What the ordinance is doing to landlords...
Like most forms of state intervention, Chicago's Residential Landlord & Tenant Ordinance (presumably) has positive intentions, but engender very negative unintended consequences. In this case, these negative consequences are not only experienced by landlords, but by the very tenants that they set out to protect.
Part A of ordinance 5-12-080 starts with the basically reasonable mandate that the landlord has to maintain the security deposit in a separate, interest bearing account. Part B goes on to state that the minuscule interest (1.26% in 2008 and 0.12% in 2009) has to be paid out every year, a fact that most landlords and tenants are not aware of.
Part F states that if the landlord violates this, they can be sued for 200% of the security deposit plus damages (legal fees). In some cases this means that good landlords have paid thousands of dollars for what accounts to little more than a clerical error.
I personally know several good landlords who feel victim to absurd, predatory lawsuits brought on by nefarious tenants seeking to gain a quick buck. Here is an actual example:
The landlord in question is honest and responsive. She works hard to meticulously maintain each apartment, as well as keep them affordable, in the face of rising property taxes.
At the end of two years one of her tenants decided to leave. The landlord promptly returned the security deposit along with interest, which in this case came out to under $50.
A week later the landlord is informed that she is being sued for 200% of the security deposit plus several thousand in "damages," which they somehow calculated as $15,000. Why you may ask? Because after the 1st year of occupancy she did not pay the tenant the $25 or so in interest. No one in their right mind can say that the "punishment fits the crime."
And in gets worse - the tenant's lawyer only receives payment via a portion of the money that his clients collect. On the other hand, the landlord has to pay her lawyer for every hour that he spends on her case, which in this case added up to several thousand dollars.
What this means is that the tenant has the power and incentive to drag the case on and bleed the landlord, often forcing them to settle. Out of principle this landlord has held steady, but I know others who have settled for as much as $10,000. And even if this landlord wins, the bastard tenant will have wasted her time and money. And of course her chances of counter-suing and recouping her legal costs from the tenant are slim to none. Needless to say this asymmetrical system provides great incentives for tenants to engage in predatory lawsuits.
In light of this legal environment, many landlords have determined that security deposits are too much of a liability and instead are requiring non-refundable move-in-fees, usually around $250. Without the security deposit to offset their risk, the said landlords have greatly tightened up their screening process. In particular they are much stricter on their credit, criminal, income, employment and rental history requirements.
So, one of the unintended consequences is that the housing options and opportunities for individuals of modest incomes, as well as minorities (who disproportionately have sub-par credit) have been reduced.
To adjust to the greater risks and liabilities that Chicago ordinances entail, landlords are spending more money on lawyers, accountants and insurance policies. In addition, fear and mistrust between landlords and tenants have increased. So, another unintended consequence is that less money is being spent on improving and maintaining properties for the benefit of tenants. Or, landlords can simply raise their rents and further erode the affordable housing stock that "progressives" so desire.
The increasingly complex and costly regulatory regimen that Chicago landlords are facing entails other troubling unintended consequences. Certainly these laws will fall heaviest on Chicago's many working class and immigrant landlords. Even those who are fluent in English will be challenged by rambling legalese and the increasingly complex regulations. And many of these individuals cannot afford the use of a costly lawyer. Accordingly these individuals and their families will be most vulnerable to educated, but unethical tenants who are simply looking for a quick buck.
In all heavy regulatory environments corporations enjoy strong competitive advantages over small, independent owners. Big corporations can bear added legal and clerical costs that can break smaller enterprises. So, it is quite likely that Chicago will witness an increased concentration of property in the hands of corporations. Of course this trend is even more pronounced in retail and manufacturing sectors. Unfortunately few "progressives" are aware of this connection. Unintended consequences are a bitch.