Calling St. Paul’s new rent control mandate unconstitutional, two building owners based in Bloomington and Minnetonka have filed a federal lawsuit against the city of St. Paul, the city council, the city mayor’s office and the director of the St. Paul Department of Safety and Inspections.
The civil complaint and “writ of mandamus” seek a jury trial on six counts, including claims that the city’s 3 percent cap on annual enterprise rent increases violates the US Constitution because it does not allow automatic adjustments for inflation. city does not employ sufficient staff to review requests for exemptions or hear “futile” appeals when those exemptions are not granted. That constitutes both a lack of constitutional due process and an illegal taking of private property, according to the lawsuit.
The lawsuit was filed in US District Court Thursday by the Minneapolis-based law firm of Anthony, Ostlund, Louwagie, Dressen and Boylan on behalf of two plaintiffs: Woodstone Limited Partnership of Bloomington and Lofts at Farmers Market LLC, which is based in Minnetonka. Woodstone owns an interest in the Woodstone apartments building at 2335 Stewart Ave., off Shepard Road, and the Lofts at Farmers Market is located at 260 Fifth St. E. between downtown Mears Park and CHS Field.
The lawsuit — which spans 59 pages, with 61 pages of additional exhibits — maintains that both properties have already lost substantial potential market and resale value as a direct result of rent control, even at a time when housing demand is high.
Backed by a coalition of housing advocates, the city’s “rent stabilization” ordinance went before votes last November over the objection of a majority of the St. Paul City Council. the city’s implementation rules allow allow landlords to self-certify increases above the voter-approved cap but below 8 percent.
RENT CONTROL CHALLENGES FLOUNDER
With limited success, property owners have challenged the legality of rent control mandates since the first soldiers returned from World War I. The US Supreme Court upheld the nation’s first rent control law in Washington, DC a century ago, and New York City’s emergency housing laws have also withstood a century of legal attacks, albeit with heavy changes over the years.
Attorneys for Woodstone and Lofts at Farmers Market say the difference in St. Paul is that the capital city’s mandate appears to be the most stringent in the nation, offering no exemptions for new construction, no adjustments for inflation and relatively limited staff funding to review possibilities for exemptions or appeals.
In other rent-controlled cities, apartments can revert back to market rents or something approaching market-rate once they’re vacated.
None of that holds true in St. Paul, they said, and the result is that new rental housing construction has all but stopped, undermining the purpose of the law.
“Preliminary economic analysis indicates that property values in St. Paul have already decreased 6-7 percent for all property, and as much as 12 percent for rental properties, representing a net loss of more than $ 1.6 billion in value through just the first quarter of 2022 alone, ”reads the lawsuit.“ The sudden depreciation in property values, coupled with the withdrawal from the market of many significant developments that would have included affordable housing, is predicted to significantly worsen, rather than alleviate, the affordable housing crisis plaguing St . Paul. ”
“In short,” it reads, “the net effect of the ordinance is already the opposite of what its proponents said they hoped to accomplish.”
Proponents of the rent control mandate have predicted the market will revive with time. St. Paul Mayor Melvin Carter’s office has proposed a 15-year exemption for new construction, and a rent control task force recently submitted additional recommendations for ordinance improvements and implementation changes to the city.