Despite History of Failure, Destructive Rent Control is Poised to Hit Illinois

Mish

A bill that would allow rent control in Illinois is gathering steam in the legislature.

Pandora's Box

Illinois is currently one of 33 states that ban rent control. State Rep. Will Guzzardi’s House Bill 116 repeals Illinois’ statewide ban on local units of government imposing any type of rent control. 

It garnered enough votes to pass in the House’s Housing Committee Wednesday [March 24]. Opponents of the legislation compared allowing rent control to opening Pandora’s Box.

“The real estate market has finally begun to recover fifteen years after the market implosion,” said Rep. Sam Yingling, a Rockford Democrat and real estate agent. “It’s important to recognize that many of these landlords are not giant, faceless corporations but rather ‘ma and pa’ investors.”

Michael Mini, executive vice president of the Chicagoland Apartment Association and a member of the SHAPE Illinois Coalition, said rent control won’t fix the Chicago area’s affordable housing problem, rather worsen it.

“Price controls on rent negatively impact the housing market by deferring maintenance on existing housing and discouraging the construction of new housing,” he said.

Guzzardi and others say rent control isn’t a silver bullet, but rather a tool in their mission to more affordable housing. 

Who Wants It?

Guzzardi is a co-chair of the Illinois House's Progressive Caucus.

This law is progressing because some cities want to try it. What cities might that be?

Guzzardi is a Democratic member of the Illinois House of Representatives who represents the 39th District. The 39th district is in Chicago. 

Affordable Housing 

Chicago Mayor Lori Lightfoot has a Plan to Create Affordable Housing and Prevent Homelessness.

Her plan, written prior to her being elected did not mention rent control but put all these pieces together and guess what this bill is all about.

Rent Control History

Brookings asks What does Economic Evidence Tell Us About the Effects of Rent Control?

Under pressure to fight rising rents, state lawmakers in Illinois, Oregon, and California are considering repealing laws that limit cities’ abilities to pass or expand rent control. While rules and regulations of rent control vary from place to place, most rent control consists of caps on price increases within the duration of a tenancy, and sometimes beyond the duration of a tenancy, as well as restrictions on eviction.

While rent control appears to help current tenants in the short run, in the long run it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighborhood.

Market Distortions

Rent control results in a couple of standard options by landlords, neither good. Landlords convert the building to condos reducing the supply of apartments or they stop maintenance and say to hell with it. 

Small landlords with a few units sometimes choose to move into a unit for a year, then the next, and the next until prices are reset.

Renters who do want to move often don't because of the rent hike. 

Finally, who wants to build apartments in rent controlled cities?

Expected Results

Price ceilings yield expected results: consumers over‐​use the product and producers under‐​produce it. 

Are Rent Control Laws Unconstitutional?

The Cato institute asks Are Rent Control Laws Unconstitutional?

The Cato Institute has filed an amicus brief in the Second Circuit in an important challenge to New York’s rent control laws. Rent control is a silly and counterproductive idea, but it also might be unconstitutional.

In 2019, the New York legislature passed a series of amendments to its rent control laws, known as rent‐​stabilization laws (RSLs). These are not the first amendments to the still‐​controversial RSLs, though they are the most stringent in decades. One of the more egregious new provisions extends the eviction stay period even if the tenant is being removed for cause. The RSLs also maintain a tenant’s strange right to transfer their lease—without the landlord’s permission—to family members who have resided with them for a certain amount of time. Taken together, the RSLs force landlords to rent to many tenants they don’t want to rent to, which is akin to the government essentially mandating that someone can occupy property against an owner’s will.

When the government doesn’t physically take land but rather passes regulations that greatly undermine traditional property rights, it’s possible that such regulations can be a “regulatory taking” under the Fifth Amendment’s Takings Clause, meaning just compensation is owed to the property owner. With New York’s RSLs, while each provision might not alone rise to a regulatory taking, together they offend the common law “right to exclude.” The right to exclude people from occupying your property is obviously central to the concept of “property.” 

The RSLs imposed on New York’s landlords are nothing short of per se takings. It is high time the work the Supreme Court has begun in this area be drawn nearer to its obvious conclusion.

If cities wanted to do something about supply, they would give tax breaks for apartment construction.

Instead, they result to proven failures. 

Capping rates does not increase supply, it caps supply. 

Mish

Comments (47)
No. 1-14
Sechel
Sechel

Works great for those that win the lottery, raises the cost of rent for everyone else. The only case I think merits some consideration is among the very old or sick for whom moving would be difficult or impossible.

Mr. Purple
Mr. Purple

The Fed blows its bubbles, the cities and states run around like children trying to pop them. Co-dependency at its finest. Man, do they hate free markets.

Casual_Observer
Casual_Observer

The best way to more affordable real estate is to do away with mortgages. Prices would crash overnight and instantly fall into line with incomes of the locale. Also ban investment properties and weed out the speculators. Since government is now writing off student loans, writing off Fannie and Freddie loans cant be mu further behind. Massive deflation will solve all problems.

Jackula
Jackula

Rent controls and union power rise during inflationary times, get used to it and invest accordingly. Hence the billionaires buying farmland.

Scooot
Scooot

If they cap rents, wouldn’t that negatively impact inflation, the opposite of what the Fed’s trying to achieve?

lamlawindy
lamlawindy

Honestly, I'm not surprised: this is Illinois that we're talking about, where now about 30% of the state budget goes to fund pensions.

bluestone
bluestone

I had an idea which dovetails pensions nicely with migrant concerns. Why not say, yes, you can come to the states and you can obtain citizenship after some period of years, so long as you accept a 35,000 dollar obligation to bail some of these schemes out.
You could vary the number but as there are around 12 million people in Illinois, you could put 200,000 migrants in without being overly oppressive and thats 70 billion dollars which halves the pension deficit! Bingo!

KidHorn
KidHorn

If people want a fixed monthly price for their housing, they can buy a home with a fixed rate mortgage.

Anyone owning a residence has a huge target on their back. Expect higher property taxes and other schemes that force evil homeowners to support everyone.

njbr
njbr

Supply/demand

There are very few, if any, metropolitan regions in the country that have built housing at a rate in excess of population growth.

Captain Ahab
Captain Ahab

Mish gets it! Many here do not. Incentivize supply (cheaper construction and innovation) in the market and the problem goes away. Cap rents, construction in that segment slows.

Quanta
Quanta

No, Mish doesn't get it. In the current environment the only entities that can build lots of housing in metropolitan areas are ultra rich megabanks. As a result, the proportion of run-down properties that is run by megabanks is increasing every year.
Housing should be low cost so everyone can focus on being productive instead of figuring out where their next rental payment is going to come from.
In the current rigged environment NOBODY BESIDES AN ULTRA RICH MEGABANK can affort to build metropolitan housing units. Is that what we want?

Realist
Realist

The problems of Affordable Housing and Homelessness are complex. As such, there are no easy answers. Mish is correct in stating that all attempts by Government to solve this complex problem have been unsuccessful so far. However, the private sector has no ability to solve this problem, and by definition, no interest in solving this problem. Therefore, the problem will persist.

I certainly do not have any answers. From a personal point of view, my charitable work is focused on helping people acquire the skills necessary to get a better job, which hopefully allows them to afford adequate shelter. I would rather teach someone to fish as opposed to giving them a fish to eat. But even giving people a “hand up” instead of a “handout” is only a small part of an answer.

The free market does not care about affordable housing or homelessness. Just as it has never cared about slavery, child labour, poverty, or the environment. As a society, if we care about any of these issues, we can have our government attempt to solve them. If we choose not to have government do anything, we can do our bit as individuals. Or we can simply let the problem continue.

whirlaway
whirlaway

The real problem is the endless string of bubbles and bailouts. Rent control is just a reaction.


Global Economics

FEATURED
COMMUNITY