Economists win again as St. Paul revisits rent control policies



Less than a year after voters approved some of the strictest rent control measures in the country, the St. Paul, Minnesota, city council appears set to approve exemptions for new construction projects and other reforms opposed by activists.

In a vote of 4-3 on Wednesday, the council approved a series of amendments that will exempt new construction from rent control requirements for 20 years, permit rents to rise in years with high inflation, and allow landlords to reset rents at higher prices once a tenant moves out, Pioneer Press reported.

Activists succeeded in getting rent control on the ballot last year over the objections of the city council. 53% of voters approved capping rent increases at 3% annually, providing no exemptions so that landlords might adapt prices to changing economic conditions.

But amendments were proposed after real estate developers and landlords said they've canceled new developments, sold units, or paused housing construction as rent in St. Paul has been unable to keep pace with inflation. According to the city's director of Planning and Economic Development, St. Paul saw a 31% decrease in the number of new permitted units since the rent control measures were adopted last November.

St. Paul Mayor Melvin Carter convened a 41-member stakeholder task force comprised of developers, landlords, and renters to examine potential changes to the policy. However, the amendments proposed by city council member Chris Tolbert went beyond the recommendations of the task force.

Under Tolbert's proposal, rent control would not apply to apartments less than 20 years old, which council members said would incentivize new construction. Additionally, landlords would be able to circumvent the 3% cap on increasing rents by "banking" annual increases, which they could apply once a tenant moves out. This "vacancy decontrol" policy would let landlords increase rent beyond the 3% cap once a tenant leaves while incentivizing them to avoid raising rates on current renters.

Councilmember Jane Prince said the Tolbert amendments are needed because the current rent control policy puts pressure on landlords to raise rent by the allotted 3% each year.

“I’ve talked to numerous landlords who say, ‘I have tenants I’ve rented to for 5, 10, 15 years. I don’t raise their rents, knowing that when the unit is vacated, I can then raise the rents,’” Prince said, according to Pioneer Press. “We have put landlords in the position where they feel they have to raise the rents 3 percent every year, which is more (than they would have without rent control).”

“Since this passed, it’s been really bad for my ward,” she added. “I immediately lost 100 affordable units when a developer pulled out.”

However, activists claim vacancy decontrol would undermine the entire law and are opposed to the changes. The SEIU MN State Council blasted the proposed amendments in a statement Thursday and called for the mayor to veto the city council if the amendments move forward.

\u201c\ud83d\udea8Members of @ISAIAHMN & @SEIU Condemn Drastic Changes to St Paul Rent Stabilization Policy, Call for \u201cNo\u201d Vote on Ordinance if Changes Are Not Made to Protect Renters | If policy passes unchanged, groups to call for veto from @MayorCarter \n\nStatement:https://t.co/as0y1Cgj9A\u201d
— SEIU Minnesota (@SEIU Minnesota) 1662650085

"Our Union, which brings together thousands of low- and middle-income workers in St. Paul in healthcare, home care, property services, and schools, most of whom are renters, has been proud to support rent stabilization … But the drastic change Council Members Prince, Brendmoen, Tolbert and Ballanger voted to approve takes the best part of what has come from all that hard work and guts it altogether from the ordinance," said Phillip Cryan, executive vice president of SEIU Healthcare Minnesota, and co-chair of the Rent Stabilization Task Force.

He added, "This huge policy change … is appalling, not just because it would be so harmful to renters if it goes into effect, but also because 41 people came together across our many differences and disagreements and worked very hard for several months to make broad-consensus policy recommendations in Mayor Carter’s working group. That group vigorously debated and explicitly rejected the kind of full vacancy decontrol … renters will suffer if this becomes law."

Most economists agree that government price controls on apartments do more harm than good. Supply and demand theory holds that any sort of price control creates shortages that prevent lower-income individuals from accessing needed goods and services. In the case of rent control, it's a housing shortage that perversely increases demand for housing and increases rents in other areas.

It's a lesson that cities like St. Paul are learning the hard way.

Last-minute Christmas shopping? Economics shows why gift cards are not the 'lazy choice'

As the holiday season approaches, many of us are no doubt sweating over the responsibility of picking out the perfect gift for our friends and loved ones. Of course, if we really get in a jam, we can always turn to that tried and true solution for the person who has everything: the gift card.

Economists have long puzzled over the continuing popularity of gift cards. If you view people as rational, which economics generally does, why should anyone prefer a gift card to cash? These cards function just like cash, but are accepted only by a particular retailer, making them less useful than simple currency. Furthermore, the giver of a gift card has to go to the trouble of buying the card in the first place, when a gift of cash would avoid this opportunity cost. Nevertheless, gift cards persist and in fact are more popular than ever. Why?

The answer can be found in the Austrian school of economics’ theory of subjective value. Whereas mainstream economists have long looked for a measurement of value inherent in goods and services — Adam Smith, for example, believed that value was determined by the amount of labor that goes into production — the Austrians, beginning with Carl Menger in 1871, observed that all value is in the eye of the beholder.

Thus, the answer to the gift card conundrum is not that people are irrational, but simply that they place value on things we might not at first expect. The dollar value of a gift card is certainly important, but it’s not the only important thing. Gift cards have certain, subtle advantages over cash.

One of these is the release from obligation that comes with a limited choice. If a person is given cash as a gift, they might feel obligated to invest it responsibly, to use it to pay bills, to save it for a rainy day, or to give a portion of it to a charitable cause. A gift card removes this obligation, allowing the recipient to buy something fun without guilt.

From the point of view of the giver, gift cards can be used to signal a certain amount of thoughtfulness, although perhaps not as much as an individually selected gift. Cash can be dished out at the last minute if a present is forgotten and requires no more effort than reaching for one’s wallet. A gift card has to be purchased, which takes time and energy, and a store has to be selected that will be pleasing to the recipient. All this shows that the giver cares enough to trouble himself, which is a pleasing thought.

There is also a strong cultural stigma against giving cash as a gift, and a gift card allows the avoidance of embarrassment on both the part of the giver and the receiver. There are any number of other reasons why someone might value a card more than a stack of dollar bills. It all depends on individual taste.

While I’m not suggesting that readers replace their traditional gift-giving rituals with fistfuls of gift cards — a carefully chosen and personal gift is still the best — it is worth considering that gift cards are not as lazy a choice as we might think, and certainly not an irrational one when you don’t have a good idea what to buy.

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