What is Rent Control & How It Could Affect Apartment Building Owners

By 33 on April 23, 2019

What is Rent Control?

Rent control is when governmental agencies set the rent thresholds or control the amount of rent increases collected by owners in a specific market. Owners are then caught between fixed amount of revenue for a property but face the rising costs of long-term ownership such as property taxes, utilities, fees, and inflation.

Rent Control Chicago

Currently, the state of Illinois (along with 36 other states) prohibits municipalities to pass any laws related to rent control. The 1997 Illinois Rent Control Preemption Act prohibits municipalities from enacting or enforcing measures that control the amount of rent charged for a residential unit.

What is the Illinois State Legislature Proposing?

Currently, the state legislature has proposed two bills that would nullify the 1997 Illinois Rent Control Preemption Act.

The first proposed bill is H.B. 255, which seeks to repeal the state’s Rent Control Preemption Act of 1997 and was sponsored by Rep. Will Guzzardi, D-Chicago. On March 29, 2019, the House Subcommittee on Commercial Law of the House Judiciary Civil Law Committee voted on H.B. 255. Four representatives voted against the measure, two voted for it and one member abstained. The bill was sponsored by supporters of rent control who will try again to move the bill to the Judiciary Civil Committee or ultimately a full house vote.

The second proposed bill is H.B. 2192 which seeks to remove the ban on Rent Control (similar to H. B. 255) but H.B. 2192 would also establish six regional boards that each have seven members that are appointed. These six regional boards would have the authority to write regulations for the amount of rent collected and provide an enforcement mechanism for landlords who charge rent in excess of what is allowed. The bill would also collect rent control registration fees for the creation of the Small Rental Property Owners Repairs and Improvement Fund. Another provision of the bill is to establish rent-controlled capital improvement tax credits.

How will changes to current rent control legislation impact Chicago and other cities in Illinois?

  • The supply of affordable housing will decrease due to diminished investment and condo conversions.
  • The quality of affordable housing will decline as a result of arbitrary price caps.
  • Property values will decrease which will cause the property tax base to shrink.
  • Unqualified applicants will abuse the rent control system.
  • Government bureaucracy will increase to administer and enforce rent control laws.

How will changes to current rent control legislation impact property owners?

  • The condition of rental properties will deteriorate. Limits on the amount of income and the rent collected will decrease owners’ cash flow used to repair and update properties.
  • Ironically, property taxes may increase as rent control is implemented because rental income is used as a factor used to determine property assessments. If the tax revenue from the tax base decreases, then the government will need to raise taxes in order to provide the cost of basic services.
  • Rent control will generate more risk for buyers of multi-unit buildings and will likely decrease the pool of potential buyers in the market.
  • Property values will decrease over time due to higher operating costs, deferred maintenance, and fewer interested buyers.

What is the timeline for the rent control legislation?

At this point, the City of Chicago can’t pass any rent control because of the 1997 Illinois Rent Control Preemption Act. Any rent control laws must first overturn the state ban on rent control – legislation that will be handed down from Springfield. Newly elected Governor Pritzker has stated that he is open to rent control laws and probably will not veto rent control legislation.

Since the first attempt failed to pass H. B. 255, rent control advocates have continued to push for new legislation. If the rent control ban is overturned, the recent election in Chicago has shifted the Council in favor of rent control.

As an owner, what should I do?

  • Understand what legislation is proposed and the consequences of this legislation on the housing market for both affordable and market units.
  • Join owners’ associations that provide a voice for the industry in Springfield. Two organizations are Shape Illinois and Real Property Alliance.
  • Communicate your concerns to your state representatives and senators.
  • Is it time to sell? Often owners believe that they understand the value of their properties; however, items such as rent control can have a drastic effect on value. Request a free valuation for the value of your property from one of our experienced investment brokers frequently so that you can understand fluctuations in the market and know when to sell.

For more information, call Sean Connelly at (773) 899-1334 or email sean@33realty.com

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