“Another housing development in St. Paul, Minnesota, is on hold after losing its financing partner this week.
On Monday, the St. Paul Pioneer Press reported that developer Alatus had a previously-committed equity partner renege on its commitment to invest $23 million in a proposed 304-unit project in the city’s Frogtown neighborhood. Two other investors who had proposed preliminary financing terms for the project—in which half the units would be rented out at below-market rates—have also walked away.
The reason? St. Paul’s newly-passed rent control ordinance, which Alatus’ principals say is making their once-eager investors skittish about doing business in the city.”
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“It’s a near-universal consensus—held in common by progressive policy wonks, radical free marketeers, and the three most recent presidential administrations—that America’s highest-cost cities are so unaffordable because government zoning regulations prevent enough new housing from being built.
So why are a growing number of politicians, wonks, and pundits suddenly embracing a policy that’s been long maligned for further reducing the supply of housing?
The argument from rent control proponents boils down to the need to create short-term stability for renters. That will then, hopefully, give cities some breathing room to get to work on fixing their pressing supply issues.”
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“That study looked at a 1994 San Francisco ballot initiative that expanded preexisting rent controls to cover four-unit apartment buildings constructed prior to 1980, but which exempts four-unit apartments built after 1980.
That created something of a natural experiment on the effects of rent control.
The Stanford study concluded that tenants living in the older, rent-controlled buildings were 10–20 percent more likely to stay at their same address than people living in newer, unregulated buildings. The study also concluded that the expansion of rent control caused a 15 percent decline in the availability of rental housing among affected units.
In short, there’s a clear tradeoff in rent control policies between creating stability for existing tenants and preserving and expanding rental housing supply for new tenants. The goal of politicians, according to some, should be to strike the right balance between the two.”
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“We actually have a good, real example of what this balance striking in the real world looks like: San Francisco.
The rent stabilization ordinance that’s been in place in San Francisco since 1979, and which the Stanford study examined, has all the features Demsas would want in a well-designed rent control policy: post-1979 construction is exempt from price controls, landlords can raise rents by the lesser of 60 percent of yearly inflation or 7 percent, and there’s vacancy decontrol.
Some 40 percent of San Francisco’s housing stock is covered by these rules. Another 9 percent is deed-restricted affordable housing, meaning that rents can’t generally consume more than 30 percent of tenants’ pretax earnings.
That leaves only 16 percent of housing stock in the city where rents follow the ebb and flow of market forces. (That was at least the case prior to January 2020, when California’s statewide rent control law went into effect.)
The result is, again, San Francisco; a synonym for housing dysfunction and unaffordability. That obviously makes it a place that’s antagonistically expensive to newcomers. Copious amounts of rent control also haven’t stopped it from ranking first among American cities in some measurements for gentrification and displacement, either.”
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“Rent control is always going to disincentivize housing construction, regardless of how tight or loose the zoning code is. Repealing zoning restrictions will allow for more housing. It will also make the supply-killing effects of rent control all the more apparent and relevant.”
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“Rent control also could disincentivize renters—who should be natural proponents of new housing construction—from supporting zoning reforms.
If government price controls are keeping your rent stable, you have much less of an incentive to support new market-rate construction. At best, it would just be doing more of the same. At worst, it would be adding more construction noise, more traffic, and, God forbid, more shadows.
Indeed, rent-controlled tenants have an incentive to oppose any rezoning on the grounds that it might make their own rental unit a candidate for redevelopment. They’re at risk of losing the below-market rents they’re currently being charged.”
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“if rent control isn’t the answer to short-term housing affordability issues and displacement, what is? I’d argue it’s zoning reform, and, failing that, federalism.
New housing units, even if they’re really expensive housing units, act almost immediately to lower the costs of rent for everyone. That addresses both affordability and displacement in the short-term thanks to the magic of the “moving chain.”
When a new “luxury” apartment comes online (and basically all new construction is high-cost “luxury” housing), it’s often filled by a high-income person who moves from his previous, older apartment building in the city. His now-vacant home is then snapped up by a middle-income person who leaves behind an even older unit that a third, lower-income person can now move into.
Follow this “moving chain” back far enough, and soon enough you see that each new unit of luxury housing is freeing up lots of housing in the lowest-cost, lowest-income neighborhoods in the city. That presumably puts downward pressure on prices and displacement.”
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“An August 2021 paper from Finnish researchers looking at moving chains in Helsinki found that for every 100 new market-rate apartments built in the city center, “29 units get created through vacancy in bottom-quintile income zip codes and 60 units in bottom-half income zip codes” within two years.”
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“Research by economist Evan Mast on the effects of luxury apartment construction in 12 American cities has also found that new, pricey units open up more housing options for middle- and lower-income neighborhoods.”
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“relying on rent control to keep that renter in the same home comes at the expense of new housing supply, which in turn raises rents for everyone else in the city and prevents others from moving there entirely.”
https://reason.com/2021/12/10/rent-control-is-fashionable-again-its-still-a-bad-idea/