Rent control — barred in Illinois since the 1997 Rent Control Preemption Act became law — is once again in vogue. Two repeal and replace bills have been proposed in the state legislature, including one that calls for the election of a half-dozen “regional rent control boards” across the state. It’s an understandable but deeply misguided bureaucratic temptation that legislators should resist.
Demands for rent control typically increase when rents spike, which is happening in and around Chicago, where the average apartment rent is now $1,998 — a full 6% higher than a year ago. But good intentions aside, proponents of rent control often overlook the root causes of skyrocketing rents, which generally have more to do with policy failures than a property owner’s unbridled greed.
New York City is a classic example of such policy failures. In the Big Apple, where more than a million housing units are rent-regulated, the perceived need for tenant protection reflects restrictive zoning laws and artificially high labor costs that make it impossible for new development to keep up with demand.
In Chicago, one must look to rising property taxes — which are up 22% since 2007 across all of Cook County, according to the Illinois Policy Institute, with further increases likely. Those increases reflect a failure of both state and city government to find some compromise approach to crippling increases in public employee pension and health care costs. In effect, city residents are paying for services they received long ago — and paying at such generous levels that current services suffer, and property taxes are driven up. To view this as a failure of the housing market is to miss the point.
If the state were to succumb to the temptation to rein in rents by law, Chicagoans can expect not a solution to housing problems but, rather, a whole new set of problems, also known as unintended consequences.
First, there is no guarantee that low-income residents will benefit. Indeed, property owners whose rental income is limited have a strong incentive to rent to those they can be more certain will pay — those with high incomes and good credit scores.
That’s exactly what’s happened in New York, where a study by New York University’s Furman Center for Real Estate and Urban Policy found that in the most desirable parts of Manhattan, the incomes of rent-controlled households were “higher than the median income of market-rate tenants” in most other New York neighborhoods. Anyone who’s ever lived in the city knows someone who has a ridiculously high salary and pays ridiculously low rent, thanks to rent control.
Thanks to human nature, once you have what you think of as a good deal, one is loath to move on — helping to create the low vacancy rate to which rent control is a response. According to the NYU study, “about 23% of households in rent-stabilized units have lived in their unit for 20 years or more, compared with only 7% of households in market-rate units.”
Therefore, housing becomes a game of musical chairs — and when the music stops, some are simply left out. Indeed, New York — despite its reputation for welcoming the ambitious — has the lowest housing turnover rate of the top 10 U.S. cities. That means newcomers must double- or triple-up, as they face high rents on the nonregulated units that become available.
New York rents are among the highest (just behind San Francisco) because, although rents on regulated apartments are low, the bidding war that ensues on nonregulated units (those in exempted, smaller buildings or new construction) are bid up, and newcomers are boxed out.
Rent control thus becomes a deterrent to the young talent that cities need to remain thriving and dynamic. Low housing turnover means that longtime residents are “grandfathered in,” and that is exactly the wrong prescription for a city and state hungry for talent from across the country and around the world.
If not rent control, then, what to do about a housing-cost crisis? One must look to a range of ways to increase supply. For Chicago, that could mean improving public safety in areas that have the necessary infrastructure and apartment buildings but where abandonment rates are high.
For Cook and Lake counties, it could mean modest incremental relaxation of zoning laws — to permit, for instance, accessory dwelling units (“granny flats”) and small multifamily housing (two- to four-family owner-occupied buildings). Trying to spread subsidizing housing to higher-income communities is the wrong approach; it’s just a recipe for social conflict.
Without a doubt, rent control will have perverse and unintended consequences, mainly for those who can’t afford housing. Sadly, keeping rents priced low, by law, will most likely hurt those it intends to help.
This piece originally appeared at the Chicago Tribune
Howard Husock is vice president for research and publications at the Manhattan Institute.
Photo by stevegeer/iStock