Predictions for the Post-Pandemic Chicago Apartment Market

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Special alert: Before we get started on today's article, I wanted to mention that the current stay in place order from the governor of Illinois makes it illegal for agents and landlords to show occupied apartments until quarantine measures have ended. However, the manner and extent to which the police will enforce this part of the guidelines is unknown and has not yet been tested in any meaningful way. Government agencies are relying on citizens to use common sense and combined civic efforts to enforce these rules more than police power.

Now, with that out of the way, on to the actual article.

Quarantine measures imposed in late January in the first global areas affected by COVID-19 are starting to lift. For those of us in the US where lockdowns started later, we can guess that this means we have at least another six weeks before things return to normal. It is a little early yet to start making predictions about how the country will react to a return to life outside of the home, but I wanted to make an attempt regardless. The following list starts with the predictions I think are most likely to occur and ends with some wilder and less likely guesses.

As is typical for this blog, what started as a quick 10 list has turned into 10 short articles in one. Hopefully it will keep you entertained as we head into another weekend indoors.

Housing discrimination based on source of income will rise.

Following large scale rent defaults by unemployed workers in non-essential industries, landlords will start declining non-essential employees who apply for housing in their buildings. Some states and cities consider source of income to be protected under fair housing law but it is not protected at the federal level. Colloquially "source of income discrimination" refers to landlords who deny housing to renters who rely on unearned income such as social security benefits, disability or section 8 vouchers, but accept renters who pay their rent out of earned income such as wages, salary or commissions. But the laws in most regions where they exist are written more generally and can be applied in cases such as essential vs non-essential worker discrimination.

Renters in those regions with source of income protections in place will be able to use these laws to defend themselves. Renters working non-essential jobs in regions where source of income is not protected will have no such defense. Expect more calls for source of income protections in areas that lack them, and possibly even calls to add these protections to the Federal Fair Housing Act.

Focus on good cause evictions will increase.

Many counties across the U.S. have suspended evictions for weeks or months. This includes Cook County. Landlords with commercial loans from Fannie Mae and Freddie Mac will only be able to take a forbearance if they agree to not evict any tenants on COVID-19 matters for 12 months. But once a tenant falls behind more than a couple of months in rent it is almost impossible for them to catch back up. Eviction cases are going to skyrocket in response to this. By the time the courts reopen to hear more cases they will already be a couple of months behind. Sheriffs enforcing the evictions will be a couple of months behind. The entire eviction process is going to be mired in backlog for the next 24 months.

Before the quarantine, eviction cases in Chicago were taking at least three months from the first missed rent payment to the day that the sheriff shows up. Many cases were lasting five months or longer. Add a two month backlog to that and we're now at seven months. Evictions are usually stopped in January for cold weather as well. It would take longer to evict a non-paying tenant than it would for their actual lease to expire. My guess is that landlords will start leaning less on courtroom evictions and instead issuing 30 day notices of non-renewal to tenants who have fallen behind on payments, especially if those tenants were already a few months into their lease when the missed payments began.

Tenant advocates have been pushing for laws to limit the use of these 30 day notices for years, referring to them as "invisible evictions" and seeking to restrict their use in "good cause eviction" laws. An attempt to push a Good Cause Eviction law through the city council failed in 2018. I am guessing that any attempt in 2021 or later may succeed, although implementation of it will be challenging following an event like this pandemic.

Tenant priorities will shift drastically.

Well, the priorities of wealthy tenants will shift. Low income tenants will continue to take what they can afford, or if recent trends continue, to take any place that will accept them regardless of affordability. But for those with the privilege of choice, two months of quarantine will cause a shift in demand for apartment and community features. I expect the following changes:

  • Demand for larger kitchens as tenants have learned to cook.
  • More pantry space for stockpiling instead of closet space, since we're all working in our bathrobes anyhow.
  • Fewer community features like party rooms and exercise rooms, more space in the apartment for working out while maintaining social distancing guidelines.
  • Fewer shared porches, more balconies.
  • Fewer open floorplans, more full walls and doors.
  • High demand for touchless/RFID enabled access mechanisms. (Doorknobs, elevator buttons, mailboxes, locks, etc.)
  • Privacy fences instead of wrought iron gates to allow for exercising in the yard.

Interest will shift from large communities to smaller buildings.

This one deserves a separate entry of its own instead of bundling it together with the other priorities above. In the past few years, the downtown high rise rental market in Chicago has been going through something of a boom, although it had started to slow down in the past 12 months or so. I expect that the bottom will totally fall out of this market in the second half of 2020 and continuing for several years on into the future.

While the U.S. hasn't been as emphatic about its shelter-in-place measures as China was, we can learn one thing from looking to Chinese lockdown measures: apartment buildings were treated as individual households, and for good reason. If one resident was exposed to COVID-19, the whole building was locked down. The larger the building, the more difficult it is to quarantine.

In high rises across the country, high markup features such as roof decks, workout rooms and business centers sit empty due to social distancing measures. Many of these buildings sacrifice apartment space in favor of luxuries and gathering places for residents, with the expectation that their target demographic will spend more time outside of the house than staying at home. They may arrange many apartments down long shared hallways, leaving residents exposed to their neighbors' cooties as they enter and exit their homes.

Meanwhile, renters in vintage walkups across Chicago tend to have larger indoor spaces, designed a century ago for use by families. Their apartments are arranged in small clusters of no more than six per stairwell. It's easy for them to get supplies in even if they cannot leave the building. At least people living close to the ground have the ability to haul stuff up through windows, but residents living 100 feet in the air are not so lucky. Vintage apartment residents are not paying marked up prices for community features they cannot use in a time of quarantine. I suspect we will see a population shift away from the downtown high rises and into the outlying neighborhoods and older buildings.

Landlords will request updated emergency contact information.

Collecting and updating emergency contact information is something that normally falls by the wayside in apartment buildings. Property managers may obtain this information on the rental application but rarely bother to update it if a renter stays on for years and years. While the higher end properties are usually more diligent about keeping their emergency contact files updated, for the smaller companies the only time that a property manager or landlord might be jolted into updating the information across their entire portfolio is if a tenant dies on site. I suspect that this pandemic will be causing some of these smaller landlords to contemplate what they would do in the event of tenant death even if they haven't yet experienced it first hand. Collection of emergency contact information will be the first thing that comes to mind for them.

Lease language will change.

When I first started renting in the late 1990s, it was still common for leases to refer to the amount due for rent as the full 12 month total, broken down into 12 separate monthly installments. This language has since fallen by the wayside in favor of a simple statement of the monthly rent, largely in response to an increasingly mobile population that breaks leases early on a whim. As landlords are forced to work out forbearance-style payment plans over the coming months so that tenants can catch up on missed rent, I expect to see a return of the long-gone language specifying the full 12 month total.

Following all of the toilet paper shortages, I also expect many, many riders and signs to pop up in leases and apartments specifying what can and cannot be flushed down the toilet.

Included utility services will be phased out.

As landlords are forced to pay for included utilities out of operating accounts that are running dry due to missed rent payments, I expect that we will see more of them considering the removal of these included utilities from their leases. Buildings still operating on steam heat or one-pipe and two-pipe heating systems will convert to tenant-paid gas forced air systems or even electric heat. Water, sewer and trash pickup will probably continue to be included in leases due to how the city handles metering for these services. But you can expect the number of apartments with in-unit dishwashers and laundry machines to decline, and you can expect many other bundled utilities to vanish from the market over the next 12-24 months.

We will see a strong push for apartment maintenance worker organization.

We are now getting into the less likely predictions, but should any of these come to pass the impact on the market would be massive.

In Chicago, many of the tradespersons who keep apartment buildings running already have labor unions. Electricians, plumbers, HVAC repair workers, roofers, masons, glaziers (window repair), iron workers, elevator repair workers and carpenters all have the option to join labor unions. Apartment maintenance workers do have a union, the SEIU (Service Employees International Union). It was born in Chicago, evolving from the Chicago Flat Janitor's Union in the early 20th century. However, in Chicago, SEIU members mostly work in buildings that participate in the Apartment Building Owners and Managers Association (ABOMA), which handles labor negotiations with the union on behalf of its member landlords. Currently only 600 buildings in Chicago are members of ABOMA. There are a lot more than 600 apartment buildings in Chicago.

Most apartment maintenance staff are currently not members of the SEIU. Following the demands on these workers and the realization that they are essential during crisis periods, we can expect more of them to push to join SEIU over the coming months. The impact of these workers attempting to organize would be one of the most pivotal events to hit the rental market since the invention of the steel girder. If landlords had to shift from the current below minimum wage pay scale to union rates, particularly without an adjustment in the laws specifying the time allowed for apartment repairs, rents would have increase drastically. Renters would be expected to handle a lot more repairs themselves. The difference between renting an apartment and owning a condo would shrink. Negotiations with the SEIU would force more landlords to band together, if not in ABOMA then in similar groups with negotiating power. Chicago landlords are often lone wolves with little cross-industry interaction. Getting them talking to each other more often would be as much of a ground shift as the worker organization process.

Renting families will be forced out of the city.

At one point for my former similar and now deleted blog StrawStickStone I did a study on the seasonal demand for different apartment sizes in Chicago. (That link is to the Wayback Machine archive of the article, and is missing a lot of the images.) Short version: I discovered that the demand for studios and smaller one bedroom apartments spikes January despite the annual wintertime slowdowns. I attribute this to the large number of breakups that occur each January following the holiday season. Those smaller apartments get snapped up by newly single renters.

During COVID-19 quarantine divorce rates are skyrocketing. Post-pandemic Chicago will be a large scale version of this January breakup effect. We are going to see a lot of newly divorced 30-40 year olds hitting the rental market and devouring the smaller units. These units have traditionally been the mainstay of new college grads in their early 20s, but landlords are always going to prefer the older tenants with established careers. The new college grads will be forced out. Note that this is technically not against any fair housing laws, as there is no familial status discrimination occurring and age-based discrimination only protects senior citizens.

The tradition of renting an apartment with an unrelated roommate has been on the decline since the 1980s. Twentysomethings have instead been staying with their parents for longer, marrying later, and avoiding the whole roommate scene altogether. But with all of the smaller units occupied by new divorcees, the only option available to these new grads will be the larger one bedroom and two bedroom apartments, which are only affordable with roommates or spouses.

The ones who move back in with family will continue to do so, although we may see a slight downturn in this trend in response to the vulnerability of these parents to diseases like COVID-19. But as for the rest, I expect to see an uptick in young renters living with unrelated roommates and unmarried partners as a sort of spillover effect from all of the quarantine related divorces.

But this will in turn have an effect on families. Chicago doesn't have a lot of four and five bedroom apartments. Land is too valuable and best use appraisals shy away from approving loans for such large dwelling units. Much as landlords will choose a 30 something divorcee over a 20 something college grad, they will also choose a couple of new college grads without kids over a family with lots of them. Of course, this now gets into familial status discrimination territory but that has never stopped landlords from doing it before. If a 26 year old can't find a studio, they get a roommate and a 2-3 bedroom apartment or move back in with mom and dad. (Or with newly divorced mom OR dad.) But if mom and dad can't get a 2-3 bed they cannot move up to a 4-5 bed instead. It isn't a matter of cost, there's simply not enough of them to go around within the city limits.

If you combine this with what Chicago Public Schools can offer in the form of online education opportunities (and education quality in general), the suburbs are going to start looking mighty attractive for renting families. Whether this is a short term thing that resets in a few years or a long term thing that will affect an entire generation of renters remains to be seen, and will depend a lot on how the economy recovers.

Apartment locator services may be wiped out completely along with on-site apartment showings.

The shelter-in-place orders from the Illinois governor specify that showings of occupied apartments cannot occur. However, the extent to which the Chicago police will enforce these orders remains to be seen. But real estate sales is a business that depends on keeping clients comfortable throughout the entire process. Even if the orders aren't enforced, the entire market is shifting to virtual online showings across the board to ease the concerns of apartment seekers nationwide and to maintain the image that agents will bend over backwards to uphold the law. But while the sales market will eventually return to on-site showings, the shift to digital in the apartment market may well become permanent.

Chicago Realtors have shunned rental transactions for years, given the low commissions and the existence of leasing agencies to handle the work. But these leasing agencies have also been on a slow decline over the past 15 years. Some of them have been bought out by real estate brokerages. Others remain independent but have seen their clout slowly diminish as smaller landlords vanish from the market and larger landlords take on licensed property managers who can handle both leasing and maintenance on their behalf. Leasing agency reputations have taken hit after hit for employing unskilled and untrained agents with shoddy driving records. Online listing websites have further eroded the need for renters to work with agents at all. The only barrier to going fully digital until this point has been the lack of training among the existing landlord and agent pool on how to use the online tools that have already been available for nearly a decade.

If I were the owner of a leasing agency faced with a choice between keeping 100 leasing agents on staff for in-person showings or keeping 20 skilled digital workers in place to assemble online showings, I would go for the latter option. If I were a tenant who knew that they had a choice between having their space regularly invaded by agents or by one photographer, I would be demanding digital showings from every future landlord. If I were an apartment hunter deciding between shifting my hump all over the city with an out of work actor posing as a leasing agent, or watching a bunch of apartment tours on Youtube, give me that playlist link right now. As a former agent I can tell you: showing occupied apartments is an obnoxious process. Most residents are hostile, some are asleep, the place is always a mess. As an agent I'd rather go digital anyday. The number of agents who can now create halfway decent digital showings has increased drastically during the quarantine process. Increased supply will force wages for these skills down.

We may be approaching a time when onsite showings are offered only to people who can pay for them as a luxury service. Digital showings may become the norm for apartment hunters and if that's the case, we can say goodbye to the era of the Chicago leasing agent, at least in its current form.

How has quarantine changed what you value in a home? Can you foresee other major ground shifts in the multifamily housing market following the end of the current crisis? Do you think these predictions are accurate or just a bunch of hooey? Let me know in the comments!

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Published by

Kay Cleaves