- Mike Glasser, President, NBOA
March 20, 2020
“The real estate industry is being clobbered by the coronavirus, and it’s going to get worse before it gets better.”
Those are the words of Brad Hunter, managing director at RCLCO, a real estate consulting firm.
Los Angeles real estate tycoon, Tom Barrack, has an even starker view of the current state of the nation’s real estate market. “On the brink of collapse,” he says.
Whether you adopt Barrack’s apocalyptic scenario of COVID-19’s impact on the industry, or whether you share the view of most experts that it’s simply too early to tell, without a doubt the world as we know it has changed.
This past Monday, just a day after the City of Chicago implemented its “Stay at Home” order in response to the pandemic, an official from the City’s Department of Housing convened a conference call with industry representatives and an alderman to discuss a proposed “accessory dwelling unit ordinance.”
Accessory dwelling units, or ADUs, are living quarters that are separate from the primary residence on a property. They might be in a coach house behind the residence, or in a basement or attic. They’ve been outlawed in Chicago for years, but the Lightfoot Administration is considering permitting their construction as a way of increasing the supply of affordable housing in Chicago.
This may or may not be a good housing policy, but a number of participants in the call were left wondering why a City official was holding this policy discussion while the entire world was crashing down around them. In short, why are we making housing policy when we have no idea what life will look like once the virus is brought under control?
From an industry perspective, the ADU ordinance is probably the most benign of a series of far-reaching housing proposals the Lightfoot Administration currently is reviewing that could vastly alter the relationship between landlords and tenants and potentially threaten the ability of many landlords to survive in a post-coronavirus world.
Take for example a proposed “No-Fault Eviction Ordinance.” Drafts currently under consideration would eliminate month-to-month leases and extend the notice requirement for a decision not to renew a lease from the current 30-day notice requirement to as much as 180 days. It would also require landlords to pay a $10,600 “relocation fee” to any tenant whose lease they choose not to renew.
The proposal also requires more advance notice of rent increases and would place a cap on those rent increases.
The Lightfoot Administration is also considering a proposal that would emulate Cook County’s “Just Housing Ordinance,” which puts strict limitations on the ability of landlords to conduct criminal background checks on prospective tenants.
Finally, the Lightfoot Administration is exploring a proposal that would give tenants the right of first refusal to purchase their building if the landlord wishes to put it on the market. Though this initiative is billed as a pilot designed specifically for Chicago’s Woodlawn neighborhood to stave off gentrification brought on by the construction of the Obama Presidential Center, it could easily be replicated in other Chicago neighborhoods or even citywide.
In the best of economic times, any one of these proposals could significantly impact the ability of landlords to sustainably operate. If the economic downturn is as severe as many are predicting, these proposals if enacted could potentially serve as a death knell for many operators, especially the small “ma and pa’ enterprises and especially in those areas of the City that struggle economically even in the best of times.
The inevitable result would be more foreclosures and more apartment buildings either vacant or in severe disrepair.
Perhaps the economic downturn will not be as severe or as sustained as many economists fear. The bottom line is we just don’t know.
Because of this economic uncertainty and because we simply don’t know what unintended consequences might emerge from a hasty enactment of some or all of these proposals, it’s time to hit the pause button and wait until we see what the world will look like once we’ve emerged from the pandemic.
As the old saying goes, “Hope for the best, prepare for the worst.” If the economy roars back once the virus has been brought under control, then by all means let’s resume the discussion on these proposals and come to a satisfactory resolution that both landlords and tenant rights advocates can live with.
If, however, we fall into a sustained recession, or heaven forbid, even worse, then that will inform the discussion, as well. Certainly, Mayor Lightfoot would not want to enact measures, which are intended to protect tenants and keep them housed, that could result in consequences completely contrary to those admirable goals.
Renowned Scientist Newton Howard once said, “People forget how fast you did a job—but they remember how well you did it.”
Let’s all take a pause and make sure our housing policies are done well.