Reported Article Moving Community Development Forward

Affordable Housing Sector Split on Rent Control

In the Twin Cities, where voters have recently supported rent control, most nonprofit housing developers have stayed silent, and some have openly lined up with the developers and landlords who oppose it.

Jennifer Arnold, director of the Minneapolis-based tenant advocacy and support nonprofit Inquilinxs Unidxs Por Justicia (United Renters For Justice), speaks at a Home to Stay Minneapolis press conference in support of rent stabilization, Sept. 14, 2022. Photo courtesy of Shiraz Mukarram

This article is part of the Under the Lens series

Moving Community Development Forward

In this series, we examine the state of the community development field, the challenges and tensions it faces, and some promising approaches to this work.

In the November 2021 election, voters in Minneapolis and St. Paul, Minnesota, voted on rent stabilization in separate ballot measures in their respective cities. George Floyd had been murdered by a police officer in Minneapolis a little over a year before, and in the uprising that followed, “there was a push for anti-racism across all sectors, including community development,” explains Tram Hoang, who ran the Keep St. Paul Home rent stabilization campaign. Many tenant organizers see rent stabilization as an anti-racist policy because, for example, in Minneapolis, Black households are far more likely to be renters (80 percent versus 42 percent non-Hispanic white households), and when they are renters, far more likely to be cost burdened (across the state, 48 percent of Black households with children are cost burdened, versus 16 percent of white households with children).

The Keep St. Paul Home campaign was a success, and voters in St. Paul chose to enact the strongest rent control ordinance in the country at the time. In Minneapolis, the successful ballot measure permitted city council to look into enacting a similar ordinance. However, more than two years after the measure was passed, Minneapolis still hasn’t taken the next step to pass an active rent stabilization ordinance, and so many exemptions—notably for affordable housing and new construction, plus much higher increases for vacant units—have been added to St. Paul’s that tenant advocates say the amended ordinance falls short of achieving its intended goal for many renters.

Working groups in both cities formed after the 2021 elections were instrumental in redirecting what had seemed to be the clear will of the voters. Some of the surprising voices in those groups advocating for limiting rent stabilization came from the nonprofit affordable housing sector.

Strong or Weak Stabilization

When cities discuss rent stabilization, certain critical details or proposed policies come up often.

There is, of course, the maximum amount by which rent can be increased—known as the cap. The cap can be a flat percentage or it may be a variable, for example a percentage of the Consumer Price Index (CPI), a measure of inflation. Or it could be a combination of the two. Another often-discussed detail is vacancy decontrol, or allowing landlords to increase rent to the market rate when a resident vacates the property. Then there is the question of exempting certain types of properties from a rent control ordinance—new construction or affordable housing, for example.

The working groups in both Minneapolis and St. Paul discussed rent stabilization policy frameworks, considering options like those listed above. The operation of these groups provided an ideal space to understand the positions of tenant advocates and nonprofit developers.

The scope of each working group was different. In St. Paul, a mayoral working group was formed to amend the  ordinance because the ballot measure that was passed allowed the city to repeal or amend the policy after one year, and it chose to amend. The Center for Urban and Regional Affairs (CURA) at the University of Minnesota acted as a convener for the St. Paul group, and its staff served as technical facilitators. According to CURA’s report on the process, the St. Paul working group was tasked with considering “the medium to long-term perspective about how rent stabilization should operate in Saint Paul” and balancing the “critical goals of equity and growth.”

In the case of Minneapolis, whose city charter doesn’t allow residents to put ordinances directly on the ballot as St. Paul’s does, the successful ballot measure simply permitted its city council to enact a rent stabilization ordinance. Thus empowered, the Minneapolis City Council tasked a working group with recommending a framework for it to vote on. The council’s resolution said that the framework should “protect Minneapolis residents experiencing the worst housing disparities based on race, ethnicity, income, and other factors” and also “hold rental owners accountable to fair, equitable, and reasonable practices by prohibiting excessive annual rent increases for existing residents.” As Hoang and other interviewees for this piece highlighted, the commitment to racial justice was explicit. The proposed frameworks were intended to be about more than just what worked for the market; they were to be focused on what worked for residents.

The Minneapolis Working Group

In the Minneapolis working group, two of many proposed policy frameworks ultimately garnered most support among the 25 members of the working group. They were known as Framework 5 and Framework 7.

Seated at a table, a brown-skinned woman in wire-rimmed glasses, dressed in black and wearing a hijab, speaks to a man whose back is to the camera. He has black hair and is wearing a white shirt. Behind them are other people, not in focus.
Kadra Abdi, director of policy and field building at the Metro Consortium of Community Developers, talks with another member of the Minneapolis working group on rent stabilization at a meeting on Sept. 16, 2022. Photo courtesy of Shiraz Mukarram

Framework 5 was for stronger rent stabilization—it called for fixed 3 percent rent increases, no vacancy decontrol, and no exemptions. Framework 7 was weaker—it allowed rent increases that could vary with inflation, vacancy decontrol, and rent banking, which allows landlords to not increase rent some years, and then use those saved increases to “catch up” with a larger increase later on. Framework 7 also included exemptions for small buildings, new construction, and affordable housing.

Tenant advocates on the working group unsurprisingly preferred Framework 5. The representatives from the community development field were split.

The Metro Consortium of Community Developers (MCCD), a 25-member association of community development organizations and community development financial institutions in the Twin Cities, lined up with tenant advocates to support Framework 5.

“We hadn’t, in the past, taken a very strong stance on this issue,”says Kadra Abdi, the director of policy and field building at MCCD. “We did our homework, we educated ourselves.” She explained that the policy team she worked with, her CEO, and others looked at resear that showed that how rent stabilization could disproportionally help people of color, especially Black people, because they are disproportionately represented among cost-burdened renters. They looked into how it might affect the housing market. “I really spent months looking at this issue from multiple angles,” says Abdi. “For us, rent stabilization was a catalyst for us to have a larger conversation about how are we, as nonprofit affordable housing developers, advancing racial and economic justice?”

Three of MCCD’s members themselves were also in the working group. One of them voted for Framework 5 with Abdi. The other two voted for the weaker Framework 7.

The nonprofit developer who voted for a stronger rent stabilization framework was a smaller one, Urban Homeworks, which owns 134 units; in contrast, the other affordable housing developers represented on the working group own thousands of units each. Jennifer Arnold, director of the Minneapolis-based tenant advocacy and support nonprofit Inquilinxs Unidxs Por Justicia (United Renters For Justice), remembers that in the meetings AsaleSol Young, director of Urban Homeworks, advocated for an exception for capital improvements or the ability to show that they needed to raise rents to cover improvements. But then, she recalls, they said, “‘If I can get that, I can get behind this kind of policy.’ And they did. And they were the only affordable [housing] developer that did.”

“Rent stabilization is a vital tool for community empowerment and stability,” wrote Young in a email. “However, nonprofit housing providers often face financial strain due to residents falling behind on rent and limited government funding. Unlike our for-profit counterparts, nonprofits struggle to accumulate surplus cash that can be reinvested into property maintenance and improvements. Adjusting rent stabilization policies to support affordable housing providers could address housing inequities . . . and wouldn’t place that burden solely on the housing provider to either fundraise to cover the funding gaps or be left to provide distressed housing. Low-income housing does not cashflow.”

The developers’ representatives who voted for the weaker rent stabilization framework work for much larger nonprofit developers in the Twin Cities area, Aeon and CommonBond. Despite multiple attempts to clarify the positions Aeon and CommonBond’s representatives took, both organizations declined multiple interview requests. Adam Faitek, CommonBond’s vice president of resource development, did provide a written statement saying, “We believe that rent subsidies are the best way to ensure that households are not rent-burdened without harming the property and service levels.”

About eight people seated at conference tables, which have name cards, notebooks, and takeout containers scattered on them. Most are looking left, toward a speaker who is off camera. In focus is a blond, bearded man in a pale blue button-up shirt, listening intently.
Henry Parker, a representative of the nonprofit housing developer CommonBond, attends a Minneapolis rent stabilization working group meeting on Sept. 16, 2022. Photo courtesy of Shiraz Mukarram

The larger affordable housing developers “lined up really squarely with the other developers,” says Inquilinxs Unidxs’s Arnold, adding that it seemed like they were “carry[ing] water for the private developers in this issue.” Another participant in the process, who did not wish to be named, also said it seemed to them that bigger nonprofit developers were advancing the interests of private developers.

CommonBond, for one, has ties to a for-profit affordable housing developer, Dominium, which was not invited to serve on the working group, and which had contributed $300,000 to the campaign opposing rent control. Dominium has been a significant financial supporter of  CommonBond, providing donations from both their corporate entity and charitable fund in 2021 and 2022, and serving as a title sponsor for a gala in 2022. (More recent data is not yet available.) A board member and the senior managing partner at Dominium, Paul Sween, is also the capital campaign co-chair for CommonBond, and Kyle Hansen, the COO and executive vice president of Dominium, formerly served on the board of CommonBond, including as its chair.

Adam Faitek, CommonBond’s vice president of resource development, said these connections were not relevant to their position on rent stabilization. “As is the case with all of our funding partners, Dominium has no control or influence on policy positions we develop as an organization,” he wrote in a email.

Arnold acknowledged that finances are tough for nonprofit developers, but said further burdening renters is not her preferred solution to the housing crisis. She says that the way housing is done in the United States—by attracting capital using tax credits and other incentives, offering exemptions, and allowing developers to bail on affordable housing after taking public money, two or three decades later—is at its core, the issue.

“The problem is not that the renters need to pay more money,” says Arnold. “[The problem is] that this landlord took all this public money and then drove this building into the ground by not ever investing in it. Let’s look deeper at the cycle and the problems and not make the renters pay. It’s not the renters who did it.”

The St. Paul Working Group

In contrast to Minneapolis, the successful 2021 referendum in St. Paul put an actual strong rent stabilization ordinance into effect. It was simple, with very few exemptions.

The St. Paul working group to amend the policy was composed of 41 stakeholders with various backgrounds, including residents, for-profit developers, nonprofit developers, and housing advocates. This working group included Hoang, who had run the successful Keep St. Paul Home rent stabilization campaign, but she felt the group was “heavily influenced by people who did not show up as strongly in the election, including bankers, developers, [the] landlord lobby, Realtor associations, just all the people who opposed [the ordinance].”

Hoang has experience working in the community development world as well. “Community development and grassroots organizing came from the same moment of combating urban renewal, and the racism behind that,” she explains, “but over time, the proliferation of community development organizations has created a huge industry that’s focused on navigating complex finance tools and attracting capital, so the professionalization of the community development field has meant that there’s a bit of a divergence between organizing and development.”

During the meetings of the St. Paul working group, which were recorded, this divergence in worldview was apparent. Ed Goetz, director of CURA, recalls that at one point, industry representatives on the working group advocated for the chance to make “a formal presentation to the rest of the group about why they thought rent stabilization was a terrible idea.”

Goetz said that this was not something CURA staff supported, nor was it something that the mayor’s office wanted. “We didn’t want to establish [the industry representatives], or anyone who was on the task force, as being more of an expert than anyone else,” he explains. However, facing continued industry requests, the working group’s elected co-chairs, who had the final say, agreed to a compromise, allowing the presentation, but stipulating it not be given by anyone in the working group. As Goetz recalls, it was real estate industry members who chose Sarah Harris, executive vice president of strategy, partnerships, and production at Aeon, one of the largest nonprofit affordable housing developers in the region, and the same organization whose representative had voted for weaker rent stabilization in the Minneapolis working group.

The Aeon presentation was “100 percent the talking points of the industry, about why rent stabilization will be a bad thing and will produce a whole set of negative market outcomes,” says Goetz. Goetz, who has researched and taught how race and poverty affect housing for decades, previously served on the board of Aeon, back when it was called the Central Community Housing Trust.

During the presentation, Harris did not explicitly claim that rent stabilization was harmful, but made it clear that, according to Aeon’s analysis, attracting investors and constraining rents for cost-burdened residents was a zero-sum game. “We must compete for investors to have them come here,” she said, arguing that a limitation on rent increases would scare off investors and thereby exacerbate a housing crisis. Harris finished up her presentation by saying, “I don’t know that rent control is or is not the right solution, but what it is is a recognition that our community is saying that people are being priced out of housing.”

Harris proceeded to imply that responding to the intent of residents who voted for rent stabilization would be achieved more effectively by instead weakening the stabilization ordinance that they had directly voted for: “We need to listen to the community saying they need more housing, but we need to find more tools to deliver the housing that is needed. Simply putting a pinch point on how housing is managed and priced is not solving for the bigger issue.”

After the presentation, Hoang asked Harris why her analysis differed from the one that was done by the university, referring to findings by CURA that compared median and high-end rent increases from 2008 to 2019 with four different rent stabilization caps. The report on those findings concluded, “using actual rent trends in Minneapolis from 2001 to 2019 we see that a rent cap set at 75 percent of CPI and a rent cap at the CPI would have had a consistent but relatively small impact on the middle of the Minneapolis rental market.” The report also noted that higher rent caps (3 percent + CPI or 7 percent + CPI) “would have limited the most aggressive rent increases in the city but would not have affected median increases.” (St. Paul’s original rent stabilization ordinance cap was 3 percent, which is just under the CPI for 2023.)

In a section about impact, the CURA report summarized a few studies that looked at how rent stabilization affected new construction and found “little empirical evidence” that rent stabilization policies reduced new construction, though it acknowledged that many jurisdictions exclude new construction from those policies.

Harris responded to Hoang’s question by saying, “Investors need to be swayed by that analysis, and when they have choices looking elsewhere, it may be something they just don’t take the time to understand.” For affordable housing developers in particular, Harris also noted that adding a rent stabilization cap was a burden because “all of the different funding sources for affordable housing are already capping rents in different ways … it becomes very difficult to try and work with 12 different, competing measures of how rent should be applied in a property.” The presentation is available on YouTube, with Harris beginning her presentation at 58:40.

The working group did vote to add a 20-year exemption for new construction, and an exemption for affordable housing, to St. Paul’s ordinance.

Why Bigger Nonprofit Developers May Oppose Stabilization

Though Aeon and CommonBond declined to be interviewed for this article, some of the most gracious explanations around why they took the positions they did come from tenant advocates and other housers who took an opposing stance.

“Aeon specifically buys up distressed properties that landlords have disinvested in for years,” says Jennifer Arnold. “So when they pick them up, they barely have the money to operate them. I think it’s because of that experience that they [say], ‘Well, you don’t understand how the world is and what we do.’ Over time, they move closer to the developer framework.”

This analysis was echoed by Hoang and Abdi as well. “There are real financial challenges that our members are facing,” explained Abdi of MCCD. “Some of them are forced to close some properties. . . . And rent stabilization only adds to that challenge.”

Hope Community is a nonprofit organization that, among its other offerings, like operating community spaces and art programs, also rents out over 270 units, most of which are affordable.

However, Will Delaney, associate director at Hope Community, said that Hope is in support of strong rent stabilization and was able to figure out how to make lower rent increases feasible largely due to its smaller scale and because of its mix of different types of income, as affordable housing is not the only thing Hope does. “We can’t balance our budgets on the back of pushing out our residents,” said Delaney, noting that his residents were in support of rent stabilization. “If we’re really rooted in community, our primary mission is to the folks in our buildings.”

Still, Delaney says that he has some sympathy for the bigger affordable housing developers and bigger operators that were opposed to strong rent stabilization. “They were looking at this as just one more operating challenge,” he says, “and [feeling] like, ‘Hey, if we do this, it’s going to make it impossible for some of our properties to operate.’”

Going Forward

In St. Paul, the rent stabilization ordinance has been weakened, allowing for 8 percent increases in many cases, and with new exemptions. In Minneapolis, the conversation about rent stabilization has been paused. “The mayor, before even . . . the process was completed, came out and said I’m going to veto whatever is brought to me,’” explains Abdi. “Then what was the point? Why did we spend four months deliberating?”

“We’ve made some steps forward, and we didn’t win everything,” acknowledges Arnold. But, she says, “we’ll keep going. And keep trying to win more things. You know, it never hurts us to win things.”

Despite disappointment about who community developers allied with in both the rent stabilization ballot campaigns and in the working groups, Hoang is clear that that isn’t the central problem. The problem, she says, is large players speculating on housing being at odds with the will of the people who voted for both rent regulations. She points out that several of the largest donors to the the campaign opposing rent stabilization were national entities representing developers, landlords, and Realtors. “It wasn’t a tenant-landlord issue,” says Hoang. “It’s actually the St. Paul community versus real estate entities who want to extract wealth from our neighborhoods.”

“Collectively we have to do better to support every resident of this city—regardless of class,” says Urban HomeWork’s Young, “not villainize the organizations who have been doing this work for decades, and who are most often on the side of the low-income resident.”

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