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Rent Control – It’s Not Just Happening in Chicago

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We’ve been hearing a lot about rent control in Chicago lately – so much so, in fact, that you might think that this is a purely local issue.

But you would be wrong. Like a lot of movements with local impact, the roots go much deeper. Rent control has emerged as an important policy goal of the progressive movement, a movement that has been energized by the unanticipated election of Donald Trump in 2016 and rapid increases in rents from coast to coast since the end of the last recession.

Not all progressives support rent control. Other solutions include expanded production of affordable housing or wider use of housing vouchers. But a growing number of progressives believe that limiting the rent property owners can charge to tenants is the solution to the housing affordability crisis that is growing across the country, and that is most acutely felt in many of the nation’s largest cities.

Rent control has emerged as an important policy goal of the progressive movement

This article will look at three other places where the rent control battle is being fought, and how the debate is playing out.

California

As the nation’s most populous state, largest economy, and center of both entertainment (Los Angeles) and technology (San Francisco and the Silicon Valley), California is a true bell weather state. The success or failure of rent control in California will likely influence the outcome of rent control efforts across the country.

Rent control is nothing new in California. For many years, a number of California cities have had rent control legislation on their books, including several of the state’s largest cities (LA and SF), and most progressive enclaves (Berkeley, Beverly Hills and Santa Monica).

But, in 1995, the state legislature passed the Costa-Hawkins Rental Housing Act. This act prohibited any city in the state from regulating rental properties built after 1995, including not just apartment buildings, but also single-family homes and condominiums. Importantly, Costa-Hawkins also prohibits “vacancy control,” meaning a city cannot regulate what a property owner can charge when a unit vacates.

Ever since it passed, Costa-Hawkins has been the target of tenants’ groups and other progressive politicians. But the election of Donald Trump, and the spiraling cost of rent across the state, gave new impetus to this movement. As a result, a coalition of tenant rights activists and other groups banded together to put Proposition 10 on the California ballot.

RPBG President Michael Glasser appears on WTTW’s Chicago Tonight on 11/14 to discuss the perils of rent control

Had it passed, Proposition 10 would have repealed Costa-Hawkins, allowing local municipalities to impose stricter rent control or stabilization policies and even, in the most extreme examples, restricting what a property owner can charge for an apartment unit after the unit vacates. This is notable because, even before the passage of Costa-Hawkins, only two California cities included vacancy control measures in their local rent control laws. These were the ultra-liberal bastions of Santa Monica and Berkeley.

Because the stakes were so high, and because this is California, both sides went all out to win supporters for their positions, both pro and con. At last count, total spending stood at about $75 million.

Proposition failed in the November 6th elections by a two to one margin.

Perhaps the strongest and most persuasive argument against the measure in a state where housing is in high demand but short supply is that rent control will only further limit the supply of rental housing. Property owners would have an incentive to convert rental units to condos and then sell them off. Developers would think twice before building in rent controlled cities. Of course, these are the very cities where the housing shortage is already most acute, and that need additional rental housing most desperately.

Apparently, these were winning arguments. Proposition failed in the November 6th elections by a two to one margin. Sixty-five percent of the votes cast opposed the measure.

New York City

As the nation’s largest city with a long history of both rent control and rent stabilization, it should come as no surprise that the rent control movement is gaining steam again in the Big Apple. What is perhaps more surprising is that the cries for expanded rent control do not seem to have translated to legislative victories, at least so far.

The battle cry in New York right now is for Universal Rent Control. The problem is, no one knows exactly what this means! The implication is that Universal Rent Control will represent some significant expansion of the current rent control and rent stabilization laws that are already in place.

While we often think of rent control and New York as being almost synonymous with each other, the reality is that rent control in New York has faded away to the point of near extinction. Rent control was first enacted during the last years of World War II. At its peak in the 1970s, there were well over one million rent controlled units in the city. But in 1971, the state legislature passed vacancy decontrol. Since that time, rent controlled units have either converted to rent stabilization or have been completely deregulated. Today, there are just 27,000 rent control units left in the city.

The battle cry in New York right now is for Universal Rent Control.

While rent control may be on its last legs, there are still over a million units in New York City that are subject to rent stabilization. Such units have limits placed on rent increases as long as they are occupied, but can be increased by no more than 20% once they vacate. Once rent exceeds $2,733 per month, units are removed from any further regulation.

Advocates of Universal Rent Control believe the existing rent protections are insufficient. In its most extreme version, Universal Rent Control would put all rental units under some form of government control and impose more stringent restrictions on rent increases when units vacate. Cynthia Nixon was perhaps the best-known proponent of this measure. She ran as a progressive candidate for governor against Andrew Cuomo in the Democratic Primary. She was soundly defeated last May.

While Nixon’s defeat might have cooled the cries for Universal Rent Control, they have not gone away. New Yorkers are nothing if not tenacious. We can expect this issue to be back with the next election cycle.

Seattle

Few places in the country have experienced the kind of explosive growth that Seattle has seen since the end of the Great Recession. Seattle was already home to Microsoft, one of the world’s largest technology companies. But Microsoft is almost an afterthought in the Amazon Age.

From its humble roots as an online bookseller, Amazon has become the country’s dominant retailer and one of the largest cloud services providers. The company currently employs 40,000 people in the city, up from 5,000 in 2010! The company occupies almost a quarter of the city’s prime office space and continues to expand at a rapid pace. This growth has been so intense that the company recently annouced that it would add headquarters locations in NYC and suburban Washington, D.C., largely due to the strain this unbridled expansion has put on the Seattle region.

Amazon currently employs 40,000 people in Seattle, up from 5,000 in 2010!

Clearly, all this growth has been both a blessing and a curse. The booming economy and influx of new, highly-educated and tech-savvy Millennials contrasts with the out-of-control increases in the cost of both rental and owner-occupied housing. The city and region have simply been unable to keep pace with all the new demand.

Tenant groups in Seattle have settled on the same strategy in Washington State that we have seen here in Illinois. It is a state law in Washington the prevents local municipalities from enacting rent regulation, and it is the state law that local activists are trying hard to overturn. This effort failed earlier this year when a bill to lift the state ban did not move out of committee, effectively killing it for the year.

But rent control has not gone away in Seattle, and pressures to change the state laws will only grow as prices continue to rise and long-time residents who do not have the good fortune to work for a large, technology company find it harder and harder to pay rent.

Summary

The good news for property owners in Chicago is that, for now at least, none of the rent control measures proposed in California, New York or Seattle have been successful.

The bad news is that the underlying reasons for the swelling demand for rent regulation are not going away. If anything, the causes of this unrest are getting worse, certainly in the hot coastal markets and technology centers. More bad news for property owners in Chicago are the results of the nonbinding referendum to overturn the state ban on local control over rent control. These referendums were held in the 35th, 46th and 49th Wards on November 6 with local voters in all three Wards overwhelmingly voting in favor. The margins were 71%, 70% and 66%, respectively.

But, as recent elections have demonstrated, politics is rarely driven by rational arguments.

It is more than a little ironic that Chicago is not on the list of cities that have seen surging economic growth or stratospheric housing price increases. In fact, you could argue the opposite is true. Chicago typically ranks at or close to the bottom of the 20 largest metro areas in terms of economic growth. While housing costs here are higher than in other Midwestern cities, they look like a bargain compared to New York, California or Seattle.

But, as recent elections have demonstrated, politics is rarely driven by rational arguments. Many people in Chicago, like many people everywhere, feel angry and aggrieved at injustices, real and perceived. This discontent has enabled local activists to put rent control squarely on the agenda in Illinois. Whether they will be successful will only be revealed with time. If rational thought plays a role in this debate, our side will win. But that is a very big “if” and, for now at least, all bets are off.

 

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