Minnesota’s Twin Cities of Minneapolis and St. Paul have inadvertently become a real-world laboratory for two competing approaches to the modern housing crisis.
Separated only by the Mississippi River, their divergent housing policies since 2021 have created what economists call a “natural experiment” to examine the question: is the best fix for spiraling housing costs rent control or zoning reform?
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The answer is complex and offers critical lessons for cities nationwide.
Two takes in the Land of 10,000 Lakes
St. Paul took an aggressive rent stabilization approach, the push grew directly out of voter frustration with years of fast-rising housing costs, according to a report by the Wall Street Journal (1).
An analysis of Zillow housing data (2) shows rent in St. Paul rose modestly in the four years after the 2008 financial crisis, but starting in 2014, rent increases topped 3% per year through 2019. From 2016 through 2019, rents in St. Paul grew 25% faster than rents in the surrounding region.
In 2022, St. Paul implemented one of the country’s strictest rent caps, according to WSJ, limiting annual increases to just 3%.
In contrast, Minneapolis’s leadership, spearheaded by Mayor Jacob Frey, developed a plan called Minneapolis 2040 (3) that called for rezoning to increase the amount and quality of housing for people in all income groups. Its main tactic was expanding housing supply by loosening zoning rules and making it easier to build multifamily and “missing middle” homes, rather than capping rents (3).
The Minneapolis 2040 plan is now known for allowing duplexes and triplexes in areas previously limited to single-family homes, complemented by new height and density policies along transit corridors and downtown.
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The market reaction
In St. Paul, the market’s reaction was swift and dramatic. Developers and lenders quickly signaled that new projects no longer “penciled out,” freezing investment. St. Paul’s rent cap created a cloud of uncertainty that quickly chilled permits and paused projects.
Citing data from the Department of Housing and Urban Development, WSJ reports there was a 79% decline in permits to build apartments in early 2022 compared to the year before. Most famously, that stalled a portion of the 122-acre Highland Bridge development, with a planned 3,800 units of market-rate and affordable housing.
St. Paul’s resulting pivot was swift. Amendments to the new law were adopted in 2022 and more changes were planned for 2025 (4). The 2022 amendments included a rent cap exemption for new construction for 20 years, and they allow for a larger rent reset after a tenant moves out. These moves signaling to the development community that investment could, and should, resume.
Minneapolis, on the other hand, saw a clear construction boom because developers could still underwrite future revenue with a predictable, market-based return. From 2017 to 2022, Minneapolis permitted nearly 21,000 new housing units (mostly in large apartment buildings), which helped the city grow its housing stock by about 12%, according to the Pew Research Center (5).
Pew found that during the same period rents rose just 1%, and noted that Department of Housing and Urban Development point-in-time data shows homelessness in Hennepin County, which includes Minneapolis, fell 12%, suggesting the construction surge helped ease market pressure.
More work needs to be done
Despite their different policies, both cities are still grappling with a severe cost squeeze where rents and home prices have outpaced many households’ ability to keep up.
Though a pro-growth plan in Minneapolis in the teens got the city off to a good start, the metro missed its 18,000-units-per-year production goal in 2023 (permitting 15,473 units), which turned out to be its peak. Axios reports that since then, multifamily housing permits in the Twin Cities metro area have fallen off a cliff with only 5,000 permits filed in 2024 and even fewer scheduled for 2025 (6).
The fundamental problem since the financial crisis nearly 20 years ago has been a lack of supply, which drives up cost. But since the pandemic other problems have piled on top, including a 40% increase in construction costs (6) and higher interest rates since 2022.
This local pressure mirrors a national deficit, with Freddie Mac estimating the U.S. is undersupplied by millions of housing units, more than 3.7 million as of their latest analysis (7). The Twin Cities experience suggests that strict, nonexempt rent caps can immediately suppress new supply, but it does not completely invalidate rent regulation.
Research from the American Economic Association on similar policies in San Francisco showed that while tenant stability improved, landlords reduced rental supply and citywide rents could ultimately rise (8). The real question is one of design and tradeoffs. The outcomes vary widely depending on key details, such as exemptions for new construction, vacancy rules and enforcement.
Ultimately, Minneapolis and St. Paul’s experiences show that there isn’t a silver bullet for solving the U.S. housing crisis. Supply-friendly rules can help moderate rent growth by increasing supply, and rent freezes often have the unintended consequence of raising rates by quashing new development.
But affordability in the current economic environment still requires subsidies either for developers or for renters specifically targeted toward the lowest-income renters, regardless of the supply policy.
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Article sources
We rely only on vetted sources and credible third-party reporting. For details, see our editorial ethics and guidelines.
Wall Street Journal (1); Zillow (2); Minneapolis2040.com (3); The Mac Weekly (4); Pew Research Center (5); Axios (6); Freddie Mac (7); American Economic Association (8)
This article provides information only and should not be construed as advice. It is provided without warranty of any kind.