Chicago Deserves Better Than Rent Control.

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I'm going to admit right off the bat that I am absolutely terrified of writing this article. The topic of rent control in Chicago has been on my to-do list since it hit the news in early 2018 and every time since then that I've looked at that line item I've flinched and avoided it. We covered it a little in our newsletter back in March when it was on the primary ballot. It's never been mentioned in depth in the blog. But nothing going forward in this blog can really be addressed without taking on the matter, and I did recently promise one of my industry colleagues that I would finally go on the record about it, so here we are.

Meet This Article's Cities

For this article we will be comparing the rental data for a selection of cities and neighborhoods within those cities, each chosen for a specific purpose. We will, of course, be looking at Chicago, which has its own Residential Landlord-Tenant Ordinance.

We will be looking at San Francisco and New York City, which both have RLTOs but also have rent control. Yes, I could have also included Los Angeles and DC. I could have included a lot of cities. I am one person and this article is already long enough as it is. If you want to take this data and run with an expansion that's totally fine with me.

Since the repeal of the Illinois ban on rent control will likely affect many home rule cities along with Chicago, we'll also be looking at another rental-heavy pair of cities in Illinois, Champaign and Urbana. Neither have rent control. Urbana has an RLTO, Champaign does not.

Of course we also need a few controls, because there are a lot of variables besides rent control. I chose Atlanta as one control because its a heavily segregated city like Chicago, but it has no RLTO and no rent control. I also looked at Irvine, CA, which has no RLTO and no rent control, but is one of the most racially integrated cities in the nation.

Within Chicago, San Francisco and New York I've also chosen two census tracts each. For each city I've chosen one tract in a lower income neighborhood claimed to be "at risk of gentrification" and another in a more stable, middle class area. In Chicago I've picked an area in Pilsen and another in Edgewater Glen. For San Francisco I've picked an area in Bayview and the other is in Presidio Heights. For New York I've focused on two Brooklyn neighborhoods, Bedford-Stuyvesant and Bay Ridge.

What is Rent Control?

Rent control describes a scenario where a city's government dictates how much a landlord can raise rents for tenants who stay in their apartments for multiple lease terms. It is implemented in cities with severe housing shortages to maintain a stock of affordable housing and reduce tenant displacement. It is largely championed by humanitarian organizations and tenants' rights groups. It is despised by economists, libertarians and landlords, who claim that price controls have been universally proven to be invasive, destructive and on the whole not very effective.

Rent control came to prominence during and following the two world wars. Its biggest era was the Nixon era of the 1970s, when price controls of all sorts from wages to utility costs were in vogue. Largely due to the influence of conservative, Koch-funded non-profit group ALEC, it was deemed illegal by nearly all state legislatures in the 1990s, including that of Illinois. Only a handful of states (New York, California, New Jersey, Maryland and D.C.) did not ban it, and in a handful of cities within those states it continues to exist today.

It also exists in other countries and spans all ilks of government types. It can be or has been used in Sweden, Canada, the Philippines, Qatar, Pakistan, Tunisia, Colombia, Jamaica and India, to name a few. Anywhere housing shortages have popped up, rent control has been tried. Sometimes it succeeded. Most times it has failed. In all cases it has been roundly criticized, as is often the case with policies involving government intervention into free market activity.

What does Rent Control look like in other cities?

In New York there are two forms of rent controlled housing: "rent-controlled" apartments and the more gently regulated "rent-stabilized" apartments. Rent-controlled apartments must have been constructed prior to Feb 1 1947, and continuously occupied by the same tenants or their descendants since July 1, 1971. In rent-controlled properties, the landlord can raise rents by 7.5% each year until they reach a city-specified maximum base rent, but they can only raise them if the building is free of housing code violations.

Once the original family moves out of a rent-controlled New York City apartment it becomes a rent-stabilized apartment provided it is in a building with at least seven units. Rents for former rent-controlled apartments in smaller buildings return to market prices. The few remaining rent-controlled apartments in New York are often subleased by the original renting family so that their names remain on the lease. Even so, less than 2% of the active rental housing stock in NYC is still "rent-controlled."

The rest of the rent-stabilized apartments must have been constructed between Feb 1 1947 and Jan 1 1974, or after July 1, 1984. No continuous occupancy is required for these. For these apartments there is no maximum base rent to cap the increases, but instead, all increases are limited by the city board at a rate that floats annually depending on market activity.

Regardless of their status as rent-controlled or rent-stabilized, should the rent exceed $2700 they cease to be either. If on departure of a tenant the building converts to a co-operative the apartment will likewise be removed from the city's rent-control lists. Finally, as landlords receive limited-time tax breaks for participating in the rent control program, they may elect to cease participation in rent control programs when those breaks expire, provided they jump through a bunch of administrative hoops.

About 60% of all rental housing in New York is subject to rent control in one way or another. The same is true for San Francisco, but they do things differently out there.

In San Francisco, any apartment building constructed and legally occupied prior to June 13, 1979 is subject to rent control, regardless of who lives there. However, if the unit undergoes drastic renovations it may become exempt. Most single family homes and condos are exempt. New construction is exempt.

Similar to New York, San Francisco's rent-controlled landlords can only raise rents by city-specified amount, which varies annually based on the area's cost of living. Landlords can only increase rents once every 12 months regardless of if the tenants are on a termed lease or month-to-month.

But in both of these cities, rent control took effect a long, long time ago. That's why only older buildings are eligible. Chicago would be coming into this whole thing new, with some old buildings, some new buildings. My guess is they would follow the San Francisco method but the cutoff for eligibility in Chicago is anyone's guess.

How does the rental housing situation in those cities compare to others without rent control?

Let's start with some stats for our cities without rent control, as provided by the Census Bureau's American Community Survey.

In the following table, the "median stay" in years is the average of the past 9 years of data from the census. The same is true for the median rent increase.

City Renters Renters w/o Kids Median Stay, Years Median Rent Increase
Chicago, IL 55.43% 74.10% 5.1 2.36%
Champaign, IL 55.2% 82.8% 4.1 2.4%
Urbana, IL 61.72% 87.8% 4 1.47%
Atlanta, GA 55.94% 80.68% 4.4 2.14%
Irvine, CA 51.8% 67.7% 4.3 2.06%

All the numbers are strikingly similar. The college towns (Champaign/Urbana) saw similar stay lengths to everywhere else. The rent increases were comparable, although Urbana was a little low. The number of renting families was a little higher in Irvine, indicating a slightly older renting population. But mostly it's all quite similar. Now, let's take a look at our two rent-controlled cities.

City Renters Renters w/o Kids Median Stay, Years Median Rent Increase
New York, NY 67.37% 70.63% 8.3 3.48%
San Francisco, CA 62.7% 85.98% 6.4 3.8%

A few things immediately jump out. These two cities have much higher rent:own ratios. Tenants stay in one place for much, much longer. And, despite the rent control, their average rent increases were actually higher. So we could possibly infer from this that tenants in rent-controlled cities saw more stability in their housing, but they wound up paying more than their fellow renters without rent control.

"But wait!", I hear some of you saying. "The rent increases in rent controlled cities are based on the cost of living! San Francisco and New York are expensive, yo! Long-term tenants always pay less than people who've recently moved! And even rent controlled landlords can raise rents to market rates in between tenants." And you would be right. It's entirely possible that those higher increases in the rent controlled cities were actually protecting renters from higher cost of living increases in those locations.

It would be awesome if we had some way of comparing those median rent increases from the long-time renters in the ACS with the prices that recent movers are facing. Fortunately we have a source for that data too. Every year HUD determines Fair Market Rates for housing authorities to use in calculating viable Section 8 subsidy payments. Those FMRs are posted to HUD's website. HUD relies heavily on surveys of people who have moved within the past 12 to 22 months to set these FMRs. Let's compare those FMRs against the ACS data.

This table compares the average of 9 years of rent increases from the census with the average of 9 years of the increases in HUD's FMRs for 2 bedroom apartments. Note that HUD groups Champaign and Urbana into one area.

City ACS Average Increase FMR Average Increase
Chicago 2.36% 2.71%
Champaign/Urbana 2.4% 2.61%
Atlanta 2.14% 1.57%
Irvine 2.06% 2.07%
New York City 3.48% 2.82%
San Francisco 3.8% 8.21%

Holy heck, San Francisco, y'all crazy.

So in our cities without rent control the FMR data is similar to what we see from the census. A little higher in most cases. But in the two rent-controlled cities we see two different results. In New York the fair market rents actually increased more gently than the average, meaning that rent controlled tenants might well have been paying more. But in San Francisco we can infer that the rent controlled units were sheltered from skyrocketing rents in the free market.

But there is another story to tell here that goes beyond pricing and into availability. San Francisco and New York's housing markets have a few other things in common beyond rent control. In both cities, leasing agents are paid by tenants rather than landlords. In both cities, roommates are pretty much mandatory and apartment hunters have to "audition" for their new prospective landlords and roomies with housing resumes, enthusiasm and sometimes even personality tests. All of these factors spell one thing to me: demand far exceeds supply, despite rent control.

Economists have long said that rent control stymies new construction. Landlords don't find rent controlled markets to be suitably profitable to expand their portfolios, and they fear the expansion of rent control policies from old buildings to new ones. I wanted to see if the housing construction in rent control cities was actually slowed as drastically as the economists say. Here's a chart I found of housing permits pulled in Chicago, Atlanta, New York and San Francisco, courtesy of the the San Francisco Metropolitan Transit Commission.

Courtesy of Vital Signs, San Francisco MTC

This is fun. You can, of course, see the effect of the housing crisis of 2010. You can also see the enthusiasm of developers in Atlanta, whose building code requirements are far less stringent than her northern counterparts. But more importantly, while Chicago was a little bit ahead of NYC and SF prior to the crash, the two rent controlled cities actually bounced back a little quicker than we did.

NY, Chicago and SF all have their own bugbears when it comes to building codes. SF adds all those earthquake-proofing requirements to the uniform building code. Chicago totally ignores the uniform building code and maintains its own separate one. New York is, well, New York. But looking at the chart I see nothing to indicate that rent control has specifically damaged housing construction. It probably has had an effect. But it's more likely that pieces of the whole enchilada of building codes, economic factors, land availability, zoning, etc. are all involved.

So does rent control protect renters financially? Sometimes. Does it prohibit their mobility? Yup. Does it dampen the construction of new housing? Probably, but not by as much as some detractors might argue.

How does rent control affect rich neighborhoods vs. poor neighborhoods?

Of course, Chicago, San Francisco and New York are not homogeneous entities. They're each patchworks of neighborhoods with different demographics. There are wealthy areas. There are slums. There's segregation. But rent control affects an entire city. As I mentioned above I also ran the numbers for two census tracts in each city. In each case one was a predominantly minority neighborhood that has been called out as "at risk for gentrification" in the news. The others were a more stable, middle class or upper class areas. Unfortunately there are no FMRs for such small areas but here's the census info.

Here's our low-income neighborhoods.

Area Renters Renters w/o Kids Median Stay, Years Median Rent Increase
Pilsen, Chicago 74.88% 83.23% 4.9 4.46%
Bayview, San Francisco 44.9% 56.04% 6.3 3.09%
Bed-Stuy, NYC 86.21% 82.07% 7 7.51%

And here's the rich peeps.

Area Renters Renters w/o Kids Median Stay, Years Median Rent Increase
Edgewater Glen, Chicago 50.87% 94.49% 5.1 -1.11%
Presidio Hts, San Francisco 63.75% 86.68% 7 4.24%
Bay Ridge, NYC 46.29% 75.4% 8 3.7%

Ye gads that's a lot to digest. Let's take a stab at it. Across the board we see the lack of mobility in the rent controlled cities with tenants staying in one place for an extra 2-3 years on average. The lower income areas in New York and Chicago had more renters than the richer areas. In New York and Chicago the lower income areas saw rent increases that far exceeded both the city average and the FMR while the richer neighborhoods saw fewer increases and, in the case of Edgewater Glen, a decrease. In San Francisco all of that was reversed but it should be noted that the "gentrifying" area that I chose in San Francisco wound up having very few renters in comparison to the richer neighborhoods.

I admit this is a very small sample size but I'm just one person.

What we can draw from this though is that rent control definitely harms tenant mobility across the board. It's been proposed that tenants who manage to land a rent controlled apartment are reluctant to leave even if better opportunities arise, and the data definitely supports the hypothesis. But the San Francisco data demonstrates that in some cases the low income renters who are supposed to benefit the most from rent control actually see less good come out of it than their wealthier neighbors. We can also conjecture that if Bed-Stuy under rent control saw such drastic rent increases, then rent control probably won't be the thing to save Pilsen.

How is the Chicago housing market different from other cities?

There are two main differences between Chicago and our two rent controlled example cities. The first is Chicago's segregation problem. In the venerable Nate Silver's analysis of segregation he assigned "integration indexes" to each city, comparing how likely it was for a resident of a neighborhood to see someone of a different race in the area. His scale assigned negative values to highly segregated neighborhoods and positive values to integrated ones. Chicago got an index value of -18.6%, one of the lowest on the list. New York scored -8.7%. San Francisco scored +4.3%. Atlanta got a -14.5% and Irvine got the highest possible integration index score at +11%. There's no denying that this city's neighborhoods are drawn on color lines that make our demographic heatmaps resemble a half-finished game of Trivial Pursuit.

A score of problems descend directly from our segregation, crime being the most prominent. The only way we will get past this problem is to encourage mobility across color lines. Rent control may help people to keep their current apartments but it doesn't make it any easier for them to move into new ones, especially if the market goes on a strong upward trend like San Francisco has seen. I don't think that the decreased mobility that arises in rent-controlled markets will help us.

The second difference is the sheer volatility of our market. This one is a little harder to explain, so let me throw in another chart.

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This is from Google Trends, which tracks search queries. It compares then number of searches performed by residents of each city for apartments within that city over the course of several years. You see how much higher Chicago's line is than New York or San Francisco? We are always searching for apartments. That's the mobility I'm talking about. That's the volatility. We don't need brokers here. We find our own apartments, thank you very much. And then you see that sawtooth pattern that only we have? That's our seasonal cycle. Strong market in the summer, weak market in the winter. The other guys don't have that. They can have month-to-month leases. We don't really do that. We have 6 month leases and 18 month leases to avoid wintertime expirations. Their city boards can set one increase rate each year and be done with it. There is absolutely no way that this would be viable in Chicago.

We also need to consider the effect on the downstate cities. The rent control debate has largely been framed as Chicago's fight, but the arena is not in the Daley Center. It's in Springfield. If the rent control ban is repealed, one can theorize that any home rule city would become able to enact its own rent control programs. There are roughly 220 home rule cities in Illinois. Would Champaign want rent control? Would it help their renters, who are mostly white university students? How about Urbana, right next door to Champaign, which already has its own RLTO and saw the lowest average rent increases of any city in our study? How would they deal with it? Do we really want to open this Pandora's Box for the entire state of Illinois? Joliet? Naperville? Skokie? Peoria?

Is Chicago set up to handle a version rent control similar to San Francisco's or New York's?

Remember up there where I mentioned that only landlords without any building code violations were eligible to increase rent in New York? The same thing goes for San Francisco. It's generally part and parcel of municipal rent control policies that landlords have to have a clean bill of health before asking for more money, and it's a logical codicil. But Chicago already has trouble responding to requests for building inspectors. The Chicago newspapers are rife with reports of overwhelmed inspectors, missed deadlines and life-threatening situations left unpunished for months. Can you imagine what would ensue if any tenant that wanted to avoid a rent increase could call in a city inspector and stave off the increase until they arrived? Even the most rent-burdened of you can see that this would be a logistical disaster.

Then there's the whole Section 8 issue. Gautreaux vs. the CHA, the lawsuit demanding desegregation of the projects, is finally headed towards a resolution after 50 in court. FIFTY. YEARS. It took us three generations of attorneys to even approach our subsidized housing situation and the fallout is going to affect neighborhoods across Chicago as the CHA attempts to reform its practices yet again.

Most cities with rent control implement accompanying eviction control legislation prohibiting landlords from evicting tenants without just cause. We covered Chicago's flirtation with such a law last year. The reaction from landlords was deafening and negative. Most renters didn't even notice that it had blipped on the radar before it was shelved indefinitely.

We also need to consider how the pricing would be determined. The bills before the general assembly would create a pricing council with representatives from across the city, elected at the same time as local school council members. But 74% of Chicago renters don't have kids and probably have absolutely no awareness of local school councils. In some areas like our Edgewater Glen sample the number of renters without kids is even higher at 95%. Not to mention that the Local School Councils themselves have come under fire recently in the mayoral campaigns.

Tenants would have to fight on so many fronts for this at a time when tenants unions are not as strong as they once were. With so much in flux, not to mention Emanuel's 5 Year Plan for Housing which we'll cover next week, it's going to be such a huge battle. For something that probably won't improve our segregation problem. In a city where "leasing agent" is about on par with "barista" as a career choice. In a city that isn't seeing the horrendously skyrocketing rents of a San Francisco or a New York. Yes, they've been rough in the past few years but they're chilling out now. And you cannot say that our 2.71% holds a candle to San Francisco's 8.21%.

You can maybe see where I'm going with this. Not done yet.

Is rent control really the best solution for Chicago?

Chicago has always had a reputation for going its own way. We are the only city in the country to have its own building code. Even the most expert of SimCity players would be confused by our zoning code. We took 50 years to decide a civil rights court case and we were kind of okay with that. Our city council took time out of its day to exonerate a cow and we were kind of okay with that too. We don't put ketchup on our hot dogs. When sewage became a problem, our approach was to change the direction of the river. We don't do things the normal way. And when it comes to rising rents I don't think that the conventional concept of rent control is the best option for us either.

At the core of tenant displacement, rising rents, and the inherent conflict over rent control is the fact that renters, landlords, politicians and the rest of the population see apartment buildings as four different things. For renters they are a life essential thing, a human right, a necessary if onerous expense. For landlords they are a financial investment, dead things. For politicians they are the only non-monolithic utility and a major source of income. For everyone else they're a place for students and poor people to live, a kind of slum for non-earners to be ignored a someone else's problem. Most central to the conflict, of course are the differing views of landlords and tenants.

The idea that an apartment building is a static financial investment similar to a stock portfolio has been used as bait by real estate agents for centuries. That needs to change. The idea that poor downtrodden tenants are somehow incapable of negotiating with omnipotent landlords is one that has been trotted out by humanitarian groups and real estate agents for just as long, and it also needs to change.

Rent control does nothing to inspire leniency in landlords. It doesn't make them somehow start seeing their investments as housing for people. It lowers the ROI of a potential investment on a spreadsheet, and in some cases it encourages them to seek out loopholes for raising the rent, since it becomes the government that they're scamming rather than the tenants. For tenants it reinforces a self-image of helplessness.

Rent control is a band-aid solution for severe housing crises. When used in the short-term it can be a fantastic stopgap measure to protect the existing inventory from pricing itself out of usefulness. But it is a solution for a problem that Chicago doesn't really have, and one that would worsen the worst problem we do have, segregation. Therefore it is a solution that I don't think we need. What we need is education for landlords, tenants and their agents. What we need is a way to bring those diametrically opposed viewpoints to an intersection.

Rent control is not the Chicago way. The Chicago way would be to force owner-occupancy, or force the regular publication of all net rents. The Chicago way would be to teach its renters to make their own deals. The Chicago way would be to cap the sale price of multifamily to force a buy-and-hold approach, rather than capping rent rates. I'm just spitballing here, these ideas might not work, but the point is they are far more appropriate to our particular situation and zeitgeist than rent control.

Sources and Recommended Reading

To create this article I used data from a whole bunch of sources. I've put my own summary tables in a Google Doc for your review. Here are my other sources.

American Factfinder, US Census Bureau, 2017 American Community Survey, 5-year estimates.
Specific tables: B25003, B25033, B25012, B25039, B25058, S2502
Specific cities: Champaign city, Illinois. Urbana city, Illinois. Chicago city, Illinois. San Francisco city, California. New York city, New York. Atlanta city, Georgia. Irvine city, California.
Census tracts: Census tract 3106, Cook County, Illinois (Pilsen). Census tract 302, Cook County, Illinois (Edgewater Glen). Census tract 232, San Francisco county, California (Bayview). Census tract 402, San Francisco County, California (Presidio Hts). Census tract 261, Kings county, New York (Bedford-Stuyvesant). Census tract 64, Kings county, New York (Bay Ridge).

"Fair Market Rents", US Dept of Housing and Urban Development.

"The Most Diverse Cities are the Most Segregated",

"A Tale of Two Rent Controlled Cities", Trulia, 2015.

"Reckonings; A Rent Affair", Paul Krugman, New York Times, 2000.

"The Pros and Cons of Rent Control", Global Property Guide, 2009.

"Housing Permits", Vital Signs, San Francisco Metropolitan Transit Commission, 2018.

"The secret history of Illinois's rent control prohibition", Maya Dumaksova, Chicago Reader, 2017.

"50 year old housing case reaches settlement", Nicole Cardos, WTTW, 2019.

"Watchdog: Chicago Buildings Department lets most complaints linger, including some posing 'serious threats to life'", Hal Dardick, Chicago Tribune, 2018.

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Published by

Kay Cleaves