Ramstad: As Trump begins a terrible mistake, St. Paul starts to correct one

President Donald Trump is trying to fix a problem he thinks is worse than it is, the perceived degeneration of American manufacturing, with a solution that is far worse than he thinks it is — tariffs.

It's a mistake. A similar mistake happened in St. Paul in 2021, when voters approved the most stringent restrictions on the pricing of rental housing in the country.

A 53% majority of St. Paul voters passed a measure urging the City Council to cap rental home increases at 3% annually in the apparent belief that rent hikes were a big problem.

The rents weren't that big of a problem, particularly when St. Paul and the rest of the Twin Cities were compared to other urban areas.

The council went along, creating rules that wound up arresting construction of new apartments, killing the market for landlords hoping to sell their multifamily properties and harming perceptions about St. Paul's economic potential.

I lump together Trump's tariff push and St. Paul's rent pricing to show people across the political spectrum can make costly mistakes when economic challenges are exaggerated or misunderstood. Market signals get brushed aside and new problems created.

Both situations are similar as misjudgments, but that's where the equivalence ends.

Trump's actions have raised the prospect that the U.S. economy, which was performing better than any other developed country last year, will tumble into recession this year.

That's much worse in scale than the harm seen in St. Paul. It's coming from a guy who was elected by an even slimmer margin than St. Paul voters passed those rent restrictions. And all the while, as the world's No. 2 country in total manufacturing output, the U.S. has a manufacturing base that's in much better shape than is often portrayed.

Topping it all, Trump is just starting out. Since Republicans control both chambers of Congress, and none of them will confront him, all Americans will have to experience the destructiveness of his ideas.

In St. Paul, a correction is starting. Mayor Melvin Carter is proposing that the City Council amend the rent restrictions to exclude all new construction.

"We want to be as bullish as we possibly can about building new housing," Carter told me recently. The change would still leave most of the city's rental stock subject to pricing restrictions.

"It gives us the chance to keep the will of the voters intact, keep 95 percent of the units that exist in the city governed under that law, while acknowledging the economics of building a new building are fundamentally different than the economics of one that's 50 years old," Carter said.

I prefer an outright repeal of what I call "rent control," or what others more charitably call "rent stabilization." The political winds in St. Paul haven't shifted that far, though economic pressures are growing.

Trouble from St. Paul's rent restrictions emerged almost as soon as they were enacted. By late 2022, a group of researchers from the University of Southern California determined they caused an immediate drop in property values and that the cap on rental increases was more beneficial to higher-income renters than lower-income ones.

The council in 2022 exempted thousands of new and affordable housing units from the rent restrictions. Even so, compounded by the jump in interest rates in 2022 and 2023, the city has experienced far less construction of rental housing.

The effect is most visible in the Highland Bridge project at the former Ford Motor site in St. Paul's Highland Park. Begun in 2020, only 27% of the planned housing has been built, and about 30% of expected commercial space.

Minneapolis-based Ryan Cos., the lead developer of Highland Bridge, most recently has quarreled with the St. Paul council over its desire to build smaller commercial buildings. Asked for a reaction to Carter's proposal to exempt all new construction from rent restrictions, Ryan in broad terms expressed hope it would fly.

"We support any policy changes that enhance the ability to finance and build new housing of all types in our communities," Maureen Michalski, Ryan's senior vice president of real estate development, said via e-mail.

I went to meet Carter after seeing him testify last month in front of a legislative committee about a proposal for state tax incentives to property owners and developers who turn commercial buildings into residential ones.

Communities across the state would benefit from any effort to bridge a mismatch in real estate — too much office space and not enough housing — that widened since the pandemic.

That mismatch is also changing property-tax dynamics. As valuations of office properties decline, residential property owners feel more of a bite. Carter said he noticed it himself. "We increased our citywide tax levy by 6 percent last year. My city portion of my personal property tax bill went up 20 percent," he said.

Carter added several other residential projects would benefit if new construction was exempt from rent restrictions:

"Obviously the Highland Bridge site, the Heights on the East Side, United Village near where Allianz Field is, downtown. We're excited about Central Station and the RiversEdge project, the former West Publishing site, that the county has taken the lead on. It's important to be doing everything we can to construct housing in the city."