News from the Chicago Chapter

Keep Illinois Rent Control Preemption Act in Place


 

By Jim Vocos, CPM®

IREM Chicago 2018 President

 

 

 


At the Institute of Real Estate Management (IREM), our goals are to educate property managers and inform the public on relevant issues involving commercial properties. One of the latest political enticements is to repeal the Illinois Rent Control Preemption Act of 1997. The data available shows the median rent in Illinois is more affordable than the U.S. national median rent, and the median rent in Chicago is affordable in proportion to income and when comparing with cities with similar population. IREM Chicago strongly supports keeping the Illinois Rent Control Preemption Act of 1997 in place and not allow the fair market to be impeded on -- which would lead to detrimental consequences to the real estate market and further negatively impact the troubled Illinois financial landscape. 

Real Estate Market Cycle

The late author Jim Rohn best described business cycles by comparing them to the ocean: Tide comes in, and tide goes out. This holds true in just about every free market. Please see below graph from Biggerpockets.com of the real estate market cycle for a visual perspective:

Before the financial crises that began a decade ago, the rental market was in its bottom phase. However, the bottom phase lasted exponentially longer than its normal market cycle due to a false home buying market created by man, which ultimately led to the Great Recession of 2008.

Unintended Consequences

Effecting normal market cycles can create a multitude of negative unintended consequences.

An example of an approved act that was well-intended -- but poorly conceived -- was “The Community Reinvestment Act (CRA, P.L. 95-128, 91 Stat. 1147, title VIII of the Housing and Community Development Act of 1977, 12 U.S.C. § 2901 et seq.) The United States federal law was designed to encourage commercial banks and savings associations to help meet the needs of borrowers in all segments of their communities, including low- and moderate-income neighborhoods.

The Community Reinvestment Act is what some experts say was the catalyst to the great recession that started in 2008, the greatest financial crises in our lifetime. The overwhelming negative unintended consequence of tampering with the economic ecosystem lead to tremendously more harm to citizens than the act could have ever helped.

During the time before the Great Recession of 2008, gaining tenants and retaining them was a desperate feat for most residential landlords.  It seemed that the rental market was in peril, with so many renters converting to homeownership, including the tenants who were routinely delinquent on their rent but were then able to afford homes.

The latest upswing in rental pricing is a part of the economic process, and there are already signs of corrections in the metropolitan Chicago market. According to statistics from Rent Cafe, the average rent for an apartment in Chicago in 2018 decreased by 1% compared to the previous year.

Statistical Data

By the data below, median gross rents in Illinois are more affordable then the U.S. national median gross rents and the median gross rents in Chicago are affordable in comparison with cities with similar population.

This report from the Department of Numbers provided the following statistical data:

Real Gross Rent in Chicago Illinois (2016 dollars)

 

2016

1 Year Change

3 Year Change

U.S. Median Gross Rent

$981

+0.93%

+7.80%

Illinois Median Gross Rent

$950

+0.21%

+6.74%

Chicago, IL Median Gross Rent

$1,050

+2.44%

+8.92%


Rental Vacancy Rate in Chicago Illinois

 

2016

1 Year Change

3 Year Change

U.S.

5.89%

+0.04%

-0.60%

Illinois

6.01%

-0.20%

-0.15%

Chicago, IL

5.46%

+0.24%

-0.12%


Real Gross Rent in Houston Texas (2016 dollars)

 

2016

1 Year Change

3 Year Change

U.S. Median Gross Rent

$981

+0.93%

+7.80%

Texas Median Gross Rent

$956

+1.27%

+10.90%

Houston, TX Median Gross Rent

$1,009

+1.82%

+13.24%

 
Rental Vacancy Rate in Houston Texas

 

2016

1 Year Change

3 Year Change

U.S.

5.89%

+0.04%

-0.60%

Texas

7.65%

+0.70%

-0.21%

Houston, TX

7.28%

+0.82%

-1.11%


In the entire U.S. median gross rent in 2016 was up +0.93% from a year ago and up +7.80% over the last three-year period.  This exceeded Illinois gross rent of $950, which rose at a slower rate of +0.21% from a year ago and +6.74% over the last three year period. The Illinois vacancy rate in 2016 was 6.01% which is greater than the US median vacancy of 5.89%.

Apartment rents in Chicago are affordable in comparison with cities with similar population, such as Houston. In 2016, Houston’s population was 2.303 million people and Chicago’s population was 2.705 million people.

Chicago median gross rent in 2016 was $1,050 and Houston’s median gross rent was $1,009.  However, Chicago’s vacancy rate in 2016 was 5.46% and Houston’s vacancy was 7.28%.  This indicates a cheaper rent to vacancy ratio for Chicago. If Houston’s vacancy rate was the same as Chicago’s, then Houston’s rental rate would far exceed Chicago’s rental rate.

Rent as a Fraction of Income

In Illinois, the median monthly gross rent as a fraction of median household income was 18.70% and Chicago’s was 19.09% in 2016, according to the American Community Survey (ACS), which pulls its data from the United States Census Bureau. In comparison, the U.S. median Annual Rent as a fraction of median household income was 20.43%, higher than both Illinois and Chicago.

The Department of Numbers provided the following statistical data:

Using median household income data for Chicago, we can calculate the fraction of income the median household would use to pay rent at the median monthly gross rent rate. For Chicago, median monthly gross rent as a fraction of median household income was 19.09% in 2016, according to the ACS.

Chicago Illinois Median Annual Rent as a Fraction of Median Household Income

 

2016

1 Year Change

3 Year Change

U.S.

20.43%

-0.20%

-0.35%

Illinois

18.70%

-0.15%

-0.19%

Chicago, IL

19.09%

-0.14%

+0.08%

 
*2017 Illinois median and average rent data won’t be released until after September of 2018 according to https://www.deptofnumbers.com/rent/illinois/.

To Reiterate

IREM’s goals are to educate property managers and inform the public. The data provided above indicates no statistical evidence showing the need to repeal the Illinois Rent Control Preemption Act of 1997. Again, the data available shows the median rents in Illinois are more affordable then the U.S. national average and the median rents in Chicago is affordable in proportion to income and when comparing with cities with similar population. Repealing the act is unnecessary and would lead to damaging consequences to the real estate market and further negatively impact Illinois.