On Guard, REALTORS®

Rent control threat is real

no rent control

Yes, REALTORS®. There is a serious effort under way to pass legislation in Illinois that would repeal the Rent Control Preemption Act. In 1997 we lobbied for and passed this Act, which preempts local governments from imposing any form of rent control. The repeal of that law would enable home rule cities, like Chicago, to enact rent control ordinances.

by Greg St. Aubin, Illinois REALTORS®
Senior Vice President, Governmental Affairs

There is also a bill under consideration that would impose a statewide rent control program. Six Regional Rent Control Boards (dominated by tenants and tenant advocacy groups) would set a “Rent Stabilization Rate” for every county (or in some cases, city) in the Board’s area. Landlords could not increase rents above the “Stabilization Rate” (which would be tied to a Consumer benchmark like the Consumer Price Index).

Proponents see rent control as an “easy fix.” Do you think your rent is too high? OK, we’ll just pass a law capping it. Problem solved, right? Of course not.  

Who wants rent control, and why?

This issue is primarily coming from tenant advocacy groups, and community organizations in the Chicago metro region.

Hearings were held on this legislation this fall, but no legislative action has been taken to date on these bills in either chamber. We can anticipate that this legislation will certainly be reintroduced when the new General Assembly convenes in January.

Of course, large urban areas like Chicago, and in fact ALL communities, frequently wrestle with the challenge of providing an adequate supply of “affordable” housing, and REALTORS® are constructive participants in these issues, whether at the local, state or federal level. But rent control is the last thing that should be implemented as housing policy in Illinois.

The tenant and community groups say that redevelopment and new development or, “gentrification,” has caused the displacement of long-term, current tenants.

6 reasons why REALTORS® oppose rent control

1. Rent control will cause disinvestment in our communities, reduce rental housing. Do the math. It does not work. Capping the amount that a rental property business can increase its income while its expenses rise faster (e.g., property taxes, utilities, building maintenance, capital improvements, other taxes, regulatory fees, required upgrades, etc.), operating a rental property will no longer be an attractive or viable business or investment. As a result:

  • Rent control would REDUCE the supply of affordable rental housing. Some landlords would simply go out of business, or sell and buy elsewhere;
  • Chicago or any other community that imposes rent control would become less attractive to investors and developers, who would opt for investing in non-controlled areas or communities. This will especially hurt areas that want and need new development, such as areas to the west and south in Chicago.
  • Many rental property holders will choose to convert their properties to condominiums, thereby further reducing the rental housing supply.

2. Rent control would threaten the quality of the rental housing stock. As increases in income to the property would be capped, maintenance and improvement costs are not limited, and are constantly going up.

3. Rent control will create an expensive, inefficient regulatory bureaucracy; and it will chase good property owners out of the rental housing business. People learn to “game” the system, and typically an “underground market” emerges where people sublet their rent-controlled unit for higher than the controlled rate, but below market rate. In other cities that have rent control, a significant number of those living in controlled units were high-income individuals.

4. Rent control will cause higher taxes. An effect of rent control is to drive down the value of rental properties. In many areas, including Chicago, rental properties pay a significant portion of the property tax base. This will result in higher property taxes for everyone else.

5. Rent control has significant socio-economic impacts. For example, studies indicate that rent control tends to vastly decrease tenant mobility. Once tenants are in a rent-controlled unit, they tend to stay for many more years than tenants stay in non-controlled units. There’s nothing wrong with a tenant remaining in a unit for 20 years, but having a government regulation that artificially freezes many tenants in place geographically and at their place on the housing ladder would not be good for our citizens, our communities, our neighborhoods, or our economy.

6. Chicago rental housing is already more affordable than comparable large urban cities. Imposing rent control assumes that overall, rental housing in Illinois—and specifically Chicago—is not affordable across the board. The data shows that is not the case. Compared to other large urban cities, Chicago rental housing is relatively affordable. Additionally, rents in Chicago have recently been going down overall due to an abundance of supply. If there are targeted areas or populations that need more housing or housing assistance, that should be the focus – not the imposition of universal rent control across the market

What does work? A more holistic approach to affordable housing

At the recent hearings, REALTORS® urged legislators not to go down the dark and destructive road of rent control, as this would stifle new development and investment, and drive landlords out of the business. Instead, REALTORS® urged and pledged to work with state and local policy makers to take a more positive, innovative, pro-development approach that would keep the existing market healthy, and spur new affordable housing development.

REALTORS® suggested several examples of how current state and local policies and ordinances make housing more expensive to operate and develop. They urged a discussion on how these issues can be addressed. These ideas can be summarized as follows:

1. Do no further harm.

  • Don’t enact rent control as the “solution,” while leaving all the other regulatory barriers and burdens in place; that will only exacerbate the problem.
  • Seriously consider the impact on housing affordability and development when considering new state laws and local ordinances that either directly impose costs on housing providers and developers or increase the cost of housing development. REALTORS® at the local level constantly point out the direct or regulatory costs local and state laws would have on housing, and those concerns are often dismissed.

2. Fix the harm that exists.

  • Streamline or eliminate bureaucratic processes, overly restrictive zoning and building codes, state laws, and local ordinances that greatly increase the cost of operating or developing housing.

3. Adopt an approach going forward that encourages and attracts growth and innovation.

  • Adopt a proactive, pro-development approach to housing issues that listens to current providers and attracts new investors.
  • Fully utilize and create new incentives to encourage housing rehab or new development, especially in targeted areas. There are numerous such programs, and more are needed.
  • REALTORS® continue to be ready, willing, and able to provide our constructive input and expertise in developing new and
    improved processes and innovative solutions to the housing needs of our citizens.

About the hearings, and our strategy

This fall, an Illinois Senate Special Committee on Housing held a series of hearings throughout the state (Urbana, Rockford, Chicago and East St. Louis) on the issue of rent control and other rental housing issues. The Chair of the Senate Committee and chief sponsor of Senate Bill 3512, Senator Mattie Hunter (D-Chicago) provided for a very fair hearing process allowing all viewpoints to be heard.

Of course, plenty of tenants and community advocacy groups were at the hearing. A few of the tenant advocates cast this issue in stark “us vs. them” terms, and often cast the real estate industry as greedy profiteers who didn’t care about tenants. The proponents’ testimony seemed to portray housing as a public utility that should be controlled and managed by the government. But some simply explained their situation as struggling tenants that paid more than 30 percent of their income in rent, and of course see rent control as a solution to their situation.

But individual REALTORS®, your statehouse lobbyists, and local Governmental Affairs Directors (GADs), as well as other landlord associations also helped pack the room, and more than held their own. We cited all the reasons outlined above as to why rent control would harm the rental housing industry, reduce the affordable housing stock, would be detrimental to the very tenants it purports to help, backing up our arguments with data references and the experience with rent control elsewhere. They also shared anecdotes on just how tough and frustrating being a rental property owner is in many communities, especially Chicago. This is largely due to excessive and punitive regulations on landlords who constantly deal with many barriers to the development of affordable housing.

Several landlords cited the thin margin on which they operate their rental properties, debunking the caricature of landlords as “greedy profiteers.” Thus, in addition to hearing our substantive objections to rent control, it was reinforced with Senators that most landlords are good people who take pride and work hard to provide affordable, quality housing to their tenants. They face many challenges in doing so, and many of these challenges are caused or exacerbated by government.

Rent control battle will dominate in 2019

REALTORS®, we will likely be facing a tough fight on this issue in the Spring of 2019. But we have a strong position, the facts are with us, and legislators listen to us.

In addition to our seasoned team of statehouse lobbyists, Illinois REALTORS® has a robust plan in place to deploy all our advocacy tools and resources to take rent control off the table in Illinois, or to defeat any rent control legislation that is considered.

With your help, involvement, and expertise, together with the advocacy resources at our disposal, we can and will prevail on this issue!

2018-10-31T11:31:07+00:00October 25th, 2018|Advocacy, DR Legal News|0 Comments

About the Author:

Greg St. Aubin is Illinois REALTORS® Senior Vice President of Governmental Affairs.