Chicago and the Great Lakes Compact

Chicago’s water policy has been a regular subject of conversation at the Law School, whether in the form of public events, faculty scholarship, or blog posts. So, too, has the history and development of the Great Lakes Compact.

Great Lakes from space

Today’s post digs into the unique relationship between the two, given the recent announcement that Chicago has entered into a water supply agreement with the city of Joliet, approximately 35 miles to the southwest. Chicago will supply treated Lake Michigan water to Joliet for a century, beginning in 2030, at a cost estimated to approach $1 billion in today’s dollars. The Cleveland Plain Dealer called the deal a “stark warning” for the Great Lakes Compact. A USA Today column questioned, “How could Chicago [do that]?” The question likely invokes the Compact’s general prohibition on diversions outside the Great Lakes basin, with very limited exceptions. The answer lies in a 1967 amendment to a consent decree involving Illinois and other Great Lakes states, approved by the United States Supreme Court, that largely exempts Chicago from following the Compact’s rules.

The 1967 decree allots to Chicago (and several suburbs, via the Chicago water distribution system) a diversion volume of 3,200 cubic feet per second, or just over two billion gallons per day. The legal disputes that eventually resulted in the decree date back to Chicago’s reversal of the Chicago River, an engineering marvel resulting in no shortage of legal skirmishes. In a case argued before the Supreme Court in 1928 and decided a year later, Wisconsin, Michigan, and New York sued Illinois seeking to enjoin the Chicago diversion—then estimated at 8,500 cubic feet per second—because, they alleged, “the Chicago diversion had lowered the levels of [the Great Lakes and their connecting waterways] not less than six inches, to the serious injury of the complaining states.” The Court ultimately allowed the diversion to continue but capped its size to an amount that varied over decades of subsequent litigation until finally settling on 3,200 cfs in the 1967 decree.

Notably, the Court retains jurisdiction over the decree. From time to time a state has sought to reopen it. In 2010, for example, the Court denied Michigan’s motion to reopen the decree on the grounds that the diversion constituted a public nuisance by allowing the introduction of harmful aquatic invasive species into the Great Lakes.

The Compact’s default approach, a ban on diversions of Great Lakes water outside the Great Lakes basin, would prohibit the Chicago diversion. So there is no doubt that Illinois would not have agreed to the Compact without special carveout provisions protecting its rights to the Chicago diversion under the consent decree. The Compact does just that, in a lengthy section confirming that Great Lakes water use in Illinois is to be governed by the consent decree, not the Compact. In fact, to remove all doubt, the Compact actually prohibits Illinois from applying for diversions under its terms.

The precise terms of the Chicago-Joliet agreement are difficult to find, with the media reporting only the broad outlines of the deal. The Water Supply Agreement attached to the Chicago City Council’s approval provides that “Chicago shall deliver Water to Joliet on any day in an amount as requested by Joliet,” up to a “guaranteed maximum capacity” of 105 million gallons per day. That sounds like a lot of water—and it is—yet even at maximum capacity only accounts for about 0.05% of Chicago’s allocation under the consent decree.

Thus, there is little question that Chicago has the legal authority to sell water to Joliet. And even the maximum delivered volume is a drop in the bucket of Chicago’s allocation under the 1967 consent decree.

Yet the question remains whether it is good policy to sell water for economic development purposes. Some have suggested that as other parts of the country implement water use restrictions, the Great Lakes states should use water as a tool to attract new businesses and residents. Others argue that our abundant water supplies must be carefully stewarded. Finding the right middle ground will be challenging.

As for the Compact, the Joliet sale is perhaps foreboding, as the media coverage has suggested. But its immediate impact is limited to the amount of Chicago’s diversion. Greater difficulties await. At another recent Law School conference, this one commemorating the Compact’s tenth anniversary, former Wisconsin governor Jim Doyle suggested that the Compact’s greatest test would come when a signatory state faced a water crisis in a region outside the Great Lakes basin. Would the governor stick to the Compact and deny water to its own citizens, Doyle wondered? That is exactly the situation unfolding in Illinois, a Great Lakes state that is not governed by the Compact with respect to the Joliet crisis. But the implications for the other Great Lakes states – and the resulting concerns for the future – are unmistakable.

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New dataset traces Milwaukee’s long foreclosure crisis

The dramatic consequences of the late 2000s subprime mortgage crisis on Milwaukee neighborhoods are well known, but specific data on foreclosures has been remarkably difficult to come by.

Previous studies have documented plummeting homeownership across the city (particularly on the north side), followed by a surge in out-of-state investment. But researchers have lacked public data on how many foreclosures occurred, who initiated them, which properties experienced them, and the subsequent ownership history of those parcels. To fill that gap, I have assembled a novel dataset of residential foreclosures matched to city parcel records for the years 1995 through 2022. This includes all detached single family homes, condos, duplexes, and triplexes. See the data note at the end of this article for details.

From 1995 through 2006, the city saw an average of 800 house foreclosures a year. Then, in 2007, there were over 1,300 foreclosures. That jumped again to almost 2,500 in 2008. During the decade of 2007-2016 my records show a total of 21,500 foreclosures.

The pandemic, with its attendant boom in home values, saw foreclosures drop to their lowest levels since at least 1995. I found records of 351 foreclosed homes in 2020, 393 in 2021, and 434 in 2022.

Over the past 3 years, foreclosures by lenders have declined, likely because rising home values mean that few homeowners find their mortgages underwater. A homeowner struggling to make their mortgage payment can often avoid foreclosure by selling the house for a profit.

By contrast, foreclosures over delinquent taxes grew from 72 in 2020 to 138 in 2021, and 211 last year. As property values increase, the number of owners struggling to pay their tax bill may be increasing.

bar plot showing the total number of tax and mortgage foreclosures per year

The wave of foreclosures during the housing crisis was geographically concentrated in poor and majority nonwhite neighborhoods. In 2012, for instance, the 3rd aldermanic district (covering the east side) experienced 54 foreclosures, or a rate of 8 per 1,000 houses. The neighboring 6th district simultaneously saw 217 foreclosures, a rate of 24 per 1,000. Meanwhile, homes in the 15th district (covering parts of the near west and near north sides) were foreclosed on at a rate of 35 per 1,000 just in 2012 alone.

small multiple maps showing the annual rate of foreclosures in Milwaukee aldermanic districts

The cumulative effect after a decade of unrelentingly high foreclosure rates is mindboggling. Citywide, 14% of all houses experienced at least one foreclosure from 2007 to 2016. In Sherman Park and Washington Park, more than 3 out of every 10 houses were foreclosed on. Other parts of the city escaped practically unscathed. In the Upper East Side, fewer than 1-in-25 homes were foreclosed.

The map below shows the cumulative 2007-2016 foreclosure rate for each residential block in the city with at least 10 houses. Blocks shaded in blue experienced no foreclosures at all during the decade. The more than 500 blocks shown in the darkest shade of red experienced foreclosure rates of 32% or more. In 33 blocks, more than half of houses were foreclosed on between 2007 and 2016. And on the 2400 block of North 44th Street fully three quarters of homes—21 out of 28—received a foreclosure.

detailed map showing block level cumulative foreclosure rates from 2007-2016

Needless to say, the wave of foreclosures closely follows the declines in owner-occupancy since the Great Recession. Of all the properties which received a foreclosure between 2007 and 2016, 62% (over 13,000 homes) were owner-occupied at the beginning of the year in which the foreclosure occurred, according to city parcel data.

Often, foreclosed properties during this period were sold at auction or at bargain prices to cash buyers. Once outside the owner-occupied housing market, houses often remained held by investors. Since about 2018, several corporate landlords with private equity backing have assembled large portfolios in these neighborhoods, largely by consolidating the holdings of the smaller landlords who preceded them.

Foreclosures cast a long shadow, and the effects of the subprime mortgage crisis are still shaping many Milwaukee neighborhoods more than a decade after the Great Recession officially ended.

Data note

This foreclosure dataset combines several sources. Foreclosure records from 1995-2016 are sourced from an owner history dataset maintained by the Milwaukee City Assessor’s office. (Special thanks to Jeff Arp for his help). Records from 2017-2022 are from the Real Estate Transaction Returns filed with the Wisconsin Department of Revenue. I matched each source dataset to city parcel records, which allowed me to standardize addresses as well as identify the property type and ownership status at various points in time. In all likelihood, this dataset undercounts the true number of foreclosures because some foreclosure records could not be matched to parcel data or were otherwise missing.

Researchers and community groups are encouraged to explore the data for their own uses. Files are available at https://github.com/jdjohn215/milwaukee-foreclosures. Please direct questions to john.d.johnson@marquette.edu.

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Citations for “The Rise and Impact of Corporate Landlords”

The following post contains references for the studies and articles mentioned in “The Rise and Impact of Corporate Landlords,” which appeared in the Summer 2023 issue of the Marquette Lawyer magazine.

Bibliography

Demers, Andrew and Andrea L. Eisfeldt. “Total returns to single-family rentals.” Real Estate Economics 50 (2022): 7-32. https://doi.org/10.1111/1540-6229.12353

Desmond, Matthew and Nathan Wilmers. “Do the Poor Pay More for Housing? Exploitation, Profit, and Risk in Rental Markets.” American Journal of Sociology 124, no. 4 (January 2019): 1090-1124. https://doi.org/10.1086/701697

D’Lima, Walter and Paul Schultz. “Buy-to-Rent Investors and the Market for Single Family Homes.” The Journal of Real Estate Finance and Economics 64 (2022): 116-152. https://doi.org/10.1007/s11146-020-09790-5

Dorkin, Josh and Brandon Turner. Interview with Nazz Wang. BiggerPockets Real Estate Podcast no. 148. Podcast transcript. November 12, 2015. https://www.biggerpockets.com/bpp148-nazz-wang-podcast-transcript-zero-to-fifty-units-in-expensive-location

Epstein, Gerald A. “Introduction: Financialization and the World Economy.” In Financialization and the World Economy, ed. Gerald A Epstein, 3-16. Cheltenham: Edward Elgar Publishing, 2005.

Fields, Desiree. “Automated landlord: Digital technologies and post-crisis financial accumulation.” Environment and Planning A: Economy and Space 54, no. 1 (2022): 160-181. https://doi.org/10.1177/0308518X19846514

Gomory, Henry. “The Social and Institutional Contexts Underlying Landlords’ Eviction Practices.” Social Forces 100, no. 4 (June 2022): 1774-1805. https://doi.org/10.1093/sf/soab063

Leung, Lillian, Peter Hepburn, and Matthew Desmond. “Serial Eviction Filing: Civil Courts, Property Management, and the Threat of Displacement.” Social Forces 100, no. 1 (September 2021): 316-344. https://doi.org/10.1093/sf/soaa089

Raymond, Elora Lee, Richard Duckworth, Benjamin Miller, Michael Lucas, and Shiraj Pokharel. “From Foreclosure to Eviction: Housing Insecurity in Corporate-Owned Single-Family Rentals.” Cityscape 20, no. 4 (2018): 159-188. https://www.jstor.org/stable/10.2307/26524878

Saunders, Pete. “On NIMYs, YIMBYs and PHIMBYs.” Corner Side Yard (blog). February 10, 2023. https://cornersideyard.blogspot.com/2023/02/on-nimbys-yimbys-and-phimbys.html

Shelbourne, Talis. “Neighborhoods are being bought up by out-of-state investors with little to no interest beyond making money.” Milwaukee Journal Sentinel. November 10, 2022. https://www.jsonline.com/story/news/local/milwaukee/2022/11/10/out-of-state-investors-keep-buying-milwaukees-rental-homes-why/10461394002/

Spivak, Cary. “Out-of-state corporate landlords are gobbling up Milwaukee homes to rent out, and it’s changing the fabric of some neighborhoods.” Milwaukee Journal Sentinel. April 15, 2021. https://www.jsonline.com/in-depth/news/2021/04/15/milwaukee-rentals-overtaken-corporate-landlords-raking-profits/6989234002/

Vogell, Heather. “Rent Going Up? One Company’s Algorithm Could Be Why.” ProPublica. October 15, 2022. https://www.propublica.org/article/yieldstar-rent-increase-realpage-rent

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