The Unintended Consequences of the Chicago Residential Landlord And Tenant Ordinance

Pictured Above: The Author Of The RLTO

Like many unduly heavy handed government regulation, the Residential Landlord And Tenant Ordinance of Chicago produces unintended consequences that harm the very group they were purportedly designed to help. This ever expanding set of codes is heavily biased against landlords and enables tenants and lawyers looking to gain a quick buck from frivolous lawsuits. As I will demonstrate, the end results are diminished housing opportunities, especially for families of modest means.

 The most egregious aspect of the ordinance are the heavy fines mandated for clerical errors such as not maintaining security deposits in separate, interest bearing, escrow account. I personally know an honest landlord who returned the full deposit plus interest in a timely fashion, but was fined twice the amount of the deposit plus the tenant's legal fees! In this case, a $1,000 deposit generated a $3,000 fine, much of which went to the tenant's parasitic attorney! It gets worse; there are lawyers who contact tenants engaged in eviction proceedings and offer them "free" legal assistance, but only if they provided the landlord a security deposit. The unscrupulous attorney then attempts to turn the tables by counter-suing the landlord for any failure to comply with the regulatory minutia governing the deposit. Thus the said landlord can potentially face thousands of dollars in lost rent, fines and legal fees from his own attorney as well as the derelict tenant's attorney! Even if he is not subject to a counter-suit, if a tenant is well versed in the law, it can potentially take 3 or 4 months to evict him. Given that very few landlords immediately begin the eviction process, most spend a month or more hanging onto the broken promises of deceitful tenants, they can potentially face 5 or 6 months of lost revenue. And if the judge rules in the landlord's favor, the chances of collecting the lost revenue is slim at best. Does this sound like equal protection under the law?

Understandably, a growing number of landlords have decided to waive the requirement for a security deposit. Even landlords who have not decided to take this course of action have gotten much stricter on their credit requirements for prospective tenants. Most landlords would be willing to "lend a hand" and "give working families a chance," but given the increasingly costly and time consuming nature of evictions, most would rather maintain their apartments empty than run the said risks. What this means is that a lot of good, hard working families are having even more trouble finding quality, affordable housing in decent neighborhoods. To make matters worse, the growing risks and regulatory burdens that landlords face in Chicago are causing fewer individuals to purchase  property, especially in the blighted neighborhoods that are most in need of investment. And the landlords who remain will direct more of their resources towards regulatory compliance and keeping up with surging property taxes, than the upkeep and improvement of their property.

Slumlord Narrative

Without a doubt there are some bad landlords who are rightly labeled "slumlords."

But, more often than not, the "slumlord narrative" of "progressives" does not fully explain the tenant-landlord dynamics that leads to less than ideal buildings. Rarely is it simply a case of a "bad landlord" abusing "good tenants." Usually there is a dynamic interplay in which the behavior of the tenant shapes the behavior of the landlord and visa-versa.

A landlord that I work with keeps his building in Avondale in impeccable condition. The halls are always clean and he is constantly investing his time, labor and money into maintaining and improving the building, while keeping rents affordable.

The same landlord previously owned a building in Logan Square that he later converted into condos. Previously, the halls of the building were filthy and the general condition were less than optimal.

When I questioned him why the state of the buildings were so starkly different, he responded "the tenants." When he purchased the Logan Square building the 1st thing he did was paint the halls and replace the carpet, but within a week gang symbols were scrawled on the walls and the new carpet reeked of urine and litter abounded. A tenant who moved out decided to take the new appliances with them. On top of that the landlord faced chronic late payments of rent and and costly evictions. And thus, the landlord quickly realized that any investment in time, energy and money, beyond the bare minimum would be a waste of time. Eventually this clear economic logic led him to convert the apartments into condominiums.

In contrast, the tenants in the Avondale augmented the landlord's regular regimen of cleaning and maintenance, by voluntarily cleaning the halls and picking up garbage from the premises. The tenants behaviors reinforced the landlord's commitment to investing in the well being of the building and its tenants. Accordingly, the landlord was provided by an incentive to maintain and improve the building. In addition, the behavior of the tenants lowered his operating costs which allowed him to maintain generally affordable rents. Faced with a reasonable return on his investment, he has opted to not seek the condo conversion of the building.

Admittedly most cases are not so clear cut; in substandard buildings landlords rarely are blameless. And in some cases, pathological tenant behavior is a product of slumlord neglect. But, more often than not the line between victims and villains is not so clear cut. A dynamic exists in which both parties jointly construct their shared reality and engender the behavior of the other. But in a world of subtle and complex social and economic reality there is little room for activists and the heavy handed state intervention that they demand.

Residential Landlord And Tenant Ordinance (part II)

Another good landlord that I work with informed me that an ex-tenant is suing him for $26,000 because of clerical oversites like (allegedly) returning the security deposit 3 days late. Presumably they realize that they will not receive this amount and they are simply seeking to frighten the landlord into a settlement for $5,000 - $10,000.

Based on prior conversations I realize that all socialists and most "progressives" see no problem in a regulatory regimen that harshly punishes landlords for clerical oversites. And of course I have never heard them express concern that increases in the tax and regulatory burdens has made it increasingly less profitable to be a landlord. Implicit in their vision is the idea that the landlord-tenant relationship is a zero-sum-game in which every burden that a landlord faces is a benefit for tenants.

This vision is deeply flawed, because to a large degree the well being of tenants and landlords are intrinsically connected. And the increased burden that landlords face engenders negative, unintended consequences that are most felt by tenants. In other words, tenants and their so called advocates are shooting themselves in the foot with every anti-landlord ordinance that they pass. Here are a few of the negative effects:

1. The diminishing returns and the increase in liability that landlords face were two (of several) factors that encouraged so many landlords to convert their properties into condos, contributing to what many "progressives" refer to as a "shortage of affordable housing."

2. The race to beat rising operational costs (via higher taxes and regulatory expenses), encouraged landlords to rehab their rental units and (of course) increase rents, which also contributed to the "shortage of affordable housing."

3. The increasingly lengthy and costly eviction process that landlords face has naturally increased their credit requirements, which greatly limits the housing options that poor (and most minority) apartment seekers face. Or to put it simply: the harder it is for landlords to evict tenants, the harder it will be for tenants to rent apartments.

4. In the south and west side of Chicago there is now an abundance of extremely cheap, foreclosed homes. The rock bottom prices (single family homes that go for as low as $2,500) make it extremely tempting for investors to purchase and rent them out to local families. At that cost a rental property can simultaneously be "affordable" for tenants and profitable for landlords.

But, the increasing liabilities that landlords face via city ordinances has dissuaded many an investor from purchasing these homes. The end result is a decrease in the supply of well maintained rental homes for poor and working class families. And as any economist will tell you, when you lower the supply of a commodity, you increase its cost, i.e. "less affordable housing." And needless to say vacant homes do not breed economic and social stability, least of all in already marginal neighborhoods.