HB 2192: The Rent Control Act

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A careful read of State Representative Mary E. Flowers’ proposed Rent Control Act (a/k/a House Bill 2192) is an eye-opener. A highly similar version of this bill was circulated in 2018 by State Senator Mattie Hunter as Senate Bill 3512. Both Representative Flowers and Senator Hunter are Democrats representing areas predominantly located on the South Side of Chicago and in the South and Southwest suburbs. As of the writing of this article, hearings on the proposed bill are scheduled for Thursday, February 14. This is a developing story. The Newsletter will keep a close eye on how this bill fares. Updates in future Newsletters are a certainty.

In the event that this bill is adopted into law, Illinois would immediate transform from a state in which no local unit of government is permitted to enact rent control, to a state in which no unit of local government is not subject to enforcement of a rent control measure that is at least as restrictive as what is proposed in this bill.

While passage of this bill is far from certain, it should serve as a wake-up call to property owners who will surely be surprised to learn how radical this rent control legislation is, and the lengths to which proponents of rent control, both in Chicago and in Illinois, are prepared to go.

Just a few of the highlights include the following:

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Representative Flowers also states in the Findings section of the Act, “Regional boards and local communities are best positioned through collaborative administration to implement rent control and address barriers to affordable housing in their communities.” This is another way of saying that local government is better suited to determining market rents for apartment units than the market itself.

This is a surprising statement, considering we live in a market economy and have long pointed to our entrepreneurial system as being one of the primary reasons why we have been so successful as a country and as an economy. It is doubly-surprising, coming from an Illinois politician in a state where our current governmental system has produced a pension deficit that has swelled to well past $100 billion (and rising), where two recent governors are currently behind bars after being found guilty of corruption, and where more than 30 Chicago Aldermen have been convicted of crimes since 1970 (and several more now under investigation).

Left unaddressed is how a property owner is supposed to be compensated for making capital improvements to a property over and above basic maintenance and repair. Although not specifically stated, the Act appears to imply that the mandatory 10% replacement reserve is to be used to fund such capital needs. This is problematic and leaves unanswered a number of questions.

Credit: Crain's Chicago Business

It is notable that, even in New York City, where Rent Control and Rent Stabilization have long been the law of the land, property owners are allowed to charge additional rent if they make capital improvements to their properties. By contrast, Representative Flowers’ bill presumes that the 10% deposits of after-expense rent proceeds will be sufficient to cover all future capital needs.

The Act was clearly written with great concern for tenants and considerable attention to what they are “owed” by property owners in all manner of circumstances. It would have been nice if the Act had paid half that much attention to the needs of property owners and how they can expect to be compensated for the considerable money and work required to maintain and improve real property, particularly in light of ever-increasing real estate tax burdens, utility costs, and other government mandates. It goes without saying that this was not a primary concern of this legislation, or the person or persons who authored it.

To say that this Act is unworkable is an understatement. If enacted, it could easily plunge the already feeble economy of Illinois into a deep freeze. Faced with onerous restrictions on rent increases, severe penalties for violations, and absurd fees and self-funded reserve requirements, property owners will be motivated to convert their rental units to condominiums, sell at fire-sale prices, or simply hunker down for a protracted fight with the pro-Rent-Control forces, investing only what is absolutely required in their properties and keeping a low profile as the economic damage unfolds.

In summary, this Act is a recipe for disaster. It is a case-study in governmental overreach and anti-market hysteria. It paints tenants as helpless bystanders in need of the severest of government protection, and property owners as evil predators deserving of special government oversight and punishment. This Act is divisive, economically unsound and doomed to fail.

It is possible that this legislation is intended simply to scare property owners and the real estate industry into supporting Representative Will Guzzardi’s less-awful-by-comparison proposal to remove the state ban on local rent control legislation.

It is true that Representative Guzzardi’s proposal is less awful than HB 2192. But, make no mistake. If either the Flowers or Guzzardi proposals are passed, the economic fallout will be severe, and the impact on property owners will be dire. Both measures deserve our full attention. Both must be strongly opposed.