Here's a surprise: Developers "pause" new construction the day after St. Paul passes rent control

3% rent cap for new and existing housing — what could possibly go wrong?

St. Paul voters cheered the passage of a new law in last week’s election that imposes rent control, with rent increases capped at 3% each year. The new law includes new development as well as existing rentals, an incentive that has had an entirely predictable impact. In record time, no less:

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. 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. …

Voters’ decision Tuesday to cap annual rent increases at 3% sent developers into a frenzy, prompting some with stakes in Minnesota’s capital city to pause projects or reconsider sites for future housing.

Unlike most cities with rent control, St. Paul will not exempt new construction, which opponents argue will force lenders and developers to look outside the city for spots where they feel more confident that they will recoup investments and earn profits.

“We, like everybody else, are re-evaluating what — if any — future business activity we’ll be doing in St. Paul,” said Jim Stolpestad, who has worked on developments in St. Paul for 30 years as founder of Exeter, the company behind major projects like Grand Avenue’s revamped retail corridor and new luxury apartments in the Cathedral Hill neighborhood.

“If anything, this was an impressively stupid time to pass such a law, especially while applying it to new development. Annualized inflation is running over 5%, labor is in short supply, and materials in even shorter supply. A 3% cap on increases falls far short of keeping up with the status quo even outside of new development. The need for repairs on existing units will either require a higher level of spending or force landlords to postpone the repairs in order to absorb the costs without losing their shirts.”

Look for more condos, fewer rental apartments, with the latter falling into disrepair for lack of maintenance. But equity!