RENT CONTROL IN ILLINOIS - CONSQUENCES & ALTERNATIVES FOR EXPANDING AFFORDABLE HOUSING - NAHB
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APRIL 2019
RENT CONTROL
IN ILLINOIS
C O N S Q U E N C E S & A LT E R N AT I V E S F O R
E X PA N D I N G A F F O R DA B L E H O U S I N G
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PRESENTED BY
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©2019 Cushman & Wakefield. All rights reserved. The material in this presentation has been prepared solely for information purposes,
and is strictly confidential. Any disclosure, use, copying or circulation of this presentation (or the information contained within it) is
strictly prohibited, unless you have obtained Cushman & Wakefield’s prior written consent. The views expressed in this presentation
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SUBSEQUENTLY CORRECT IT IN THE EVENT OF ERRORS.
02 INTRODUCTION
Like many highly populated regions of the United However housing capacity in Illinois, particularly in
State, Illinois has seen a severe affordability crisis as a urban areas, has shown limited growth over the past
Post-Recession recovery has given way to increasing two decades. Rent controls in other major US cities
price pressures across the population. According to - even less strict than those proposed in Illinois -
the Joint Center for Housing Studies The State of the have been associated with shrinking stocks of rental
Nation’s Housing 2018, 47.7 percent of Illinois renters housing.
and 24.4 percent of homeowners are cost-burdened
- where over 30 percent of household income is Any long-term, wide-reaching solution to the
devoted to housing costs. Of Illinois’ over 4.8 million affordability crisis should incorporate the the
housing units, 33.9 percent are renter occupied. expansion of housing capacity across the state.
De-incentivizing developers and investors from
As these affordability pressures have grown, so too initializing new projects by instituting the strict
have calls for both local and statewide policies to rent controls proposed will remove the primary
prevent prohibitive costs and displacement. The most mechanism of expanding that housing capacity.
notable of these has been to repeal the Rent Control
Preemption Act of 1997, which bars local governments
in the state from enacting rent control. Proponents
of lifting the ban claim that this is the only means of
ensuring large-scale affordability for renters. So far
these voices have found gained particular prominence
in the recent elections, with pledges from a variety
of candidates from the recently-elected Governor
J.B. Pritzker to Chicago mayoral runoff candidate
Toni Preckwinkle all pledging support for lifting
the Preemption Act. At least 5 of the newly elected
aldermen of the Chicago CIty Council are members
of DSA (Democratic Socialists of America), which has
supported lifting the Rent Control Preemption Act in
Illinois.
TO DEAL WITH ILLINOIS’ AFFORDABILITY CHALLENGES,
ADVOCATES AND POLICYMAKERS SHOULD THINK BEYOND
RENT CONTROL POLICIES TOWARD SOLUTIONS THAT WILL
INCREASE AFFORDABILITY THROUGH A LARGER HOUSING
STOCK, MAINTAIN A DYNAMIC ECONOMY THAT WILL
BENEFIT ALL ILLINOISANS
03
Large-scale Increase in Housing Supply new multifamily construction. In exchange, the owner
would set aside a certain percentage of units to be
In order to create housing supply needed to stem affordable for the time period of the abatement.
soaring rent, action should be taken to ease both
the private and public creation of more housing • The law would require 10 percent
units. Large-scale upzonings are currently under of units set aside as affordable, at a
various stages of deployment in both Seattle and level no higher than 120% AMI
Minneapolis, backed by data analysis and created in • Exact acceptable AMI ranges would be
conjunction with local communities. Some sample determined by city governments
implementations of this include:
• The abatement would also clarify property tax
situations in Illinois for investors, stimulating
• Advocating for a more expansive review of
investment in increasing housing supply that
zoning codes across municipalities, with an aim
would otherwise be allocated toward other states
to expand housing in areas that make sense
• Expedite the sale and conversion of government-
owned land toward creating more housing that Novel Solutions
will also increase the city’s property tax revenues
• Expand co-housing / co-living opportunities
• Supporting and expanding TOD designations
for developers to implement
across municipalities, along with increased
investment in transportation infrastructure • Streamline outdated zoning & land use regulations
• Expand ADU approval / permitting / incentives
An Incentives-based Affordable Housing Model • Invest in infrastructure & public transportation
upgrades that can enervate more submarkets to
One model that would be more targeted towards be viable for larger scale residential development
directly providing for those in need would be a
• Strategically & analytically identify areas of
statewide voluntary inclusionary zoning platform, as
displacement, provide economic support
originally proposed as an alternative for California's
for locals to be involved & invested in
proposed rent control expansion by the Terner
the evolution of their neighborhoods
Center for Housing Innovation. In exchange for
voluntarily opting into a program, developers would • Eliminate governmental structures
receive a 15-year tax abatement on the increased that hamper deployment of housing,
assessed value of the sale / renovation of an existing balkanization of municipalities / agencies /
multifamily building, as well as on the whole value of a city council leading to misaligned interests
when it comes to housing expansion
ALTERNATIVES TO RENT CONTROL WOULD EXPAND
AFFORDABILITY WHILE SIMULTANEOUSLY INCREASING
THE HOUSING SUPPLY & STRENGTHENING
THE STATE ECONOMY
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WHAT ARE THE NEGATIVE CONSEQUENCES OF THE STRICT
RENT CONTROL BEING PROPOSED FOR ILLINOIS?
Pro forma rents for new developments will become indefinitely handicapped, compound-
ing with taxes and other municipal requirements to stifle new development. Institutional
dollars that could otherwise be used to increase housing, jobs and incomes will turn else-
where
Current landlords are de-incentivized from improving and maintaining their property*
Residents will therefore live in subpar, ill-maintained housing, which can lead to
increased risk to health and wellness - particularly to the most vulnerable
Rent control is not a need-proven mechanism, allowing residents who are
unburdened by market rate prices to occupy units in a stagnant housing supply.
This will result in further limitation of housing options for those in need
*THE PROPOSED 25% TAX ABATEMENT WILL NOT INCENTIVIZE OWNERS TO COVER LARGE-SCALE OR SIGNIFICANT REPAIRS TO A PROPERTY. IMPROVEMENT
REIMBURSEMENT WILL BE MAXED AT THAT 25% VALUE, REGARDLESS OF NEED.
05
$35,580
• Lyft / Uber Driver
• Restaurant Server
60% • Security Guard
AMI
• Daycare Teacher
Both HUD and the City of Chicago utilize • Barista
• Courier
Area Median Income (AMI) to determine
• Nurse Assistant
applicability of different housing programs.
Rent control programs across the country $ 4 7, 4 0 0
often don't distinguish based on need. In
• Entry Level Firefighter
some cases, individuals with the means to • Retail Store Manager
pay a typical market rate apartment could 80% • Receptionist
AMI
take advantage of the discount - displacing • Bartender
a unit in a stagnant housing stock. • Cable Technician
Incentive programs to increase market rate
development for particular AMI ranges $59,300
will lead to a larger set of higher quality • Public School Teacher
housing. • Construction Worker
100% • Experienced (5+ years) Firefighter
AMI
• Restaurant Manager
• Yoga Instructor
• Graphic Designer
• Entry Level Police Officer
$71,160
• Financial Analyst
• Nurse
120% • Electrician
AMI
• College Instructor
• Experienced (5+ years)
Police Officer
RENT CONTROL WOULD CREATE A BLANKET MECHANISM WITH SEVERE
CONSEQUENCES ACROSS THE SPECTRUM OF INCOME RANGES AFFECTED
BY THE AFFORDABILITY CRISIS - REGARDLESS OF THE EXTENT OF NEED.
CHICAGOANS HAVE A WIDE RANGE OF INCOMES, FAMILY SIZES AND LIFE-
STYLES - BUT ALL REQUIRE MARKET INVESTMENT TO EXPAND HOUSING
OPTIONS INSTEAD OF KEEPING THEM STAGNANT.
06 BACKGROUND
Lawmakers and activists seeking to overturn the Rent KE Y ACADEMIC FIN DINGS ON
Control Preemption Act believe that establishing RENT CONTROL
rigid price restrictions will both protect tenants and
reduce displacement in gentrifying areas. A study by • Diamond, McQuade and Qian, 2018" The Effects
Freeman and Braconi for the Journal of the American of Rent Control Expansion on Tenants, Landlords
Planning Association found that rent control does and Inequality: Evidence from San Francisco":
achieve those some of its goals, providing residential Besides the benefits to those tenants currently in
stability for low-income households. A 2018 study by the system, the study also found that rent control
Diamond, McQuade and Qian found that residents "reduced rental housing supply by 15 percent,
of rent-controlled households in San Francisco were causing a 5.1 percent city-wide rent increase."
20 percent more likely to stay in their homes, and • Heskin, Lavine and Garrett, "The Effects of
benefited from between $2,300 and $6,600 per Vacancy Control" (2000): Between 1980 and
person each year in rent savings. 1990, Californian cities (Berkeley, Santa Monica,
West Hollywood and East Palo Alto) with vacancy
However, these modest gains are not without control - requiring rents to remain controlled even
significant cost. Multiple studies from across the upon tenant departure - had their housing stocks
academic spectrum have found that strict rent shrink by an average 5.9 percent, while nearby
controls - like those proposed in HB2192 - would cities saw their stocks increase by 2 percent.
restrict the development of much needed new
• Navarro, "Rent Control in Cambridge,
housing supply, reduce the size of the existing
Massachussetts" (1985): An expansion of rent
housing stock and lead to deterioration of housing
control in 1970 resulted in “roughly 10 percent
quality. A blanket program like those currently under
of the city’s rent-controlled housing stock
consideration would also not concentrate assistance
was converted to condominiums and moved
toward those of highest need.
out from under the grasp of the ordinance.”
• Pollakowski, "Rent Control and Housing
Investment: Evidence from Deregulation
in Cambridge" (2003): Removal of
Cambridge's rent control law coincided
with a significant expansion in property
investments and increase in housing quality.
STUDIES HAVE FOUND THAT RENTAL STOCKS DECREASE
BETWEEN 5 AND 15 PERCENT FOLLOWING THE
ESTABLISHMENT OF RENT CONTROL...WITH RESULTING
INCREASES OF 5 PERCENT IN RENT FOR NON-AFFECTED
RENTAL HOUSING
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ILLINOIS HOUSE BILL 2192 WOULD ESTABLISH A STRICT
FORM OF RENT CONTROL FAR MORE SEVERE THAN THE
RECENT ANTI-GOUGING CAP ESTABLISHED IN OREGON
H.B. 2192 —RENT CONTROL ACT
W H AT I S R E N T C O N T R O L ?
Rent control or stabilization regulates how much rent can increase over a 12-month period. The Bill also
prevents landlords from evicting tenants for no reason, requiring “good cause” for eviction.
W H E R E D O E S T H I S A P P LY ?
The Bill applies to all privately owned rental units and single-family homes, The Bill repeals the Rent
Control Preemption Act of 1997.
HOW DOES LOCAL CONTROL WORK?
The Bill establishes 6 regional rent control boards comprised of 7 elected members, who
represent renters, property owners, and housing advocates. The regional rent control
boards ensure proper implementation, monitoring, and enforcement of rent control.
Administration of rent control will be funded by a
per-unit fee payable annually by landlords.
H O W I S T H E R E N T- C O N T R O L L E D A M O U N T S E T ?
The Bill limits annual changes in the rental amounts to no more than the change in inflation, set as the
Consumer Price Index for All Urban Consumers (CPI-U). This allowable rate of annual change is known as
the “rent stabilization rate.”
For example, the annual increase in CPI-U for the Chicago area was 1.8% for Jan. 2018, 1.8% for Jan. 2017, and
0.9% for Jan. 2016.
HOW IS TH E RENT AFFEC TED IF A TENANT MOVES FROM TH E U NIT ?
The rent stabilization rate established by the Bill applies to all rental units in Illinois.
A landlord may not increase the rent above the rent stabilization rate, regardless of whether a new tenant
moves into the unit, a tenant moves out, or a new owner or landlord takes control.
HOW DOES THE BILL HELP SMALL OWNERS?
Smaller owners are helped in 3 ways. The regional board will create a Repair Fund to help with significant
repairs or improvements. Also, the Bill creates a 3% property tax credit for small owners. Finally, all owners
of rental properties can qualify for a tax credit up to 25% of their property tax liability for qualifying repairs
and capital improvements.
A smaller owner is one who owns 12 or fewer rental units in the region, charges at or below median rents, and
occupies a unit in one of the rented buildings.
Source: Illinois general assembly, HB219208
NEW YORK CITY SAN FRANCISCO
Established: 1942 Established: 1982
Applicable Properties: Applicable Properties:
• Rent Control: Rental stock built prior • Rent Control: Rental stock built prior 1979
1947, continuously occupied 1971 onward
• Addition: Rental stock built 1947
by same residents or successors
to 1974, 6 or more units
• Rent Stabilization: Rental stock built
Rental Cap:
1947 to 1974, 6 or more units
Rent Control: Calculated at 60% of CPI.
Rental Cap:
Additional Controls:
• Rent Control: Capped at a maximum
dollar value every year, increases toward • Capital Improvement Cap: 10%, dependent
that cap cannot exceed 7.5% upon approval of San Francisco Rent Board
• Rent Stabilization: Calculation of • Just Cause Eviction: Must meet one of 15
maximum percentage rent increase criteria, such as failure to pay rent, breach of
is done on an annual basis rental agreement, destruction of property, etc.
Additional Control: • Limited Rent Control: Just Cause Eviction
law applies to single family homes, as well
• Vacancy Control: Capped at 20% increase from
as units not built to code or declared
tenant to tenant, upon change of tenacy.
2018 Allowable Increase
1.6%
2018 Allowable Increase
1.25% 2019 Allowable Increase
2019 Allowable Increase
1.5% 2.6%
6.8 Jobs to housing units ratio
(2.0 considered healthy)
A NYU report found that between 2000 and 2016,
From 2012 to 2017, San Francisco added 400,000
the adult population grew by 11 percent, but the
new jobs, but only issued 60,000 permits for
number of housing units grew by only 8 percent
new housing units, mostly single family
MAJOR US CITIES WITH RENT CONTROL IN PLACE
HAVE EXPERIENCED DECADES LONG SHORTFALLS
IN NEW HOUSING STOCK09
OREGON LOS ANGELES
Established: 2019 Established: 1978
Applicable Properties: Applicable Properties:
• All residential property, with an exemption • Los Angeles Rent Control: Rental stock built
for new construction for the next 15 years prior 1978, single-family homes are exempt
Rental Cap: • Santa Monica Rent Control: Rental
• 7% plus inflation, guided by CPI stock built prior 1979, most single-
family homes are exempt
Additional Controls:
• West Hollywood Rent Control: Rental
• Capital Improvement: None stock built prior 1979, most single-
• Vacancy Control: No cap to rent increase family homes are exempt
when tenants move out of their own volition • Beverly Hills Rent Control: Rental stock built
• Eviction Allowances: No-cause evictions prior 1995, single-family homes are exempt
are only allowed during the first year of Rental Cap:
tenancy. Landlords may still evict for select
personal reasons, including major renovation • Los Angeles: Bounded by 3% and
or landlord moving in. The landlord is 8%, adjusted based on CPI
required to provide 90 days notice and Additional Controls:
pay one month of rent to the tenant. • Capital Improvement Cap: Maximum set to an
2019 Allowable Increase additional $55 / unit to rent, greater increase
10.0%
will need to be approved by the Los Angeles
Housing & Community Investment Department
• Just Cause Eviction: Must meet one of 8
criteria, such as failure to pay rent, breach of
rental agreement, destruction of property, etc.
2018 Allowable Increase
3.0%
2019 Allowable Increase
3.0%
4.7 Jobs to housing units ratio10 CONCLUSION
STRICT RENT CONTROL AT NEAR CPI LEVELS HAS
BEEN CORRELATED WITH CONSTRICTING THE
HOUSING STOCK OF MAJOR US CITIES. A SOLUTION
TO INCREASE HOUSING AFFORDABILITY FOR ALL
SHOULD INCLUDE POLICIES THAT EXPAND HOUSING
STOCK, NOT DECREASE IT.
As new rent control laws have been considered in Oregon, California and now Illinois, policymakers should
consider what can be done to attain the goals of widespread housing access and affordability. Rent control
policies throughout major U.S. cities have not created growing and sustainable affordable housing stocks, in
fact they have de-incentivized further investment and development in those cities. Housing affordability has
a direct relationship with the supply of housing stock available. Many cities have ample avenues to increase
density for this purpose. Such avenues include transit bonuses & strategic upzoning programs, well-crafted
housing subsidies, legalization of ADUs and insuring reasonable inclusionary requirements that understand
the economics of development. The housing affordability crisis gripping the country has grown over decades
to affect tens of millions of Americans: governments, activists and the private sector must work together to
solve it.11
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