Chicago’s landlords and property managers are lobbying hard in Springfield to fight repeal of the state’s Rent Control Preemption Act, a law passed by the Illinois Legislature in 1997 which prohibits local governments from enacting rent-control ordinances.
Since there are no limitations on landlords demanding excessive or unfair residential and commercial rent increases, State Rep. Will Guzzardi (D-39th) says this has led to “skyrocketing rents and encroaching gentrification of once stable neighborhoods” in Chicago and throughout Illinois. Rep. Guzzardi is the sponsor of HB2430 that would repeal the act. Three bills dealing with rent control—SB2310, SB3512, and SB3542—also are pending in the Illinois Senate.
However, apartment owners and managers argue that Mayor Rahm Emanuel’s aggressive property tax hikes combined with sharply higher water and sewer charges, plus new garbage fees are forcing landlords to raise rents to cover higher costs.
Faced with a 28-percent real estate tax increase and substantially higher city utility fees last year, one Lincoln Park 4-flat owner was forced to raise rents 4% to 5.5%, or about $100 a month per unit.
More real estate tax hikes are expected to follow the reassessment in the city during 2018. Illinois currently has the second highest property taxes in the nation, and a pension-funding gap of $129.1 billion.
A trio of Federal Reserve economists recently predicted that real estate taxes would have to be increased by 40% for the next three decades to pay off pension debt in Illinois. The owner of a $500,000 home on Chicago’s North Side could face a $5,000 per year property tax hike for 30 years to help pay off the debt. Big apartment owners would have to pay much more.
Rent control ‘flawed’
Early in May, Michael J. Mini, executive vice president of the Chicagoland Apartment Association (CAA), attended a Senate hearing and expressed the apartment industry’s opposition to rent control, labeling it “flawed public policy.”
The CAA is an affiliate of the National Apartment Association and represents owners and managers of more than 1,100 apartment properties and 190,000 rental units in the Chicagoland region and throughout the state.
Rent control or rent regulation was first introduced in Chicago during and after World War II to address a wartime housing shortage. After the war, many larger 3-flats in Chicago were split into 6-flats. If an apartment building had 6 units, it was split into 12 to 18 units. Rent control ended in 1953 after the end of the Korean War.
While the intent of rent control was to ensure an adequate supply of affordable housing existed, Mini said it has been shown in both academic research and practice to have the opposite effect.
“Housing policy experts and economists from across the political spectrum overwhelmingly oppose the concept of rent control as means to create and maintain affordable housing,” Mini testified.
37 states oppose rent control
According to a poll by the American Economic Review, a resounding 93 percent of economists agree that a ceiling on rents reduces the quantity and quality of housing availability, Mini said. That’s why 37 states currently have some form of rent control pre-emption statute in place and others are pursuing it.
“Price controls on rent negatively impact the housing market by discouraging maintenance of existing housing and construction of new housing,” Mini testified.
“Owners of rent controlled units are unable to adequately maintain and upkeep properties, expediting the deterioration and diminishing value, causing disinvestment, conversion to condominiums or other uses,” Mini said. “When this decrease in rental housing stock coincides with increased demand, it leads to increased costs for all renters.”
Mini cited a 2017 study which concluded that rent control in San Francisco is responsible for rent increases of 5.1% over natural market growth. “Rent control discourages investment and development of new rental apartments, leading to housing shortages, and makes attracting new businesses and jobs more difficult,” he said.
“It also places a burden on local governments. The reduction in property values that results from rent control leads to a decline in property tax revenue,” Mini said.
The revenue decrease occurs while government expenditures increase as large bureaucracies are needed to administer and enforce rent control regulations, he noted.
“Rent control typically fails to protect those residents it was intended to help,” Mini said. “Since rent controlled apartments are not distributed by need, its effects are poorly targeted.”
Rent control discourages residents from moving despite their economic situation, he said.
“A better solution to aid low-income renters is to provide rental assistance directly to the consumer, which would allow prospective residents to choose housing that fits their needs,” Mini suggested.
The CAA urged the Illinois General Assembly to reject efforts to overturn the Rent Control Pre-Emption Act and any other legislation to enact rent control or rent regulation schemes.
“We are committed to working with state and local policymakers on alternative approaches to provide affordable housing such as providing direct rental assistance to residents, and enact policies that streamline, incentivize, and reduce impediments to apartment development,” Mini said.
For more housing news, visit www.dondebat.biz. Don DeBat is co-author of “Escaping Condo Jail,” the ultimate survival guide for condominium living. Visit www.escapingcondojail.com.