Chicago Landlords Brace for a Further Erosion of Their Rights

October 10, 2022

A step toward the state taking over private property, HB 2775 will only hurt those in the greatest need of affordable housing

It has been an axiom for decades large public housing projects were an abysmal failure in America.

Though some fringe housing activists today steadfastly claim public housing did not fail as much as it was never attempted judiciously, the construction of public high-rises in urban areas across the nation eventually worsened societal problems. Often referred to as “vertical ghettos,” housing projects tended to concentrate single-parent families dependent on government welfare programs. Households almost entirely led by single mothers, children living in public housing tended to be fatherless, were unlikely to complete high school, and often swung to drug use or a life of crime.

By the 1990s, efforts to establish social order in public housing were abandoned and the Clinton White House issued orders to the Department of Housing and Urban Development (HUD) to demolish bedraggled structures beyond rehabilitation. Eventually, the Chicago Housing Authority (CHA) would raze dozens of multi-story buildings — including the scabrous Cabrini-Green and Robert Taylor Homes — and briefly forsake administrative control over publicly owned housing. The CHA would later resume control over public housing in Chicago.

Faced with the prospect of former residents destined for the streets amid the massive reduction in housing units, the federal government sought a set of constructive, longer-term solutions to the housing shortage. Together with the refurbishment of some existing properties, the strategy pursued by HUD to provide shelter for those in need included market-based solutions, notably an expansion of the Housing Choice Voucher (HCV) program administered by HUD. Commonly known as “Section 8,” the program evolved through amendments to a series of congressional legislation, the first of which was the National Housing Act of 1934.

Created in 1974, under the HCV program, tenants are required to pay a minimum of 30 percent of their annual income to a landlord of a rental property and the remaining 70-percent cost is covered by HUD. The great advantage, HCV’s supporters argue, is unlike public housing, Section 8 housing does not anchor low-income tenants to neighborhoods known for crime and squalor. In contrast, the HCV program, housing advocates say, allows the poor the advantage of moving into a gentrifying neighborhood where residents could escape crime and enroll children in functioning schools. The largest source of rental assistance in the country, today over 2 million low-income families are awarded vouchers. Locally, vouchers are administered by the CHA, where some 90,000 participate in the program.

Alongside a greater reliance on the HCV program, following the demolition of blighted projects in the 1990s, Congress enacted legislation such as the Community Reinvestment Act and applied anti-discrimination laws to press banks into making mortgage loans to low-income borrowers. An attempt to stimulate home ownership among the poor, the endeavor met with some success, but it failed to solve homelessness as many of those seeking homeownership were saddled with low credit ratings.

Despite the legislative efforts, home ownership among the poor continued to lag and the demand for vouchers continued to exceed supply. Making matters worse, the 2008-09 economic meltdown and then the ravages of the COVID pandemic continued to highlight the urgency of the housing shortage and the hardships suffered by the homeless. Prompted by the continued plight of the impoverished, housing activists and lawmakers have thrown themselves resolutely behind campaigns to improve social conditions for the needy, particularly the homeless. A significant part of activists’ strategy was criticism of government for failing to act and demanding lawmakers make some sort of stand on behalf of the destitute.

In response to activists’ urging, in 2019 Democrats on the Cook County Board dreamed up a revision to the Human Rights Ordinance. Known as the Just Housing Amendment (JHA), language in the rewritten ordinance creates a new category for landlords to weigh when measuring the suitability of a potential renter. Under the new amendment, property owners could no longer consider an applicant’s arrest record in which no conviction occurred. A passage which reveals the true aim of the amended law, lawmakers were unquestionably creating a special class for the purpose of protecting individuals with criminal records or dubious pasts.

Though the amended law did specifically mention landlords could consider denying a lease to an applicant with a history of sex offenses or to a registered sex offender, the ordinance prohibited landlords from declining an applicant based on the individual’s criminal conviction beyond the previous three years. A deeply concerning condition of the ordinance, it took no consideration of potential threats a tenant could pose to a landlord, other leaseholders residing in the property or the quality of life to the neighborhood. Moreover, the JHA also demanded property owners first consider an applicant’s ability to fulfill rent obligations before determining an applicant’s criminal background.

Though Cook County’s JHA passed over the objections of real estate and housing associations, two years later the Illinois General Assembly (IGA) debated and passed HB 2775. An amendment to the Illinois Human Rights Act due to go into effect in January 2023, while the bill intends to prevent discrimination, akin to Cook County’s JHA, the bill continues to infringe on the rights of landlords.

A law opposed by the Illinois Rental Property Owners Association, Illinois Realtors, and the Illinois Manufactured Housing Association, under the amendments to Human Rights Act is a mandate for landlords to accommodate applicating tenants qualifying for any local, state, federal or private subsidy or assistance program. Though the language in the law prior to its amending never made accepting applicants relying on federal, state or local subsidies compulsory, failure to comply with the conditions and requirements in new version of HB 2775 will lead to penalties imposed on landlords, including suspension of a real estate license.

For years, property owners tended to shrink from leasing property to potential tenants who sought to fulfill monthly leasing obligations through nontraditional income. This is to say, landlords were wary of leasing to a prospective lessee who desired to fulfill a monthly leasing obligation by cash, alimony, palimony, investment income, housing subsidies or Social Security. Understandably, property owners' reluctance to lease to potential renters who depended on nontraditional income was rooted in the uncertainty a renter would have the means to satisfy monthly rent obligations in the absence of a normal income stream. Under HB 2775, language in the Human Rights Act is adjusted to include source of income as a protected class to provide individuals seeking housing with nonwage income legal protections extended to persons based on race, disability, familial status or sexual orientation.

The amended law now defines any source of income as a manner by which an individual supports themselves and declares discrimination on the basis of nontraditional income in housing selection a civil rights violation. HB 2775 also prohibits landlords from refusing to rent property to lessees who are reliant on COVID-19 emergency rental assistance.

While supporters of HB 2775 are retailing this new law as a victory for the homeless, there are few silver linings in the amended law, the downsides are significant, and particularly burdensome for small landlords and their tenants.

HB 2775 is the first step toward the state assuming control over privately owned rental property

Like the legislative attempts at universal healthcare, the bid to provide housing to the indigent is, in principle, a noble goal. Although HB 2775 is well intentioned, the main thrust of the amendment is to strip property owners of their right to determine to whom they rent by eliminating safeguards previously used to evaluate prospective renters. Regrettably, the unforeseen consequences of the amended law are certain to hurt rental property owners and further exacerbate the scarcity of affordable housing in Chicago.

The result of lawmakers with a narrow vision, HB 2775 fails to take into consideration a sizable proportion of landlords in Chicago do not maintain large real estate portfolios. These small landlords often retain few buildings, self-manage, and currently suffer under crushing rental regulations or restrictions.

An encroachment on the rights of landlords, HB 2775 effectively sweeps away discretion landlords once exercised in their search for suitable tenants. Under the amended law, landlords can no longer avail themselves of mechanisms to evaluate the desirability of a potential tenant. Traditionally, property owners conducted thorough credit and background checks to judge whether an applicant could meet a landlord’s minimum standards for a lease.

While HB 2775 allows landlords to examine an applicant’s credit, it seeks to impel property owners to accept potential tenants who are more inclined to pay in cash. Cash payments come with a risk. First, though a tenant may have passed a credit assessment, there is still no infallible method for property owners to verify whether the rent payment is legally earned. Cash, of course, is not traceable. Second, cash payments prevent a landlord from establishing the truthfulness and accuracy of information a tenant has provided on a rental application — personal identification, back accounts, phone numbers — provided previously to secure a lease. Third, a landlord accepting cash creates unnecessary hazards and could attract crime or fraud. Landlords who are forced to accept cash are also exposed to the false claim a tenant paid monthly rent.

HB 2775 will decrease the availability of affordable housing

There are many ways to assist those seeking a higher standard of living conditions, but neither Cook County’s JHA nor the Illinois General Assembly’s HB 2775 are methods in which a solution can be found for affordable housing.

Since the Section 8 program was launched in 1974, property owners in Chicago have in part relied upon voucher-holders with open arms. In the five decades since the inception of the HCV program, it has been small property owners who have formed a pillar of rental units for the underprivileged fleeing the wreckage of public housing. To give the needy a leg up, landlords cooperating with both the CHA and HUD have yielded on rental requirements, specifically when negotiating rental terms with potential renters with poor credit. In return for their consideration for the disadvantaged, small landlords have been saddled with layers of onerous regulations and in return have endured erosions to their rights.

Government run amok at the expense of small and mid-sized property owners, legislative attempts to mitigate the housing shortage are having the opposite effect to what was intended. Instead of opening corridors to better living conditions for those in need, the HJA and HB 2775 are in fact creating obstacles of entry for the disadvantaged to move into better living situations. For every set of rules imposed, property owners and developers raise their leasing standards and refuse to consider Section 8 voucher holders.

To reverse this disastrous course, there are several palatable policy options available for lawmakers to consider. To alleviate housing stress, both the IGA and the City of Chicago could first consider easing restrictions on urban land use, such as constraints on lot sizes, height restrictions, occupancy limits, and parking requirements.

By slightly easing land-use regulations, developers would have an incentive to build and could fill the unmet demand for housing. Additionally, though it would be to their chagrin, the City Council could also remove power over zoning from aldermen and place it in the hands of the Department of Planning and Development (DPD). Further, Chicago should also hire additional personnel in DPD to expedite the approval and issuance of building permits.

While loosening land-use restrictions or removing power from aldermen on zoning matters would not fully rectify the housing shortage, it is a more favorable and fairer starting point to address a shortage of housing than resorting to saddling small landlords with endless rules, regulations, and restrictions.  

While every effort should be made to protect the rights of tenants, the rights of property owners should not be infringed. The amended law allows no consideration for the plight of Chicago landlords because it places them at an immeasurable disadvantage by strong-arming property owners to accept virtually any rental applicant.

Many Chicago property owners have been unable to collect rent since March 2020, lacking any legal recourse to evict nonpaying tenants, and have been left with few options to recover losses in unpaid rent. A crushing blow to small property owners, under the weight of this new law, landlords are likely to resort to removing rental property from the market to avoid yet another layer of exhausting regulations.

Though Chicago’s population has declined over the past decade, the demand for housing has increased. The JHA and HB 2775 are only exacerbating Chicago’s housing problem.

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