Economics Rent Control Article Summary - Chicago tenants continue

DePaul University Economics Rent Control Article Summary Questions

My article is titled “Chicago tenants continue to demand ‘rent control now’,” and published by the Chicago Reader. The article speaks to the “Lift the Ban Coalition” made of several Chicago groups who are mobilizing interest and support for legislation to lift Illinois’s ban on rent control. This includes proposal HB255 which would repeal the 1997 Rent Control Preemption Act and proposal HB2192 which would establish statewide regulations on how much landlords can raise rents and offer tax incentives to smaller landlords to help encourage routine maintenance and offset the cost of property improvement. The primary argument from these groups is that at “every income level [Chicago residents] are feeling squeezed right now” (Dukmasova) and rent control will alleviate financial strains caused by rising rents. Supporters also emphasized “how important regulating rent increases could be for young people” (Dukmasova) as they are most at risk for evictions due to rising rents. Opposing groups including landlord and real estate groups oppose lifting the rent control ban and argue that “rent control would drive down property values for rental buildings and that this will result in higher property taxes for everyone else.” (Dukmasova). Rent control constitutes a market inefficiency as fixed rent prices are put into place which may differ from market rates. In the short term, this can provide benefits to current renters who will pay below market rate rents and receive a surplus in rental utility. However, in the long term there are multiple potential downsides. When price is artificially lowered, demand for housing will go up, but the supply side will decrease as landlords have less incentive to produce rental units. This excess demand is displayed in the graph below by space between Q2 and Q3. Since the rent-controlled housing market cannot meet demand, newcomers and renters outside of regulated units must use the alternative of nonregulated units. This increase in demand for the remaining non-regulated housing markets causes rent increases that can price out prospective renters. Additional long-term effects include a reversal in income inequality effects. “Property owners whose rental income is limited have a strong incentive to rent to those they can be more certain will pay — those with high incomes and good credit scores” (Husock). Rent control also disincentives current renters to move out lowering the turnover rates of rental units. This again forces newcomers to face higher rents in non regulated units or be priced out and unable to enter a housing market. These negative effects have been observed in studies of other major city housing markets that utilize rent control. In San Francisco, it was observed that “landlords of properties affected by the law change respond over the long term by substituting to other types of real estate, in particular by converting to condos and redeveloping buildings so as to exempt them from rent control” (Diamond et al. 3366). Additionally, “as of 2015, the average property treated by rent control has higher income residents than similar market rate properties. The long-term landlord response thus offsets rent control’s initial effect of keeping lower income tenants in the city by replacing them with residents of above-average income. In this way, rent control works to increase income inequality” (Diamond et al. 3392). Similar phenomena can also be seen in New York City housing markets where “about 23% of households in rent-stabilized units have lived in their unit for 20 years or more, compared with only 7% of households in market-rate units” (Husock).

Questions

1. If the primary issue with rent control is a gap in housing supply, what alternative policies should be considered?

2. Should government subsidies or tax credits be provided to lower rent prices, but still incentivize landlords to provide rental units?

3. Should rent control still be considered in areas of gentrification where minorities are most often being forced to relocate?