Friday, August 12 2022

St. Paul’s response could determine the extent to which tenants of the city’s subsidized housing can expect to be protected by rent control.

This story is the second and final part of a short Backyard series examining the consequences of St. Paul’s new rent control measures. Our previous story looked at how landlords are finding ways around new rent regulations.

Last year, Saint Paul voted for one of the toughest rent control laws in the country. Yet months after the law was enacted, a city affordable housing developer is raising rents so high that low-income seniors are moving out of their buildings.

Dominium, a corporate landlord with properties across the country, applied for and was granted an exemption from the new regulations. Tenants are now appealing that request, and the city’s decision could be the first test of the rent stabilization law and how it will protect vulnerable tenants.

Katherine Banbury, who along with roommate Hannah Gray is appealing the Dominium exemption, says seniors in her apartment building are already displaced as the appeal continues in the city.

“They’re moving, they don’t know where they’re going,” Banbury says of some of his neighbors. The vacancy rate in the Twin Cities metropolitan area is around 3.6% in the fourth quarter of 2021, which makes it difficult for them to find alternative accommodation.

last November, 53% of St. Paul residents approved a ballot measure to limit residential rent increases in the city to 3%. But when the law was drafted, it allowed landlords to easily raise rents by up to 8%, to ensure a “reasonable return on investment”, by submitting an application. This request, in the end, is automatically approved. (A waiver granting an 8% to 15% increase requires verification by city staff.)

Dominium immediately requested and was granted a waiver, requesting an 8% rent increase in a number of their buildings. But Banbury and Gray, residents of one of Dominium’s seniors buildings, appealed Dominium’s rent hike, saying the company misstated its numbers. The city’s decision on appeal could determine how much tenants of the city’s subsidized housing can expect to be protected under the law.

To help determine what counts as a reasonable return on investment, the city asks owners to complete a Net Operating Income Maintenance (MNOI) worksheet. The spreadsheet requires landlords to itemize their profit on rent and late fees once all operating expenses have been paid. Homeowners must prove that over time their profit margins have declined due to inflation, property taxes, or increased maintenance costs.

In its response to Banbury and Gray’s appeal, Dominium argued that owners of federally subsidized affordable housing should have more leeway when profit margins are estimated, because they make less money through to rent. It’s an argument that Banbury and his lawyer Jack Cann, who works with the Housing Justice Center, say is bizarre, because Dominium receives millions of government dollars to keep rent low.

“It’s ridiculous because they get all kinds of public funding,” Banbury said.

In their response to Banbury’s appeal, attorneys for Dominium wrote that low-income housing tax credit properties “are financially vulnerable because they offer lower rents to residents” and that the federal government’s underwriting let them “operate with thinner margins than the comparable market to value properties.

“What they were basically doing was pleading poverty,” Cann says. “All that bullshit. They can keep rents low because they get tens of millions of dollars in government assistance.

Cann also pointed out at the hearing that the rents reported by Dominium on its waiver application were added together incorrectly, making the company’s rental income appear lower than it is. A city-appointed hearing officer asked Dominium to resubmit its worksheet, Banbury said. A request to Next City’s Dominium for comment was not returned.

The next hearing is scheduled for September. Once an opinion has been issued, the matter can be appealed to the city council and then may end up in court, which Cann says is likely. There could be other changes to the law that would benefit Dominium: City Council will also hold a hearing later this month on whether affordable housing should be exempt from rent laws and whether new construction should benefit over a period of 15 to 20 years. exemption.

Banbury says the Dominium exemption would result in steep rent hikes like the ones the company is pushing through in the Twin Cities metro area.

That was the experience of Jen Bragelwoman, 74, a former critical care nurse living in a means-tested Dominium building in Coon Rapids, a suburb outside of Minneapolis. She lives on a fixed Social Security income and pays $1,300 a month for a two-bedroom apartment.

When Dominium announced a 12.5% ​​rent increase, Bragelwoman collected 131 signatures from 167 units in her building and helped organize protests at 10 other nearby Dominium-owned buildings. She involved several elected officials, but Dominium initially refused to meet with them to reconsider the rent increase.

“They always take the higher amount, always,” Bragelwoman says of Dominium. During a demonstration in front of a new Dominion building in Cottage Grove residents pleaded in person with Dominion Vice President Jack Sipes not to raise their rent, explaining that they were on fixed incomes and would not get a raise to account for the expected 12.5% ​​increase.

“A lot of us are too old, too sick to work, we have health issues,” Bragelwoman told him. According to her, Sipes told the crowd, “I know you have savings.”

However, the members of the municipal council have proposed a series of rent law revisions last week, according to the Star Tribune. The revisions would allow landlords to defer rent increases – so that, for example, landlords could increase rent by 6% after two years instead of 3% over one year. It would include a very narrow “just cause” provision to prevent evictions only if they are related to these deferred rent increases. It would also add stronger language to prevent landlords from raising utility costs to circumvent the 3% limit, another recurring issue. There will be a hearing on the legislation on August 17 and any changes will not become law until January 1.

The council members who drafted the review bill made it clear that they did not want rent controls to discourage new construction. Developers suspended new projects last November when voters approved the ballot measure. Yet it’s not clear that developers’ fears of losing money on new projects match the reality of the law – the average annual rent increase in the Twin Cities over the past 20 years was 2.3%, against the 3% authorized by the ordinance. . And developers can still increase rents by up to 15% if granted an exemption.

One issue is that the city is using property taxes as a way to build affordable housing, which is mentioned in the bill asking for revisions, leaving lawmakers incentivized to spur market-rate construction.

Cann says excluding affordable housing from the law would make no sense.

“It’s totally stupid, it’s throwing the tenants of the Dominium to the wolves,” he says. “All over the state Dominium tenants, mostly elderly people, got together and said it’s awful, they’re raising the rent to get every penny they can get from us.”

Roshan Abraham is Next City’s housing correspondent and a former Equitable Cities Fellow. He is based in Queens. Follow him on Twitter at @roshantone.

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