Why Rent Control Is Bad For Illinois

The first lesson you learn in macroeconomics class is about supply and demand.

This concept is simple: the greater the demand and the lower the supply the price increases, and vice versa.

This concept easily applies to homes as well, whether you buy them or rent them. Depending on the community, housing or rent prices will be higher or lower based on this basic economic concept.

As such, most homes located in prime locations –those with easy access to work, good schools or amenities like entertainment, recreation or shopping, will cost more because people will pay more for this kind of quality of life.

Big cities usually have this demand, as such they work with developers and use regulations to create affordable housing, and some cities have tried rent control.

However, in Illinois, there is a rent control ban that has been in existence since 1997.

Yet, some rent control proponents in the Illinois General Assembly have recently proposed legislation that would repeal that ban, opening the door for rent control in the state.

The newest legislation, HB2192, would create six regional rent control boards that would be elected by voters. These boards would determine regulations about rent stabilization rates and create registration fees which would fund repairs and improvements.

The bill would also include rent-control and improvement tax credits and would hold landlords accountable for pricing.

But would this be a good decision in Illinois?

“Rent control is bad for a multitude of reasons,” said Brian Bernardoni, Senior Director of Government Affairs and Public Policy for the Chicago Association of REALTORS®. “It really shrinks down the absolute amount of housing you can have in a community.”

While the idea of limiting rent increases may seem good at first blush, it frequently causes property owners a lot of unintended headaches.

Property taxes are constantly increasing. As are other fees and costs tied to owning a property.

With the landlords having to eat these increases faster than they can raise the rent, renters suffer because many properties fall into disrepair because the landlords can’t afford property improvements or upgrades.

When landlords finally have their fill with these rising costs, they often sell their property, getting out of the rental business, and reducing the available housing stock.

“The policy might seem like it benefits moderate wage earners, but studies have found that’s not necessarily the case,” said Mike Scobey, Director or Local Advocacy for Illinois REALTORS®. “A study of tenants living in rent-controlled units in New York City found that more than 10 percent of 2,300 rent stabilized units there had incomes of more than a half a million dollars.”

Government budgets can also take a huge hit. Since rent controlled properties aren’t getting as much maintenance or seeing upgrades, assessments will be lower. Lower assessments mean lower tax levies. Lower tax levies translate into shrinking government budgets, resulting in service cuts or even higher taxes.

“Rent control kills development, guarantees a never-ending cycle of affordable housing shortages and property tax increases, and ensures a rental property falls into disrepair due to lack of funds,” Scobey said.

There have been several cautionary tales from around the country, most notably in San Francisco.

In 1994, San Francisco imposed strict rent control to address their rapidly rising rents. The notion was that capping rents would allow more low or moderate wage earners to be able to afford to live in the city.

However, since then, it’s gone in the exact opposite direction.

According to a study released last year, rather than creating more affordable housing, rent control in San Francisco decreased regulated rental units by 15 percent.

In other words, even fewer properties are on the market because landlords realized they were losing money by renting their properties and either sold them to a permanent resident or converted their apartments to condominiums, reducing the housing stock.

And implementing rent control also requires the creation of additional bureaucracy.

In Santa Rosa, Calif., the estimated cost of adding rent control was an additional $1.4 million annually.

For a city the size of Chicago, that could skyrocket to as much as $24 million annually.

“With rent control comes a massive bureaucracy which is responsible for inspecting and setting limits on what rents can be charged,” said Greg St. Aubin, director of Government Affairs for Illinois REALTORS®.  “Illinois has more layers of government than any other state. Adding another layer oversight just adds to a crushing tax burden.”