RENT CONTROL ISSUE SUMMARY
Rent control limits the increase in rental rates. Typically, local governments use rent control measures when there is a limited supply of rental housing. Rent control or rent stabilization measures put in place by local governments are enabled by state legislation. Generally, rent control and rent stabilization are interchangeable terms, although technically, rent control does not allow for any increase in rental rates, whereas rent stabilization allows for an annual percentage increase (typically 5 to 7%) along with a consumer price index (CPI) adjustment.
What does this mean for the real estate industry?
Rent control has been banned in Illinois since 1997. If the existing preemption law was overturned, local governments would have the option to use rent control measures to limit rental rates for both residential and commercial leases. The inability to capture fair market values disrupts the real estate market and severely limits an owner’s ability to establish rents. It has been argued that this type of governmental intervention is a violation of private property rights. Furthermore, under rent control, small landlords are hit particularly hard, as their capital budgets for maintenance and improvements are constrained by the inability to charge fair market rental rates.
We oppose rent control because it is a blanket policy that does not solve the problem of housing affordability or housing availability. Typically, rent control is considered during real estate cycles of housing shortages without the consideration of long-term solutions. A housing shortage is a societal problem that is caused by a lack of housing supply, particularly at a certain price point. Other constraints within a city have an impact on building homes, such as inclusionary zoning policies, costs of labor and materials, permitting delays and more. When costs prevent housing development to be built, problems arise because demand is high while supply has been restricted.
Rent control does not target the most vulnerable populations in need of housing support but rather limits all rental rates in a city or jurisdiction where rental controls are implemented, regardless of tenant need. As a result, tenants that are better connected to resources end up in the rent-controlled units while the most vulnerable remain at risk of displacement.
Rent control would limit mobility in the city of Chicago, where there is plenty of housing, just not in neighborhoods that are the most desirable. A lack of investments throughout the entire city has left some neighborhoods with fewer amenities than others. This inequality coupled with rent control would significantly perpetuate the inequalities of the city of Chicago. Considering the vast amount of opportunities to increase housing supply on the south and west sides, rent control would completely derail any efforts by the city to attract residents to more affordable neighborhoods.
CAR believes in protecting private property rights, which includes the ability of a landlord to collect fair market rental rates from tenants.
In 2019, there were two pieces of legislation that would enable local governments to enact rent control measures. The first, HB 2192, would establish six regional rent control boards, regardless of need, to elect board members and to create regulations on rent stabilization rates. The rent control boards would have the authority to implement monetary relocation assistance for tenants. There is a provision of the bill that would create a rental property capital improvement tax credit. HB 2192 was filed by Rep. Mary Flowers (31st District-Chicago) and referred to the Rules Committee. It did not move out of the committee for further consideration in the House. It is important to note there are close to 7,000 local units of government in Illinois, and HB 2192 would add to the number of local governments. It is unclear how much the six regional rent control boards would cost the state in administrative fees.
The second rent control bill from 2019 is HB 255, filed by Rep. Will Guzzardi (39th District-Chicago), which would repeal the Rent Control Preemption Act. The preemption prohibits any local governmental body in the state of Illinois from implementing rent control measures on residential or commercial property leases. In 2019, this legislation failed to move out of the Judiciary-Civil Committee.
In 2020, HB 255 has seen some activities and has been reassigned to the Judiciary-Civil Committee. Illinois REALTORS® and CAR remain steadfast in opposing the repeal of the Rent Control Preemption Act.
A public hearing was scheduled for February 26th at 8:30 am in Springfield but that has been canceled.
In 1997, the Illinois State Legislature passed the Rent Control Preemption Act.
- Read: Busting 6 Common Myths about Rent Control
- Read: The Impacts of Rent Control in Chicago
- Watch: Rent Control’s Impact on Affordability
- Watch: Rent Control’s Impact on Bureaucracy
- Listen: REALTOR® Podcast on the Dangers of Rent Control
- Learn more: AffordabilityForAll.com website
- Read: NAR White Paper on Rent Control
- August 08, 2018: Crain’s Chicago Business: Rent control is an emerging issue in the governor’s race
- “We’re opposed—heart, stop!” says Brian Bernardoni, who heads government relations for the Chicago Association of REALTORS®.
- January 8, 2019: Chicago Tribune: Could, and should, Illinois embrace rent control?
- “But rent regulation is not a tool that many economists and realty professionals want to pull out of the tool kit. In fact, Brian Bernardoni, senior director of government affairs and public policy for the Chicago Association of REALTORS®, likens it to ‘throwing a hand grenade on your lawn to get rid of dandelions.’ ‘This is a ‘good politics, bad economics’ kind of discussion,’ he said. ‘If you just introduce a rent control provision, but don’t look at property taxes, don’t look at building codes, don’t look at density, it blows up everything and that’s why we’re unequivocally opposed to it in Springfield.’”
- February 8, 2019: South Side Weekly: The Rent Control Debate
- “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.”
- February 19, 2019: Take Immediate Action: Rent Control Bill to Go Before Committee on February 20th
- March 5, 2019: Chicago Tribune: Rent control would benefit some tenants, but sap vitality from Chicago
- “In Chicago today, price controls on housing would allow some renters to stay in place, but it would tighten supplies by enticing landlords to convert units to condos or sell to owner-occupants. Apartment owners also would be less likely to invest in their properties, spending less on upkeep because rising overhead costs wouldn’t be offset by rising rents. Investors would look elsewhere. As the value of rent-controlled apartment buildings stagnates, property tax revenue would decline.”
- March 5, 2019: The Chicago Sun-Times: High rents are a problem. Rent control is not the answer.
- “Chicago does not need to wade into the quicksand here. Given the uncertain ramifications of rent control, our city and state could move forward, right now, on better ways to make rents more affordable…Rent control is an overly blunt tool. It could do more damage than good. But about this there is no debate: Chicago needs more affordable housing.”
- March 8, 2019: Chicago’s Two Major Newspapers Voice Their Opposition to Rent Control
- May 14, 2019: May 2019 Advocacy Update
- June 25, 2019: June 2019 Advocacy Update