenants subsidized by federal Section 8 housing vouchers, but she's in the process of selling.

Her townhomes in the Selby-Dale neighborhood likely will be converted into condominiums. Her triplex off Congress Street, on the city's West Side, is poised to be sold to a new owner who may not accept new tenants who rely on federal vouchers to pay the rent.

"It'll be up to him," Suchy-Shinn said. "Right now, he says the Section 8 tenant that's currently there can stay."

Her reasoning for reducing her footprint in the St. Paul market? Under the city's new rent-control mandate that takes effect May 1, she doubts she'll be able to keep up with cost increases for heat and utilities, property taxes, trash collection and everyday maintenance.

In fact, at her fourplex on the 1600 block of Charles Avenue, which could go up for sale soon, "I'm right now not breaking even," said Suchy-Shinn, who saw her property taxes for the one location climb from $6,000 to $9,000 in the course of a single year. "The heating bill was $618 for one month. I pay the heat. Everything is going up."

CRITICS SITE CONSEQUENCES OF CAP ON RENT INCREASES

Suchy-Shinn likely isn't alone. Even before voters approved a citywide "rent stabilization" ballot measure in November, some critics cautioned that the 3 percent cap on annual rent increases could have ironic consequences for the city's affordable housing. Instead of keeping prices down, they predict the mandate will lead to less affordability.

That's because small landlords unwilling or unable to make the numbers work will sell their affordable units to new owners who do not accept federal housing vouchers, as well as national chains with stringent tenant-screening policies.

Apartments once priced at levels that the working poor might get by on could be converted into condominiums and sold, further reducing the supply of affordable rentals in the city.

Some tenants are already getting hit with new utility charges.

"Because of the rent cap, landlords who have covered heat for their tenants can't anymore," said St. Paul City Council member Jane Prince. Now, rents will be "a la carte. Rent is rent, then you pay your own utilities, trash, etcetera. It's happening."

RENT HIKES UNDER RENT CONTROL

Another irony? Rent hikes.

Before rent control, Steve Townley hadn't raised the rents on his two residential units in three years. After the rent-control ballot measure's approval in November, he immediately and reluctantly boosted his tenants' rents by 3 percent.

That's because the city's rent stabilization ordinance, as currently written, does not allow landlords to hike rents more than 3 percent between occupants and play catch-up with the market. Other rent-controlled markets like New York City offer "vacancy decontrol," allowing landlords to effectively make up for lost time once a unit has gone vacant, but St. Paul does not.

Townley owns two residential units on Como Avenue in the St. Anthony Park neighborhood, where he rents out a three-bedroom apartment to a tenant he's had for 13 years, charging some $300 below what's typical for the market. At the neighboring studio apartment, he said he charges "well below" $1,100, the threshold where a one-bedroom unit might technically qualify as affordable housing.

Until now, Townley's reasoning for keeping rents low was that there's a benefit to maintaining an occupied unit, and a cost in terms of both time and money in trying to fill an empty one. There's also a benefit to renting to a tenant you know, like and trust, rather than playing the field. He's had problem tenants before, and it wasn't fun.

"Normally, when I have a really good tenant, I keep the rents attractive enough that they want to stay," Townley explained. "I consider good tenants worth keeping, even if the rent I charge them is below market value. In the past, I knew that if the good tenants leave for some reason, I would be able to rent the units to the next tenant at a much higher price. I believe that many small-time landlords feel the same way."

Once the city's new rent-control policy takes effect on May 1, he'll no longer be able to do that, he said.

"I immediately raised the rents on my units, knowing that with a 3 percent cap on rents, I have to get my rents moving up toward market value so if the tenants do leave, I will at least be close to market value when the turnover occurs."

Otherwise, he said, "I will be way under market value when they do leave and I'll never catch up."

'BLANKET EXEMPTIONS'

With anecdotes like those in mind, property owners and City Hall officials — including the mayor — have begun proposing major changes to the city's rent-control ordinance.

Elizabeth Dickinson, a former mayoral candidate who owns several housing units, has suggested allowing landlords to raise rents more than 3 percent in a year, but charging them a fee if they go above that number. The revenue could support an affordable housing fund.

Others have suggested ditching rent control but requiring three-year residential lease terms, which would cut down on sudden price hikes.

With small landlords in mind, Prince, the council member, has called for the city to amend the voter-approved rent stabilization ordinance to allow for "vacancy decontrol" — or price adjustments beyond 3 percent when units are empty.

St. Paul Mayor Melvin Carter, who has promoted rent control but called for key changes, is also reportedly looking into vacancy decontrol. He's already asked the city council to work with his office on an amendment that would exempt new housing construction for a period of at least 15 years, with the stated goal of wooing investors and developers who have paused their housing construction in St. Paul to come back to the market.

Andy Dawkins, a former state lawmaker who ran the city's Neighborhood Housing and Property Improvement division under Mayor Randy Kelly, said during a St. Paul Strong panel discussion on rent control Tuesday that he expects the mayor's office to roll out both proposed amendments on April 1. The mayor's office has yet to confirm those details.

Dickinson says there's a better way to structure rent control to keep those honest, small local landlords. Lift the 3% cap on rents, but if anyone increases rent more than 3%, hit them with an extra fee to fund new affordable housing. pic.twitter.com/iq1YRsmEPo

— Frederick Melo, Reporter (@FrederickMelo) February 9, 2022

'WE KNOW WHAT WE FOUGHT FOR AND WON'

While the rent-control ordinance has already ruffled many small landlords months before it's scheduled to take effect, it's also garnered its share of supporters. Housing advocates are calling for the city to pursue additional renters' rights in light of back-to-back rent increases and state and federal eviction moratoriums that recently expired.

During the St. Paul Strong discussion, which was carried live by the St. Paul Neighborhood Network cable access station, Jim Poradek, a tenants rights attorney with the Housing Justice Center, raised strong objections to the prospect of vacancy decontrol. He noted that if that amendment were approved, landlords will have more incentive than ever to pressure low-income tenants to leave so they can hike rents on vacant units.

During a rally in support of rent control outside St. Paul City Hall on Wednesday, city council member Nelsie Yang said simmering efforts within City Hall to amend the rent-control ordinance fail to put the needs of tenants first.

"Make sure that there are no blanket exemptions," Yang said. "We know what we fought for and won."

B. Rosas, a rent-control proponent with the Housing Equity Now coalition, said exempting new construction could serve as further incentive for developers to reduce affordable housing by buying older, affordable units, tearing them down and building pricey new housing that will not be subject to rent control for years to come.

Margaret Kaplan, president of the Housing Justice Center, said city residents sent a clear message on Nov. 2 when they voted to support the rent-control ballot measure, which was approved 53 percent to 47 percent.

She called for the mayor's office to unveil an informational website, as long promised, with a timeline outlining key next steps leading up to implementation on May 1, on top of informational mailers and webinars, and to better involve stakeholders on all sides of the issue.

"People are operating in a vacuum right now," Kaplan said.

B. Rosas, Housing Equity Now, says he's traded notes with advocates in other rent control cities and exempting new construction could incentivize demolishing existing housing. The new homes would be rent control-exempt, and pricey to boot. pic.twitter.com/ZhnEGzIOg7

— Frederick Melo, Reporter (@FrederickMelo) February 9, 2022

INFLATION AND RETIREMENT INVESTMENTS

Record-setting inflation looms large over the coming discussions.

Bob Walser has rented out a Randolph Avenue duplex near St. Catherine University for four years, with the goal of someday selling it for retirement income. With the site's property taxes up 10 percent and inflationary costs such as maintenance up 6 percent, he's worried that a 3 percent cap on rents will take a large bite out of that income and dissuade other small landlords from entering the market or investing in maintenance.

"Selling isn't a good option because the property isn't marketable. Who wants to buy a guaranteed loser?" Walser said. "I'm trying to set up a long-term investment. I know if I saw a property and saw, 'oh, your costs are going to up faster than your income stream,' I wouldn't invest in the property. Would you?"

Walser added: "It's very easy to say, 'tenants are good, and all landlords are bad.' That's a very simplified view. I had conversations with people before the election, and in most cases, that's how people interpreted it."