Rent Control Debate in Chicago

Rent Control sounds good but it is actually very bad for Chicago. Simply put rent control is legislature that would strip landlords of their property rights by dictating how much they can increase rent from year to year and how they can control lease turn over. This is done by locking in the rent amount at the time of lease signing no matter how many times that tenant chooses to renew. It only allows for small increases to be made if a tenant renews to account for yearly inflation. This is Regardless of what the market rate rent becomes in that area or whatever Property Taxes increase to. The rent is locked in to the rate on the lease.

Example

Assuming I Sign a $1000/mo. Lease in 2019 and AVG inflation is 2%

Year Rent Inflation

Year Rent Inflation 2019 1000 2% 2020 1020 2% 2021 1040 2% 2022 1061 2% 2023 1082 2% 2024 1104 2% 2025 1126 2% 2026 1149 2% 2027 1172 2% 2028 1195 2% 2029 1219 2%

This looks like we created Affordable housing and stabilized the rental market but if you look closely you'll see this isn't the case.

Since this doesn't account for the increase in taxes or any new development in the area which would establish higher market rates. Those increases get passed on to every new tenant who signs a lease in that area. Creating a false high market rate.

Year Rent Inflation

Year Rent Inflation 2019 1000 2% 2020 1020 2% 2021 1040 2% 2022 1061 2% 2023 2000 2% 2024 2040 2% 2025 2081 2% 2026 2122 2% 2027 2165 2% 2028 2208 2% 2029 2252 2%

Restricting a landlords ability to make changes to their rent could cause the following issues:

1) There will be a rise in foreclosures as more and more landlords who rely on rents to help pay the mortgage will no longer be able to make payments since they cannot adjust rent to combat High property taxes.

2) If these landlords foreclose, the tenants will be forced to move out anyway after the bank takes control of the property.

3) When tenants do move out the land lord will start the New rent at a higher than normal market rate to account for the rent gap in longer tenancy at artificially lower rates.

4) Large investors will stop investing in the city and move that money to other landlord friendly cities.

5) More and more small landlords will choose to leave the city causing budget gaps from lost taxes

6) there is less desirability for landlords to invest in their property. If i know that a new kitchen will get me an extra $200/month ill put that money to work. if i cannot adjust rent to reflect the beautiful new kitchen i put in, then im going to continue to make small repairs as they happen instead of large updates for my building.

7) rent control will be a win for the few tenants who plan to stay long term 5+ years. As soon as they move they will be forced to pay the higher artificial high market rent like everyone else.

Rent control is a political device created to stop gentrification, it does NOT create affordable housing or stop gentrification. The word gentrification has been demonized by local political action groups in Chicago but what does that word really mean. Gentrification means people investing into our neighborhoods to make them better. Typically new stores and businesses and increased tax base which more money for schools, etc. This increase in investment usually leads to newer home, improved rehabbed rental units which demand higher rents which then can make it un-affordable for some people and they have to move out. In the end it ultimately makes the communities healthier and safer places to live.

My actual experience with rent control. I lived in San Francisco (Nob Hill @ Clay and Levenworth) We rented a 560 SF 1 bed 1 bath apartment for $2,200, our upstairs neighbors paid $800 and have been there for 15 years. San Francisco arguably more liberal and progressive than Chicago is voting to put back a ban rent control because it DOESN'T WORK and rents have exploded so more and more people have to live farther and farther away. 

Heres the biggest secret.... We already have rent control. It is called market rate rent and it is controlled by free market economics. it works like this. If i list my unit for rent in an area where established market rate is $2,000 and i list for $3,000 these is a good chance ill have to drop my price to the established market rate or ill have to sit with a vacant unit.