Thursday, January 29, 2015

Chicagoland’s model for managing single-family rental investment

by Breann Gala, Metropolitan Planning Council

Much has been written about Chicago’s “tale of two cities,” where high concentrations of poverty exist side-by-side with pockets of great wealth. This reality manifests in many ways, including an uneven housing market recovery that is disproportionately burdening communities struggling to manage their many housing challenges.

Case in point, in 2012, the Metropolitan Planning Council (MPC) recognized a fast-moving trend in real estate investment that is posing the greatest challenge to distressed communities with limited municipal capacity: a rush of investors purchasing single-family homes at low prices and converting them to rental properties.

In south Cook County, a part of the Chicago region with lower incomes and declining home values, the share of single-family home purchases by business buyers jumped from about 10 percent in 2005 to more than 36 percent in 2013. Contrast that with relatively stable, higher income northwest Cook County, where the share of single-family homes purchased by business buyers only increased from six percent in 2005 to 12 percent in 2013 (DePaul University). This level of extreme concentration in certain communities is not just prevalent in the Chicago region, but also applies to metropolitan areas nationwide.

While not universally the case, some large investors have struggled with effective property management as their portfolios have ballooned and scattered; some small landlords have struggled, too, as they may be less experienced with owning and managing a single-family rental home. As a result, many communities with large numbers of single-family rental homes are not only experiencing declining homeownership but also code enforcement issues, which are further exacerbated because inspecting scattered single-family homes is more resource intensive than inspecting multi-family properties.

These challenges have led to a growing suspicion of investor-owners and their negative effects on community vitality. However, if not for the investor-owners, many communities would be experiencing even greater vacancy and blight.

The challenge at hand is not about driving out single-family rental investors, but rather about implementing a regulatory framework that attracts positive investment, rewards good landlord and investor behavior, and effectively cracks down on negative investor behavior. To help communities and investors work together to manage single-family homes so that this growing segment of our region’s housing stock is a benefit, not a burden, MPC published Managing Single-Family Rental Homes in 2012 (updated in June 2013).

With funding from the attorney general’s National Foreclosure Settlement, MPC and our regional partners also began working closely with a cluster of four municipalities in south Cook County to pilot the following cross-municipal strategies:

1. Researching and sharing lessons about the legal limitations on Illinois municipalities with regards to monitoring and inspecting rental properties and pursuing enforcement strategies;

2. Streamlining and strengthening code enforcement processes through shared programming and staff that work across the four participating towns and achieve greater economies of scale;

3. Developing an inter-municipal database for tracking troubled properties, landlords and changes in ownership to better track and implement inspection programs; and

4. Implementing an incentive program to attract and retain responsible investors and landlords.

The goal is to develop strategies that are both cost-effective and replicable, so that even the hardest hit communities, which also have the least municipal resources, can make significant progress. The pilot is focused on a small group of municipalities, but MPC will promote the lessons learned both locally, regionally and nationally and be a resource to communities that want to implement similar initiatives.

Please stay tuned for more information about the pilot and follow our suburban housing work here.

For 80 years, the Metropolitan Planning Council has made the Chicago region a better place to live and work by partnering with businesses, communities and governments to address the area’s toughest planning and development challenges. Breann Gala is a Project Manager at the Metropolitan Planning Council, where she manages a range of housing and community development initiatives across the Chicago region.

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