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May 2017 Market Update

At the macro-level, the economy appears to be in a sort of high-altitude holding pattern. After dipping a bit mid-April, the Dow Jones is back at near-record highs, and recently flirted with the 21,000 mark. Unemployment is currently as low as it has been since before the onset of the Great Recession. The unemployment rate was 4.5% in March, two-tenths of a point below the February rate and the lowest it has been since May 2007.

On the flip side of this good news, only 98,000 net new jobs were created in March, well below expectations. GDP increased at just 0.7% on an annualized basis during the first quarter of 2017, and consumer spending increased at a disappointing 0.3% during the same period.

In the face of these conflicting indicators, the Federal Reserve’s Open Markets Committee (FOMC) held rates steady after wrapping up their two-day meeting May 2-3. For now, at least, the federal funds rate will remain at its current 0.75% to 1.0% level, although an increase at the next meeting June 13-14 is expected.

So, is the glass half-full or half-empty? And why do so many people still feel so gloomy about the economy this many years into the recovery? One of the explanations for this conundrum is becoming more and more obvious with every passing year – how you feel about the economy depends as never before on where you live.

Trulia, an online real estate resource, recently conducted a study of housing value improvement for the 100 largest metropolitan areas across the country since the end of the recession, measuring house values as of December 1, 2007 and again as of March 1, 2017. What they found was startling. Overall, just 34.2% of all homes nationally have seen values surpass pre-recession peaks, and the disparity in home values was widely correlated with where you live. Certain regions of the country have done much better than others, and even within metro areas, some zip codes have far out-performed others.

Not surprisingly, the metro areas with the most widespread recoveries include such Millennial favorites and technology hot spots as Denver, San Francisco, San Jose, Seattle, Portland and Austin where 80% of more of all homes have increased in value since December 1, 2007. At the other end of the spectrum, the worst performers seem to be those places that were especially high-flying before the recession hit. At the bottom of the Trulia study are such cities as Las Vegas, Phoenix, Tucson, Ft. Lauderdale, Orlando and the Inland Empire (Riverside-San Bernardino, CA) where fewer than 5% of all homes were worth more than they were before the recession. 

A Crain’s article, “Housing Recovery Lags Other Big Metro Areas” (May 3, 2017) picked up this story, and took a look at how the Chicago area stacked up. In short, the answer is – not very well. While a handful of zip codes mostly in and near the downtown area have done well, overall only 7.6% of the homes in greater Chicago are now worth more than they were before the recession. This places Chicago at the bottom on the list of the ten largest metro areas in housing value recovery and in the lowest quintile among the top 100. This poor housing value recovery is closely tied to the area’s below-average job growth and near-zero population growth.

So, the next time you hear someone say they don’t believe the economic recovery has gotten to them yet, don’t be too judgmental. If they live in most of metro Chicago and large parts of the Industrial Midwest – indeed, if they live in any of the nearly two out of three zip codes nationwide where home values have still not fully recovered from the last recession – then they are probably spot on.

An Open Letter to State Representative Will Guzzardi

An Open Letter to State Representative Will Guzzardi, House District 39, Illinois General Assembly:

Why Rent Control is a Bad Idea for Chicago… and Everywhere Else.

Dear Representative Guzzardi:

The Rogers Park Builders Group (RPBG) is a group of property owners and real estate service providers with ties to the Rogers Park community. We are strongly committed to our neighborhood and have a deep commitment to the well-being of its citizens. We take our responsibilities as property owners seriously, and are always looking to forge relationships with our community partners, whether in the business, non-profit, or government sectors.

We read with great interest the news of your recent bill, introduced in the Illinois General Assembly, that would repeal the state ban on the adoption of local rent control laws. We understand that, as an elected official for the residents of Logan Square and other Northwest Side communities, you are looking for ways to minimize the impact on your constituents of recent, rapid increases in rent that have forced many families out of your District. We understand that you represent the interests of your community and want to help your constituents.

We agree that rents have risen rapidly in certain areas, including yours and other high-demand areas of the city. Although rents have not increased as rapidly in Rogers Park, our community has also seen sustained increases over the past several years.

While rising prices certainly result in the displacement of some families, we strongly believe that it is not true that putting legal limits on rent increases would solve the problems of the families who are most impacted by rising rents, the very people you are presumably trying to help with your legislation. In fact, RPBG would argue that any attempt to implement rent control will do more to harm these families than help them.

RPBG tries to represent the views of our members, just as you try to represent the views of your constituents. On the subject of rent control, our view is very clear. Rent control would be harmful in Chicago, just as it has been harmful in other cities that have enacted it. At best, it would offer short-term relief to your constituents in Logan Square and other places that are experiencing high rent increases. However, over the longer-term, it would result in lower-quality housing, reduced construction of new units, and generally higher prices on an average basis. Ironically, the people who will suffer the most if rent control ever becomes law in Chicago are the very people you are trying to help. Studies have conclusively shown that, over time, the people who benefit most from rent control laws are middle and upper-income people.

We present three reasons why we believe rent control would be harmful to your constituents, to the city as a whole, and to any municipality that contemplates adopting it:

IT DOESN’T WORK: Study after study has demonstrated that the intended benefit of rent control – to keep housing affordable for low and moderate-income people – not only fails to achieve this goal but, ultimately, makes things worse for all concerned.

There is a strong link between limiting the ability of property-owners and developers to raise rents to what the market will bear, and the amount of investment that will flow into housing. A reduction in investment in housing has two primary impacts. First, existing units will suffer from reduced maintenance as property owners are unable to realize a return on investment by increasing rent. Secondly, new housing production will decline for the same reason – both the developers of, and investors in, new-construction housing will be less likely to build or trade properties that are subject to rent restrictions.

As housing unit quality and quantity both decline, the market will diverge. Rent controlled units will be more affordable, but also less well maintained. New construction units will become scarcer and more expensive as developers build fewer new apartment buildings.

Ironically, demand for rent controlled units in desirable locations will increase as the supply stagnates. Lower-income families will still be driven out of these desirable communities as higher-income / higher-credit families submit stronger applications for rent controlled units as they become available. Ultimately, many lower-income families will migrate to less desirable communities, despite the best efforts of rent control to prevent this from happening. With rent control in place, the entire market will suffer from lower maintenance of the existing housing stock, lower production of new housing, and much higher rental prices for new housing as supply contracts. Thus, it is the very people your legislation seeks to help – namely, those families with limited financial resources – who will suffer the most from the long-term impacts of rent control.

Studies have conclusively demonstrated that lower-income people move more frequently than middle and upper-income families. Higher-income families in rent controlled markets will often stay in the same apartment for longer periods of time simply to maintain the price advantage of low rents that have been locked in over many years. Lower-income families typically have less job and income security, and must move more frequently. Over time, these families are the most likely to lose the benefit of low-cost rental housing in desirable areas.

You don’t have to look far to see how this plays out in places that have implemented rent control.  There is a direct, causal, inverse relationship between housing affordability and the implementation of rent control. New York, San Francisco, Los Angeles and Washington DC are all prime examples of cities where the primary beneficiaries of rent control have been upper-income renters. These are the people who have been able to stay in their apartments for decades. Over time, lower-income people gradually lose these benefits and have been driven out of the most desirable areas of these cities.

Cambridge, Massachusetts is an especially interesting example. Cambridge had rent control between 1970 and 1994.  In 1995, rent control was repealed in Cambridge when the state of Massachusetts outlawed it in all municipalities. A Massachusetts Institute of Technology (MIT) study of the impact of this repeal found that investment in housing increased once rent control was banned, resulting in major gains in housing quality and increases in supply. While lower-income families were indeed pushed out of Cambridge after 1995, this was not a new phenomenon. A 1985 study by Peter Navarro concluded the “poor, the elderly, and families – the three major groups targeted for benefits of rent control – were no more likely to be found in controlled than uncontrolled units.” Demand for rent control units had been intense prior to its deregulation, and rarely available units were in high demand. The people most likely to be approved for new rent-control leases had higher incomes and better credit. Thus, rent control did little to help all but a lucky-few families, and did much to hurt the overall Cambridge housing market.

The present experience of San Francisco and New York, and the past experience of Cambridge, demonstrate that rent control has limited benefits for low and moderate-income families, but clear negative impacts on overall housing quality and price. In many ways, rent control produces the “worst-of-all-worlds,” with both lower quality housing and ever-increasing prices for new or unregulated units. The 1985 Navarro report concludes, “the economics profession has reached a rare consensus: Rent control creates many more problems than it solves.”

IT’S NOT FAIR: If you don’t believe “it doesn’t work,” consider the “it’s not fair” argument. Like many similar measures, rent control is an attempt by the government to pass a cost that should be borne by all to one specific group. In this case, the cost of affordable housing is being placed squarely on the shoulders of the owners of housing.

This is justified on several grounds, but in particular, on the assumption that property owners are wealthy and can afford the cost. Worse, property owners are often portrayed as heartless business people who are motivated only by a desire to exploit their tenants. While there are examples of wealthy, uncaring property owners, this is by no means typical. At RPGB, we take great pride in working cooperatively with our community, and giving back to those in need. The majority of our members – indeed, a majority of property owners in the Chicago area – are not wealthy. We are business people who are trying to make a living like everyone else.

Whether you believe property owners are wealthy and heartless or not, the more important question we would like you to consider is, whose responsibility is it to help low and moderate-income families to find good, safe housing in desirable neighborhoods? If you believe that it is fair to place this burden on the shoulders of just those people who own the housing, then you can justify rent control and many other government mandates.

At RPBG, we believe that affordable housing is a public good and that the cost of providing this good should be equitably shared by all. We have been frequent critics of regulations that seek to shift public burdens onto private sources of revenues.

This is especially unfair when one group of private owners is called on to bear the cost of a significant public good. Affordable housing is a vexing problem, and solving it will cost many millions of dollars. To place the brunt of this cost on one small group of people is extremely unfair. It also adds to the burden already placed on property owners reeling from years of ever-growing city mandates and fees on rental housing. As property ownership becomes increasingly expensive, and as compliance with city regulations become increasingly difficult, fewer people will become property owners in the first place, and the increased costs of these mandates will continue to be passed along to renters.

THERE ARE BETTER WAYS TO ACCOMPLISH YOUR GOAL: Perhaps we have been unable to convince you that rent control is ineffective in helping lower-income families find and keep good housing in good neighborhoods, or that local and state governments should refrain from burdening one class of citizens with the cost of providing affordable housing to lower-income families. If so, consider our last argument that there are better ways to accomplish your goal.

But, before we offer you some alternatives, let me state that the members of RPBG believe that affordable housing is an important and worthy goal to pursue. Rogers Park is arguably the city’s most diverse neighborhood with people of every description at all income levels who live together in relative harmony. We take great pride in the Rogers Park community and its unique diversity. We would like to see that character preserved and believe Chicago would be a better city if more of it was like Rogers Park. We want Rogers Park to remain a welcoming and affordable place for all to live.

If we can all agree that the goal of creating and preserving affordable housing is a worthy one, we are not able to agree with you on how this goal should be reached. In particular, we do not want to see ineffective measures adopted, at our expense. Such ineffective measures certainly include rent control.

Here then are a few alternatives that RPBG believes could better accomplish the important goal of preserving affordable housing in desirable communities – like our own Rogers Park – but without placing the burden of this cost on property owners.

Expand the Section 8 voucher program:

  • Advantages – This is probably the best way to help lower-income families deal with the ever-increasing cost of rental housing. It is also the fairest way to share the cost, since this is a Federal program paid with income tax revenues from everyone who files a tax return. Section 8 has helped millions of families cover the cost of housing at just 30% of household income. The problem is, there are not enough vouchers for all the people who need them.
  • Disadvantages – As a Federal program under a new administration that has shown little support for affordable housing, any expansion of the voucher program is a long-term goal and not one that can be easily implemented over the short-term.

Create more permissive zoning that allows for higher density and smaller average unit sizes:

  • Advantages – Chicago controls its own destiny regarding what can be built and where. Small changes in current zoning regulations can result in the production of more units, at more affordable prices, if we have the will to push them through. Current building codes remain onerous and expensive to implement. The city could do more to relax building codes without compromising safety or good building standards. They could also allow greater density and smaller average unit sizes in high demand areas. These measures could lower the cost and increase the availability of housing in areas where the demand is greatest.
  • Disadvantages – NIMBY-ism is hard to combat. In gentrifying neighborhoods, residents bemoan the new people moving to the area and the rising rents that inevitably result. But they resist efforts to expand the housing base that could relieve some of the upward pressure on rents. You can’t have it both ways. Popular neighborhoods need more housing to meet increased demand. Either build more housing by implementing more permissive zoning and common-sense building code modifications, or accept the rapid increase in rents for the existing housing that is already there.

Encourage development across the city:

  • Advantages – For every Logan Square or Pilsen, there are many more Englewood’s and Austin’s. Rather than focus exclusively on rising rents in just a few places, we should find ways to channel some of this energy into other parts of the city. Chicago is increasingly turning into a city of “have’s” and “have not’s.” There should be creative strategies that state and local governments can utilize to spread this growing affluence across a wider geography. Better schools in all city neighborhoods would go a long way toward encouraging development beyond the North Side and greater downtown area. Better city services, expanded transportation options and a renewed focus on community policing could all work to improve neighborhoods that have not seen any of the benefits from the rampant development in just a handful of “hot” neighborhoods.
    At RPBG, we would be much more receptive to “carrots” that “sticks.” (I’m sure we are not the only group of people who do not like being treated with sticks by our elected officials.) To be clear, rent control is a stick. Development incentives might be a tool for providing some benefits to property owners who could be enticed to buy, renovate or develop new housing in emerging neighborhoods.
  • Disadvantages – Incentives cost money, and the state and city are both broke. This may be a big challenge. But cries of poverty are not a good excuse for the shameless transfer of public costs onto private shoulders. Affordable housing should be a shared burden. The city and state will be acting irresponsibly and unfairly if they try to push this cost onto the backs of property owners. We ask you to work with us to find creative solutions to affordable housing, not against us to force the transfer of public responsibilities into private hands.

RPBG has worked hard to be a good partner in Rogers Park, one of the city’s great neighborhoods. We have worked hard to forge relationships at all levels with a wide cross-section of community leaders. We would be happy to work with you as well on productive efforts to help solve the problem of affordable housing and rapidly rising rents in certain areas.

But we will fight any attempt to use methods that don’t work, or that place this burden exclusively on our shoulders. We call on you to consider our arguments and find a better way to help your constituents. We are convinced that your proposed legislation will accomplish none of your goals. Worse, we are convinced it will hurt your constituents, as it will hurt all of the people of Chicago.

Rent control is unquestionably unfair to property owners. It will make the housing market in Chicago less competitive; it will lower housing quality as property owners are forced to reduce maintenance and repairs in the face of their inability to pass along these costs; ultimately, it will make housing scarcer and more expensive for everyone.

San Francisco and New York are not models for anyone to follow. These cities are among the least welcoming to lower-income families in the country. It is not a coincidence that both cities have had rent control in place for many years. Chicago has avoided this fate by wisely avoiding rent control. We should work together to find better ways to solve the affordable housing problems we face.

Thank you,

Rogers Park Builders Group:
Allen Smith, President
Marty Max, Vice President
Steve Cain, Secretary
Mike Glasser, Communications, Planning and Development

April 2017 Market Update

I’ve had some criticism recently for the political content of my “market reviews.” This criticism is not without merit. RPBG is a non-partisan organization of property owners and service providers. We try hard to avoid taking political positions, and we steer clear of any political endorsements or preferences for one candidate or another.

Certainly, we have taken strong political positions on issues that directly impact our members. There have been no shortage of new ordinances, laws and mandates coming out of City Council or Springfield in recent years. We are not shy about taking positions on these pieces of legislation when we believe our members are being adversely impacted or singled out.

But things have gotten a bit more complicated since the November elections. It has been challenging to separate national politics from business in recent months due to the clear influence the one is having on the other. The (until recently) soaring stock market is one obvious example. Given the heightened mixing of politics and business, is it fair game to raise these issues, or are they best avoided in the interest of remaining politically neutral? I have chosen to take a “grab the bull by the horns” strategy in my monthly reviews. Since the elections, it’s been hard to separate what’s going on in Washington with what’s happening on Wall Street or Main Street.

This past week is no exception. Actions in Washington are, once again, spilling into the business domain. Unless you’ve been living under a rock, you will know that the Republicans tried and failed to pass the American Health Care Act (AHCA). So, what is the link between the AHCA and the markets? For months, we have been witnessing an amazing rise in equities markets worldwide. This has been dubbed “the Trump effect,” a reflection of the optimism the markets have shown for the stated goals of the new president to cut regulations and reform the tax code.

But something strange happened on the way to our new era of prosperity. Market hopes for tax reform and deregulation have been met instead with threats to cut off funding to Sanctuary cities, raids on immigrant communities and a proposed budget that favors military spending over social programs and the environment. These measures can be argued on their own merit. But the slide in stock prices suggests that investors view these actions less favorably than they would a serious effort to tackle the tax code or the regulatory environment.

The AHCA experience also reveals deep divisions in the Republican Party and the inexperience of the new president in the ways of Washington. This throws into doubt the big plans President Trump and the Republicans have set for themselves, and is increasingly of concern to the markets. The direct result of this newfound uncertainty is a reversal in the gains we have seen in recent months in equities markets. So far, this reversal is small – the Dow Jones remains well above 20,000. But the markets are clearly taking note of what’s happening in Washington, and are not sure they like what they see.

The next big test in Washington, and one that will have a huge impact on the future of our economy, is the looming government shut-down if Congress does not authorize an increase in the current debt ceiling. Without such authorization, the US government will be unable to pay its obligations, causing a default on the national debt. The clock is already ticking, as the current debt ceiling was reached last month (March 15).

In some ways, this is nothing new. Several times during the Obama presidency, we were faced with Congressional opposition to raising the debt ceiling. If anything, one would think that Republican control of both the Executive and Legislative branches of the government would prevent a shut-down from happening.

But the same fissures that emerged in the AHCA debate could come back again over the debt ceiling. The “Freedom Caucus” (the faction of the Republican Party that effectively killed the AHCA) is, and has always been, against any increase in the national debt. At the very least, some of the Freedom Caucus members would like to make defunding of Planned Parenthood a pre-condition of approval for an increase in the higher debt. Clearly, this demand will not sit well with the Democrats, or even some moderate Republicans. It will also, once again, put the much-vaunted negotiating skills of the new president to the test. A default on the national debt is no laughing matter. If it happens, the economy is in for a very rocky ride indeed.

New Development on Morse Avenue

TAWANI Property Management Develops a New Residential Building in Rogers Park

Chicago, IL – TAWANI Property Management, the property management division of TAWANI Enterprises, Inc. is developing a new, dynamic residential building at 1323 W. Morse Avenue in Rogers Park. The organization is partnering with Z Feng Architect & Company who will serve as the architect of record, with Pepper Construction as general contractor.  TAWANI Property Management broke ground on the property on Friday, March 3rd.

“We are thrilled to bring this new apartment building to Rogers Park as we expand our portfolio and commitment to the community,” explains a TAWANI spokesperson.  “We continue to invest in Rogers Park and hope to create shared value with our surrounding communities.”

Breaking ground

The beautiful, eight-floor brick building with premium modern amenities is designed to harmonize with the distinctive architectural features of historic Mayne Stage and Mayne Annex across the street.  A few steps from the Morse Avenue Red Line El Station, the new real estate offering will be located in the heart of the Rogers Park theater and arts district.  A prominent Morse Avenue doorway will showcase a well-lit, glassed-in entrance and a spacious ground floor lobby to encourage collective interactions by tenants and visitors.  One and two bedroom apartments all feature flowing layouts with expansive light-filled rooms for contemporary living.  All 50 units will be furnished with condo grade finishes such as granite countertops, hardwood floors, stainless steel appliances, balconies and in-unit washers and dryers. Additional features for tenants include a shared outdoor terrace on the fourth floor, a rooftop deck which will include grills, gardening spaces and seating areas with spectacular views of Lake Michigan and the Chicago skyline.  An on-site bicycle facility and exercise room are planned to encourage wellness and environmentally-friendly living. In addition, a three-floor garage on the ground levels will be dedicated to residential and transient parking.  Construction will commence in Spring 2017 and the project completion date is slated for summer 2018.  Pre-leasing is expected to begin in Fall 2017.

TAWANI Property Management is the property management division of TAWANI Enterprises, Inc. reflecting the organization’s long standing commitment to enriching communities and creating value for future generations to enhance the quality of life.  TAWANI Property Management has four divisions based on geographic locations and service offerings.  The categories include: Chicago (formerly known as Rogers Park Vintage Management), Gold Coast, Loop (formerly known as J&J ARNACO), and Stone Heritage Properties which includes its luxurious and award-winning bed and breakfast and vacation and event rental collection (i.e. Emil Bach House designed by Frank Lloyd Wright, Lang House B&B, Stone Porch by the Lake, Stone Terrace B&B and Lincoln Way Inn B&B).  For additional information, visit

TAWANI Enterprises, Inc. is a private company established by Colonel (IL) Jennifer N. Pritzker IL ARNG (Retired). It serves as the backbone and driving force for the development of many business ventures as a result of its vision to link past, present, and future in dynamic ways. For further information, visit  


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