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
The real problem is the endless string of bubbles and bailouts. Rent control is just a reaction.
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.
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.
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.
The taxes on my house are high. Over 13K now. But, up the road a few miles, within driving distance to my work, I own rural property with a wildlife tax exemption. The taxes out there run about $615/year. The plan when I bought it was to build a more modest home there for retirement and cash out of this energy hog….I will miss the view, but there is a lovely view out there too, and my own piece of creek.
Here, currently, folks over 65 can only have their homestead taxes jacked up by 10% per year….and I expected that to stand, at least for the rest of my watch.
In general, you are correct I suppose. But planning can help.
I pay for all my in-town property taxes to be challenged every year. It’s definitely worthy the trouble.
The Five Universal Laws of Human Stupidity link to getpocket.com
Genius, especially the graph.
As Carl Hiassen used to say, “It ain’t the heat, it’s the stupidity.”
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!
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.
If they cap rents, wouldn’t that negatively impact inflation, the opposite of what the Fed’s trying to achieve?
Rent controls and union power rise during inflationary times, get used to it and invest accordingly. Hence the billionaires buying farmland.
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.
I would certainly hope that is a tongue in cheek response.
Ban investment properties? Where would people live who do not want to buy a house?
of course, if you were being sarcastic then I get it.
I can totally see an inept government banning something as needed as investment properties to help the housing market. Massive homelessness would result of course but that’s the government’s typical way of doing things.
The entire mortgage industry was carefully sculpted by the government (and encouraged by central banks) to encourage anyone with a pulse to want to buy a house. It’s why Freddie and Fanny exist. It’s why the mortgage interest deduction is still fairly sacred. It’s why you still get 500K off the top when you pay capital gains on your sale.
I think I can make a pretty good case that the subprime crisis was actually caused by the government because they were trying so hard to push more marginal buyers int the RE market. You can read numerous articles that show that foreclosures disproportionally affected persons of color.
Some claim systemic racism (and there is some in mortgage banking, no doubt). But it was really caused by allowing people to buy houses without the proper income and reserves to ride out any kind of downturn. That was legislated, to large degree.
Your complaint very much reminds me of Mish and his take on the Fed.
You can ride the train, or you can step in front of it. I prefer to ride.
I see America’s mortgage subsidies and easy credit as a good thing that is just getting perverted, as growth slows, and fewer good borrowers remain to keep burbs growing in a lot of places.
People (like me and@dbannist ) manage to use these long running government policies in housing to build our own nest eggs. The system was not set up to help me. But I can use that system. Is that morally reprehensible somehow? I say it’s playing the cards I was dealt.
As of yesterday they made it harder for us to borrow money…they do try to keep us down. But they government will need our money if we have a correction, and so that window is unlikely to close.
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.
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.
So then owners will do everything in their power not to rent to anyone getting old, or who seems likely to get sick. How about the public provide assistance to old and sick people if they require it? Why is it the property owner’s problem?