Housing Issue 2018

The Rent Control Debate

Where rents rise and wages stagnate, affordable housing is a package deal

Jason Schumer

On January 31, around twenty housing activists blocked traffic on the first floor of the James R. Thompson Center. They brandished banners and placards and demanded support for rent control from Governor Bruce Rauner, whose office is housed at the Thompson Center.

The action was organized by the Lift the Ban Coalition (LTB), a federation of community organizations that work together to make rent control possible in Chicago, where it is currently prohibited under the Rent Control Preemption Act. The Act, passed by the state legislature in 1997, forbids Illinois municipalities from instituting any form of rent control.   

“We need economic well-being in our state,” Jawanza Malone, executive director of the Kenwood Oakland Community Organization and one of the most visible leaders of LTB, called out to the audience. He then referred to a study showing that more than half the renters in Cook County pay more than they can afford. “And that’s wrong!” he passionately concluded.

His verdict was echoed by other protestors: “What do we want? Rent control! When do we want it? Now!”

The protest is part of a grassroots movement that has sprung up since early 2017, when State Representative Will Guzzardi introduced HB2430, a bill that would repeal the 1997 rent control ban. Since its introduction, HB2430 has made rent control the subject of city- and state-wide debates. As those debates reveal, deep rifts exist between real estate interests and communities whose residents are suffering from rising rents and stagnant wages.

Economic aggregates don’t paint a rosy picture for renters in Chicago. A report by Nested, a London-based real estate brokerage firm, ranks Chicago as the eighth most expensive city in the US in terms of rent. Although several reports have suggested the rate of rent growth in Chicago has been moderate compared with the national rate, such moderation is not evenly distributed across the city. According to an analysis by RENTCafé, an apartment listing website, North Side communities in general have a much faster growth rate in rent than South Side communities, but the community with the highest rent growth in 2016 was Bronzeville.

Moreover, as Malone suggested, affordability of housing is not only tied to rent, but also income; the growth of household income has failed to match even relatively moderate increases in rent. A 2016 analysis by the Pew Research Center showed that Chicago’s low-income households have started to make up a larger share of the city’s population. According to a report by the Institute for Housing Studies at DePaul University, high numbers of low-income households are extremely rent-burdened (paying more than thirty percent of household incomes in rent is considered rent-burdened, and if the number exceeds fifty percent—extremely rent-burdened), and areas with large affordability gap—where substantial numbers of rent-burdened families live—cluster on the South Side: Hyde Park, South Shore, Woodlawn, and Washington Park have the largest affordability gap in the Cook County. So, even though rent increases faster in the north, it is more unaffordable and burdensome in the south.

And as rent becomes more unaffordable, a rising number of residents have been displaced or evicted across Chicago, especially on the South Side. According to the Reader, the South Side saw the highest numbers of evictions in 2016, with more than 200 evictions taking place in most South Side communities. Among them, South Shore is the city’s “eviction capital,” with 382 cases in one year. (And that’s not counting the cases that never make it to court.) Research done by Matthew Desmond, a sociologist at Princeton, shows that eviction leads to job loss and income insecurity. As a result, it tends to be a cause of long-term poverty.

Despite the wide range of problems that result from rising rents, any legislative implementation of rent control in Chicago is forbidden by the Preemption Act. As the Reader has showed, the original Preemption Act passed after an intense lobbying campaign from small-government conservatives and a real estate industry worried about any regulation that might threaten their profit margins. And the tradition seems to persist—once the Illinois real estate industry found out about the existence of Guzzardi’s repeal bill, realtors and property owners across the state immediately rallied against it. According to Illinois REALTORS, the state association of realtors, more than 5,200 Illinois realtors had expressed their opposition to HB2430 a month after Guzzardi introduced it.

“It’s mind-boggling that after what we’ve been through in the housing market since 2008, Illinois would consider a bill that sends the message, ‘We don’t want to develop, rehabilitate, or improve our housing stock,’” Illinois REALTORS wrote in the summary of reasons why they object to HB2430.

In their defense, realtors draw first and foremost on orthodox economic consensus—the Econ 101 cliché that rent control is destructive to the economy because it distorts the market. In this view, rent control takes away incentives from developers and landlords to build new rental units or maintain and upgrade existing ones, leading to a dwindling supply of rental units. The law of supply and demand then dictates that prices will go up for housing units that are not covered by rent control. (At least in New York and San Francisco, rent control isn’t applied to every building in the city.) This means that rents, though cheaper for some, are more expensive for others. The disparity is worsened by landlord behavior. Landlords of rent-stabilized or rent-controlled units will often try to convert their buildings so that they’re ineligible for rent control regulation; they can then charge market rates, according to a working paper presented by three Stanford scholars on the effects of rent control in San Francisco.

But realtors and developers have not talked about another finding from the same paper: that rent control does prevent displacement, and is beneficial for those who live in rent-controlled housing. The same Stanford paper found that “rent control increased the probability a renter stayed at their address by close to twenty percent.” For the period studied, tenants in rent-controlled apartments received benefits averaging $2,300 to $6,600 each year; aggregate benefits came out to more than $390 million annually.

The debate, then, seems to hinge on the question of who bears the cost of rent control, and economic consensus suggests that it will be renters who fail to secure rent-controlled housing. This conclusion is acknowledged by Janet Smith, an associate professor of Urban Planning and Policy at UIC, co-director of the Center for Neighborhood and Community Improvement, and one of LTB’s most vocal supporters. This acknowledgement leads her to support a more universal form of rent control.

“Hey, rich people are getting screwed too in this market,” Smith joked in an interview. “I mean, we’re seeing that housing affordability is creeping up the income scale in Chicago. There might be a bigger coalition in support of rent control if you start looking at a citywide program instead.”

But universal rent control is unimaginable for the real estate industry. First, Illinois REALTORS point to the “morass of bureaucracy” it would take to implement rent control. Secondly, and more importantly, the industry argues that, if every rental unit is rent-controlled, there won’t be the rent increase observed in non-controlled units in New York and San Francisco. In other words, profit margins would only seem poised to go down.

“If the movement wants to go towards locking rents, and there aren’t locks on rising property tax, rising utility taxes, and utility costs, what happens to the owner?” Brian Bernardoni, Senior Director of Government Affairs and Public Policy for the Chicago Association of Realtors (CAR), told the Weekly. “The owner can’t just make up that money. The owner has no other choice but to sell, or stop investing in the building.”

Yet, for Frank Avellone, senior attorney of the Lawyers’ Committee for Better Housing (LCBH), the fear that owners will lose money because of rent control misunderstands the kind of rent control envisioned by housing activists. That misunderstanding conflates current rent control proposals with the earliest model of rent control in the United States. Under those early attempts, a hard cap was set on how much rent the landlord could charge, regardless of any changes in costs—such as those related to upkeep—that the landlord might experience.

“Modern rent stabilization is being done in a number of places around the United States,” Avellone said. “It’s done in a lot of different ways, but the basic framework is that there are many reasons and mechanisms for allowing rent to increase.”

In other words, modern rent control (usually labeled “rent stabilization” to distinguish it from its hard-cap prototype) usually doesn’t prevent landlords and property owners from earning money—it just makes them earn less. But industry advocates argue that lessened profits will still hurt landlords and developers, in part due to the unpredictable near-term future of property values and property taxes in Cook County.

“Cook County property taxes continue to rise. Chicago is going to be going through a real estate triennial assessment, this year,” Bernardoni said.  “We have no idea what this is going to do at this point. No one does.”

Bernardoni is referring to the reassessment of property values that takes place every three years, during which the Office of the Cook County Assessor will levy new property taxes on reevaluated properties. During current officeholder Joseph Berrios’s tenure, his office has come under fire for overvaluing properties in low-income neighborhoods—meaning poor people pay a much higher tax than they should—while undervaluing properties in rich neighborhoods. Depending on the regions, property values can vary significantly with each reassessment. It thus seems to make sense that, against the backdrop of the 2018 reassessment, the industry is scared of the added uncertainties brought forth by a rent control ordinance.

William Smiljanich, a mom-and-pop landlord interviewed by the Weekly, has a second opinion. According to Smiljanich, the unpredictable reassessment is more of a concern for small landlords, since corporate landlords have resources to absorb the shock, should there be any.

Nevertheless, Bernardoni’s narrative depicts the real estate industry as a candle in the wind, and rent control the last puff to blow it out. But it’s hard to know exactly how profitable rental units are for property management companies and corporate landlords. (The Weekly sent several requests for comment to Pangea and Mac Properties, two big corporate landlords on the South Side, but received no response.) Even so, rent stabilization could take the problem of profit into consideration—for pro–rent control activists, making sure that the landlords will not have negative net rental incomes is crucial for long-term growth.

But the call for rent control also touches on the fundamentals of municipal finances. According to Janet Smith, the City of Chicago has relied on property taxes to pay off interest on loans the city borrowed a long time ago. Consequently, a potential rent control not only impacts the real estate industry, but also a municipal government that wants to steady the flow of city revenues.

“[The vote for rent control] is actually going to be a vote for a property tax increase at the end of the day,” Bernardoni told Chicago Tonight. “Rent control, if it goes into effect, will actually reduce the property tax base, thus increasing the property tax.”

For Janet Smith, this doesn’t have to be the case.

“If taxes are a concern for the city of Chicago, we will talk to Mr. Emanuel about other solutions, like being a better investor,” she said. “Don’t always rely on property taxes as a good solution, because then we have to build higher-income housing—that’s just the way it’s going to be.”

If that is the case, the reliance on higher-income housing to finance the city might be the root cause of inadequate affordable housing as well as skyrocketing rents in Chicago. To that end, realtors and housing activists both argue that there should be more affordable housing.

“[Rent control] is just one piece of what needs to be a comprehensive strategy of how to make housing affordable—how to guarantee housing as a basic human right,” said State Rep. Guzzardi in an interview with the Weekly. “Building more public housing units and more affordable housing units are also part of the picture.”

But where proponents see affordable housing as part of the entire package, developers and realtors see building more affordable housing as a sensible alternative to rent control. This relies, yet again, on an orthodox economic argument—because there are a lot of vacant lots in Chicago, building more buildings will drive up the supply of housing and consequently lower the prices. In contrast, measures such as rent control deter developers from staying in Chicago at all, obviating any possibility that affordable housing will be built.

However, building more does not necessarily lead to more affordable housing. “Their argument about Chicago is that we have room to build more,” Smith said. “But you have to turn the question back to them, and say, ‘Okay, so we’ve been building a lot more, and housing hasn’t gotten any more affordable.’ We’ve been building at the highest. It’s not filtering down and, in fact, it’s causing rent to go up in some areas that used to be affordable.”

Part of the problem is that there are no binding laws that require developers to build affordable housing when they build on vacant lots, unless those residential developments receive city financial assistance or involve city-owned land, according to the City of Chicago’s Affordable Requirements Ordinance (ARO). (The ARO is also triggered when a development involves zoning changes.)

Under other circumstances it is up to aldermen to enforce the construction of affordable housing in their wards. Alderman Danny Solis, for example, made a Pilsen–specific mandate that requires at least twenty-one percent of the units in eligible new developments to be designated as affordable housing. It’s a mandate that hasn’t always been enforced. In 2016, in Solis’s ward, there was a ninety-nine-unit development near Benito Juarez Community Academy by Fox Chicago LLC; ten percent of the units have been designated as affordable housing, less than half the amount of what Solis promised in the mandate. To compensate for the lost eleven percent of affordable units, Fox Chicago LLC donated an acre of land to nearby Benito Juarez Community Academy that will be used to expand sports fields—the land was worth $1.3 million in 2016.

To address housing issues for low-income families, there is also the House Choice Voucher (HCV) Program, commonly referred to as Section 8 housing, but the current program doesn’t meet the needs of low-income families in Chicago.

“Statistically speaking, only one-third [the number is closer to one-fourth] of the people who are eligible for Section 8 participation actually participate, because Congress does not appropriate enough money for it,” said Frank Avellone. “The Section 8 funding dynamic in Congress every year makes it kind of unpredictable what forces would affect the local level.”

In addition to the lack of overall funding on the local level, sometimes, due to skyrocketing market rates, Section 8 voucher holders sometimes can’t even find proper places to use the voucher since rents are too high. According to the Department of Housing and Urban Development, public housing agencies will decide on a payment standard, “the amount generally needed to rent a moderately-priced dwelling unit in the local housing market.” The voucher holder must pay thirty percent of the family’s monthly income for rent and utilities, and if the unit rent is greater than the payment standard the family is required to pay the additional amount. For 2018, the Chicago Housing Authority set the payment standard for a two-bedroom apartment as $1,253, which exceeds average rent in a lot of South Side communities—but too few families get in.

Rent control, its supporters argue, is one way to combat the inadequacies of these other programs. “I would think that we should refer to rent control as one tool. Not the only tool in our toolkit, but a big tool that can have a pretty quick effect,” said Janet Smith.

Ultimately, progressives are simply asking the state to lift the rent control ban, restoring Illinois municipalities’ right to home rule. “We need to let cities make decisions on how to handle their housing markets,” said Guzzardi. “If Chicago considers this, and decides rent control is a bad idea, they don’t have to pass an ordinance. They don’t have to do anything.”

Realistically, Guzzardi doesn’t expect HB2430 to make much progress in the legislature this year, but says that a hearing on it will hopefully take place in the spring. (JB Pritzker and Daniel Biss, two Democratic candidates for governor, have publicly announced their support for HB2430.)

Locally, LTB has found more success. In the March 20 election, precincts in ten different wards, seven of them on the South Side, will have a referendum item on rent control.

On January 31, during the Thompson Center protest, activists from LTB took out blankets and sleeping bags, a gesture aimed at demonstrating the upcoming danger to working-class Chicagoans if rents continue to rise. Their speeches and chants echoed around the Thompson Center for a long, long time, attracting a sizable crowd.

But this sentiment wasn’t shared by the state officials working in the building, who never came down to meet the protestors, nor was it shared by Governor Rauner, who, with his entire office, was away in Springfield giving his State of the State speech. The action ended when protestors gave their letter of demands to the receptionist at the governor’s office.

There are a thousand alternatives to rent control, claim the real estate industry. There are a thousand ways to do rent control, claim the activists. Yet there’s one fact about Chicago—low-income families’ need affordable housing, especially on the South Side.

“What we’re seeing is rapid changes in the last ten years in terms of growing inequality,” said Smith. “We’ve lost the middle class. We have so few families with children under the age of eighteen. And given all the other things that are happening, the fundamental question is: who will be able to live in Chicago now and in the future?”

✶ ✶ ✶ ✶

Support community journalism by donating to South Side Weekly

The Weekly is a volunteer-run nonprofit written for and about the South Side of Chicago. Our work is made possible through donations from our readers. If you enjoyed this article, please consider making a one-time or recurring donation. Donate today.

Thoughts on “The Rent Control Debate”

  1. Great article. I definitely sympathize with the writer, as Chicago has become one of the most expensive cities in America to live in based on housing prices alone. However, I do not agree with the solution of rent control. Rent control has the effect of potentially making it less affordable to live in Chicago, not more affordable. As with any solution involving acting individuals, you have to look at how will benefit and who will stand to lose. It is quite obvious the people whom will benefit are the tenants seeking low-cost housing, and the losers are the private property landlords supplying “rent controlled” housing. Furthermore, the renters will only gain a momentary gain from political “rent control”, as the economic climate of Chicago would reflect the actual cost of housing in a already overcrowded city. Thus this would have the effect of reducing the quality of housing supplied at newly established “rent control” minimums. Making it more difficult for the owners of property to repair building due to the low amount of profit earned through restriction of the actual cost of housing. In short, Chicagoans do not need “rent control” housing, we need diverse forms of housing. Chicagoans need to lower the cost of living by being supplied with real solutions that they can afford now. I would advocate for the reemergence of neighborhood hotels and boarding homes. These options are far superior to “rent control”. The options mentioned allows low-income people to afford living quarters within their means without creating another government policy that would ultimately have our most vulnerable population at the hands of government telling them whom and where they have to live. Also, this “rent control” measure would more than likely give more power to wealthy landowners who already sit on our lots and sale at a higher profit because of the scarcity that exists in Chicago housing. This would make it more difficult for middle-class Chicagoans to own property in neighborhoods they grew up in, for only big business would be able to suffer a below of city-mandated “rent control” housing.

    If anyone would like a actual data-driven analysis on why rent control hurts Black Chicagoans particularly please contact me @ cameron.williams1292@gmail.com. I can prepare an article on the harsh effects of rent control for Blacks in a heartbeat. I will not let my people live in blindness.

Leave a reply

Your email address will not be published. Required fields are marked *