A recent paper in Housing Policy Debate, “The Cost of Code Violations: How Building Codes Shape Residential Sales Prices and Rents,” found that unresolved building code violations have a different impact on residential sale prices than on rents in Chicago. Resolving violations increases rents but has no significant effect on sales prices. In contrast, failing to fix violations decreases sales prices but has no significant effect on rents.
The author examined the impact of the resolution of building code violations on rental and residential sale prices by examining the City of Chicago’s database of building violations, CoreLogic’s database of property transactions, and the Multiple Listing Service (MLS)’s database of rental listings. An analysis of rental prices of 13,290 rental units before and after code violations were reported found that a 10% increase in resolved violations is associated with a 5.5% increase in rents. In other words, on average, when landlords fix properties in response to code violations, the next tenants pay higher rents. In contrast, the presence of unresolved code violations had no statistically significant effect on rents—dilapidated units are not cheaper on average. A statistical analysis of residential sales data related to 7,157 housing units before and after reported code violations found that resolved violations had no statistically significant effect on home prices, but unresolved violations were associated with a significant decrease in sales value. A 10% increase in resolved violations corresponds to a 3.4% drop in sales prices, on average.
The author argues that this dynamic can diminish affordable rental options and disadvantage poor homeowners. Low-income renters likely pay rents for substandard units that are not significantly lower than rents for units without unresolved code violations. They are also likely to shoulder the costs of fixing code violations. Low-income homeowners can struggle to make needed repairs, lowering the value of their home. They are excluded from emergency-repair grants in Chicago when their properties are deemed not habitable. The author recommends further analysis of programs to constrain rent hikes and to help low-income homeowners resolve code violations.
“The Cost of Code Violations: How Building Codes Shape Residential Sales Prices and Rents” is available at: https://bit.ly/2TYgyu0