A Better Solution Than Rent Control

As widely reported, the efforts in Springfield to lift the State ban on rent control were recently defeated. While it was determined that rent control is not a practical solution, the affordable housing problem nevertheless remains. So, rather than focusing on what doesn’t work, we must now ask ourselves if there are other solutions that can work to correct this problem. In fact, there is one very cost effective and readily available alternative that is gaining grass roots support and that affordable housing advocates, apartment building owners and city officials can all support.

Before explaining the details, it’s important to understand that all of these interest groups agree that we need far more affordable housing in order to make the city function more efficiently. Hence, the affordable housing issue is clearly a supply issue.

Supporters of rent control were stymied by two critical problems. First, the consequence of placing legislated caps on rents would be that developers would materially cease building new apartments. This, of course, would only make the problem worse. Second, implementing rent control places the responsibility of solving the affordable housing problem on a select group of business people – apartment building owners. This is like requiring just grocery stores and restaurants to pay for school lunch programs. Both are serious issues, but the solutions must be shouldered by everyone and not be made the sole responsibility of a select group of business people.

Historically, low income housing tax credits (LIHTC) have provided an important source of equity for the creation of new affordable housing. While this program remains critically important, LIHTC developments move very slowly and are met with strong NIMBYism. In addition, they end up costing more to build than traditional market rate housing because of the high transaction and regulatory costs. While we should continue to support LIHTC developments as an important part of the solution to the affordable housing problem, it has proven insufficient as a comprehensive answer.

One solution that can work and can be easily implemented is simply to amend current zoning laws to allow garden level apartments to be added to existing apartment buildings, provided that the new apartments be priced at affordable levels. For example, an owner of a two-flat might add a third unit. An owner of a 40-unit building might have space to add three units.

However, current zoning does not allow adding apartments to existing buildings unless additional parking is also provided. Obviously, adding parking spaces is problematic in a city like Chicago. And while parking congestion remains a real issue, with the advent of ride sharing in the past five years and the fact that many affordable housing residents do not have cars, the impact on parking would likely be nominal. It is estimated that as many as 100,000 affordable garden apartment units could be added to Chicago using this program. That is the equivalent of building 500 high-rises with two-hundred units in each, but without any visible changes to the current built environment.

The advantages of this program are numerous. First, it would quickly add a desperately needed supply of affordable apartments. Constructing a garden apartment can take just two or three months once permits are obtained. This is in stark contrast to the new construction cycle that can take years to complete. Second, apartment building owners would be incentivized to add affordable units. Building a garden apartment in an existing building costs a fraction of constructing an apartment in a new building, so apartment building owners can increase the value of their property and earn a reasonable profit even while charging affordable rents.

Additionally, apartment building owners across all neighborhoods and building sizes could participate. This allows affordable renters to live in many neighborhoods in which they previously could not afford. Rather than concentrating affordable housing in one building or in one area of the city, this solution brings together people of different socio-economic backgrounds. Moreover, this program could be used to incentivize the creation of housing for people with physical disabilities and for veterans, two groups with especially challenging housing needs.

Most importantly, this solution requires no tax credits or shared costs. The cost is born entirely by the apartment building owner.

Some concerns have already been raised that this solution increases density in certain neighborhoods. But critics are unable to explain how to create more affordable housing without impacting density. All camps can agree that few complicated problems can be solved with a single policy. But rarely can a single policy make such a meaningful impact in such a cost-effective and equitable way.

If you are one of the many people who believe Chicago needs more affordable housing or are looking for the next solution beyond rent control, this proposal warrants your support. Please contact your alderman to voice your support.

Doug Imber is a thirty-year veteran of the apartment industry. He is the President of Essex Realty Group, Inc. and is a Director of the Rogers Park Builders Group.

Post-Script by Steve Cain

Doug’s article makes a forceful argument for one particular, market-friendly way housing advocates and the real estate industry can work together to help solve Chicago’s affordable housing problem. But Doug will be the first to admit, this is not a new concept.

Since 1990, Essex Realty Group, Inc. has served Chicago’s investment real estate market as a top multifamily real estate brokerage firm. Contact us to learn more about our recent Chicagoland multifamily and mixed-use property sales and talk to a Chicago multifamily broker today.