Chicago’s housing market is broken

If I were to ask any random Chicagoan to name one neighborhood that represents all the wealth and privilege of Global Chicago, chances are they would name Lincoln Park, just north of downtown along the lake.

And if I were to ask that same random Chicagoan to name one neighborhood that represents the failures and desperation of our city, chances are they would name Englewood, in the heart of the South Side.

Then, if I were to follow up by asking whether they thought more houses were being built in Lincoln Park or Englewood, they would probably laugh at me. Lincoln Park might be the most desirable urban neighborhood in the country not located on an ocean, and Mayor Emanuel is so desperate to get people to buy property in Englewood that he’s selling lots there for $1.

And yet.

Change in Housing Units, 2000 – 2012

Source: US Census. Click to see interactive map with mouseover data.

And yet actually both Lincoln Park and Englewood have lost housing units since 2000. Not only that, Lincoln Park has actually lost more housing units than Englewood: 4.1% compared to 3%.

How is that possible? It’s what happens when the city makes it illegal to build more housing, thanks to an incredibly restrictive zoning code. When places in and around downtown become more desirable, developers build more housing, and more people get to live there. But when non-downtown neighborhoods become more desirable, developers can’t build more housing: it’s against the law. So instead, they profit by tearing down old two-flats and building mansions in their place. And as a result, fewer people get to live in those neighborhoods, even as more and more people want to.

This is a story that’s particularly dramatic in Lincoln Park, but applies to virtually every neighborhood in the city that has become more desirable in the last decade or two. Lakeview, where rents have increased by 41% since 2000, has lost 2% of its housing units. Rents on the Lower West Side, which includes Pilsen, have gone up by 60%, while housing units have declined by 1%.

Even where there was enough construction to increase the total number of homes, the increase was tiny. In West Town – which includes Ukrainian Village and Wicker Park, and which since 2000 has gone from a kind of an up-and-coming area to one of the wealthiest parts of the city – rents are up 65%, the average home sells for just over $400,000, and the total number of housing units has increased by only 5% in twelve years. That’s an increase of less than half a percentage point per year, or significantly less than the growth of population.

A city whose housing policy mandates that fewer households get to live in neighborhoods as they become more desirable is broken. The local residents who show up to community meetings to protest development because they don’t want their low-rise neighborhoods to become another River North aren’t necessarily being unreasonable, but the restrictions they’ve won go far beyond banning highrises. Even in already-dense, inner-city Lakeview and West Town, some areas have been reserved solely for single family homes, or no more than one home per lot (as before, red = only SFH; yellow = no residential building of any kind):

West Town
West Town

In a much larger area, anything denser than a three-flat is illegal:

WT3 (1)
West Town

And virtually everywhere, classic low-rise Chicago homes like courtyard buildings have been banned:

West Town

(And note that the places where courtyard buildings haven’t been banned are almost all in places where there are already large developments – residential towers, or hospitals, etc. – that are unlikely to be leaving to make available room for development any time soon.)

The effect, of course, is to allow only those people who can afford to outpay everyone else to live in these neighborhoods – which are increasingly coming to include the majority of the North Side and areas close to downtown to the south and west. Beyond issues of equity, the city suffers when it fails to gain population even in its most successful neighborhoods, forgoing tax revenue and patrons for its businesses.

Chicago’s housing system is broken. We need to fix it.

15 thoughts on “Chicago’s housing market is broken

  1. I’m sympathetic to your main argument, but drawing conclusions from a comparison of a full decennial Census with ACS data is problematic, especially for smaller areas. It would be interesting to see whether the pattern would hold in a pure decennial-to-decennial comparison.

    1. Fair enough – which is part of why I used CAs instead of tracts, and tried not to lean too heavily on any dollar value data. Seems like unit counts should be stronger, or am I wrong? I’ll get the 2010 numbers and see what kind of difference there is.

    2. So I ran a couple neighborhoods – Lakeview, Lincoln Park, and West Town. LV and LP’s 2010 unit counts are very slightly higher than the 2012 ACS numbers, such that LV went from having a very slight negative trend to basically flat (<0.5% increase), and LP went from a 4% decline to a 1.6% decline. West Town was almost exactly the same in the Census and ACS. I'll run the rest of the neighborhoods and post about it at some point next week, probably, but so far it doesn't look like anything major is going to change.

  2. The point about comparing decennial Census data with ACS data is a valid point, but I wanted to make one clarification. The Douglas and Grand Blvd communities are the only ones that show up as red on your map. Indeed both did have substantial housing unit loss between 2000-2012, but that was almost entirely due to the demolition of CHA public housing units without 1-to-1 replacement. In fact, there was quite a bit of new single family construction in both CCAs over that period.

    Devil is in the details.

    1. Yeah, I didn’t make this point explicitly, and maybe I should have – a) a lot of the South Side is skewed by the demolition of public housing, and b) beyond that, much of the South Side isn’t pushing up against density restrictions, because either there’s a lot of open land or demand just isn’t that high.

      Incidentally, Douglas and Grand Boulevard are the highest-zoned community areas in the entire city, excluding the ones directly adjacent to downtown. Like, really dramatically more highly zoned than anywhere else. Any idea why?

  3. The zoning map was created in 1923, when the Black Belt was the densest part of town.

    It’s also a little disingenuous to not connect the loss of apartments in LP to the broader effects of increasing inequality and growing demand for large units at the top end of the market.

    While I’m certainly sympathetic to your point of view (and/or Ed Glaeser’s), there’s something to be said for fact that the very mixed-density character that restrictive zoning has created in locations like Lincoln Park or the Upper East Side might be a desirable end in and of itself, and a large part of why prices are so high there. Allowing many more high-rises would change the character, and perhaps to its detriment — LP now commands higher price points for some housing types than the Gold Coast.

    As for courtyard buildings, it was the 1957 code’s parking and rear yard requirements that truly did them in. The same number of units and massing could be built in R-4, which is pretty commonplace, if it weren’t for the parking req, and one could conceivably even design one for R-3.5. I wonder if one could pencil out under the new TOD exemption…

    1. Re: the Black Belt, yeah, I suspected that had something to do with it, although it’s crazy that the dynamics of an overcrowded and segregated housing market is how we’re determining zoning almost a hundred years later.

      I’m also not sure what’s disingenuous about this – increasing inequality certainly has something to do with growing prices at the top of the housing market, but there’s no good reason it should result in *fewer* housing units in the absence of restrictive zoning.

      And though I agree that we shouldn’t be zoning with complete disregard to aesthetics and “character,” I’m not sure I follow this particular argument. If Lincoln Park and the Upper East Side have figured out some magic amount of density, above which neighborhood character is damaged, and the example you give of such a damaged neighborhood is the Gold Coast, then how can the UES be 3-5 times denser than LP (as it is), and in many places actually denser than the Gold Coast? I’m certain that there are a decent number of people in Lincoln Park who would like their neighborhood less if the city allowed 8-10 story midrises to pop up all over the place. I’m equally certain that every one of the apartments in those midrises would be filled with people who were very happy to have found a place to live in Lincoln Park. Why should city policy be designed to cater to the few privileged current residents, and not the massively larger number of current and potential residents who would be better off with a somewhat freer housing market?

      I’ll ask this again, as I do every time this argument comes up, and it’s really not a rhetorical question: can anybody think of a neighborhood where market forces caused significant densification since the advent of modern plumbing and electrical systems, and which as a result of that densification fell into the sort of downward spiral that is constantly predicted for neighborhoods like LP today? So far, no one has offered anything. And if there are no obvious examples of this ever happening, why is this argument so ubiquitous?

      1. Thanks for this interesting post. But what is “the downward spiral that is constantly predicted for neighborhoods like Lincoln Park today”?

      2. Sorry, yeah, that wasn’t clear: I was referring to an argument that’s frequently made in favor of housing restrictions, which suggests that allowing people to build more housing in places like Lincoln Park will ruin the “character” of the neighborhood, and then no one will want to live there any more. It’s an incredibly common argument, and yet neither I nor anyone I have ever asked has been able to think of an example of this ever actually happening. That’s not to say it has never happened, but if a lot of people who think about this very hard all the time can’t think of any ready examples, I feel comfortable saying it happens so rarely that it’s kind of bizarre that everyone is so scared of it.

      3. There are plenty — many mansion districts saw significant high-rise infiltration in the 1960s-1970s, from the Gold Coast to Nob Hill to Vancouver’s West End to yes, parts of the UES. Instead of a “downward spiral,” it’s more a matter of property prices plateauing. From a market purist’s perspective (like that of Glaeser), there’s nothing wrong with the net result: prices plateau, supply increases, and overall per-acre values continue to increase. However, the subjective “character” does change, and in most cases a new, lower-density area soon takes the crown for being the most exclusive part of town. In Chicago in some years, Lincoln Park rather than Near North has the highest single-family home sale price, for instance.

        That said, it’s also a matter of market failure (and a planning opportunity) that demand piles up at certain locations while it completely bypasses others. In Chicago, for instance, continuing to pile on growth on the north side, where transportation routes are running closer to capacity, has a higher marginal cost to service than introducing growth to the south and west sides — where infrastructure is running well below capacity. I certainly don’t think that demand can be manufactured, and I can’t prove this, but I don’t think that good things like the rejuvenation of the South Loop or the redevelopment of Cabrini-Green would have happened if growth had not first been restricted in areas like the Gold Coast and Old Town.

        That said, there’s also something to be said for political realities. I’ve spent a fair amount of today being excoriated (and having my motives impugned) by people who are having a cow over a five-story apartment building, next to a rail station operating at 1/3 capacity. I’m sorry that I’m too tired to tell them that their neighborhood’s actually a perfectly viable site for skyscrapers.

      4. If those neighborhoods became relatively more affordable while allowing more people to live there and maintaining a high quality of amenities – as is the case in all of your examples – then that sounds like an incredible policy success. “Market purists” may like it, but so should affordable housing advocates, local business owners who now have more customers, city leaders who have a larger tax base, and anyone who thinks that people ought to be able to live where they want, and housing policy shouldn’t stand in the way of creating freer, more equitable cities. That is decidedly not what most people who say that increasing density will “destroy” neighborhoods are referring to (see Aaron Renn’s piece from a few weeks ago for an example): their implication is that building newer, denser buildings will reduce the general desire of people to live in that neighborhood. None of the examples you gave support that theory.

        There is, of course, a tradeoff if historic character is lost, and I support giving that some weight in making planning decisions. But I don’t think that preserving historic character is so important that it always and everywhere should outweigh whether or not people can afford to live where they want to live, or the damage done when the most desirable neighborhoods essentially cap their populations, letting the government play economic segregationist to the detriment of the vast majority of the people it’s meant to serve.

        Color me skeptical about the “no growth in Cabrini-Green or South Loop without restrictions in the Gold Coast” theory. Do you really think the tens of thousands of units of housing built in the central area since 2000 would all have fit in the small areas that were already gentrified then? Moreover, as you point out, building more housing increases the value of each acre of land by making it even more desirable to live close to the dense, amenity- and job-rich nodes, so allowing more growth would most likely have attracted even more population and capital flows into the center city than we saw. They may have been somewhat more geographically concentrated, but I don’t know by how much. Moreover, I don’t think that it’s appropriate planning to “rejuvenate” neighborhoods by forcing people out of other ones, especially when the restrictions on growth in those rejuvenating neighborhoods mean that they’re going to end up resegregating as wealthy enclaves anyway.

        Sure, there are political realities. I don’t think your job (if you work as a city planner) is necessarily to be shouting back at residents who want less density, and you don’t have to apologize for not doing that. I think rather it’s the job of politicians to craft laws that give weight to compelling public interests, like affordable housing and population growth, as well as the desires of certain local constituencies. And it’s the job of citizens who care about those public interests to organize to make sure that politicians do so.

      5. “General desires” do not determine how housing decisions are made. Housing’s far from a commodity; housing transactions are rather sticky and quite particular to space and time.

        There’s not a linear relationship with regard to density and the benefits of agglomeration — however, those upper boundaries aren’t well studied because they exist in so few places. Congestion does impose an increasing cost at higher densities, and dealing with congestion does impose a higher marginal cost at higher densities. I think that it is appropriate for planning to push development near underutilized public infrastructure — to encourage development near an empty “L” line instead of building a new one from scratch* — and often “push” works better than “pull” in shaping behavior.

        It’s unknowable whether growth would have gone elsewhere, or continued to pile into a small area. Given the experience with Dearborn Park, though, which returned only a minimal profit in pioneering development in the South Loop, or the continued existence of shovel-ready areas like the United Center parking crater, I’d say that no, there’s not sufficient demand for those areas to spontaneously develop in the absence of demand diverted from elsewhere. Texas cities have fewer development regulations and seem to have seen gentrification arrive later in coming to neglected areas of town, but I don’t know enough about them.

        Also, it’s the politicians who cave first when engaging in hand-to-hand combat with NIMBYs. At least Chicago still has large areas which are comparatively NIMBY-free.

      6. Re: black belt, well yeah, as the saying goes “the best tax is an old tax.” Legislation, including zoning, is inherently conservative; the cost of changing law is high, the cost of doing nothing is “zero.”

  4. in general, i agree that encouraging higher density is a good thing, especially in desirable neighborhoods. however, what there is another goal in mind with the current setup?

    you seem to think the people who cannot live in the desired neighborhood end up not living in the city at all. I would submit that many of them move to the edge of that neighborhood, or possibly the next one down their list.

    in this way, i think that bucktown became “nice” and then when housing units became scarce/more expensive, this carried over into wicker park, then west town.

    the same could be said about the parts of lincoln park considered to be “nice” now compared to a smaller core in the 1990s.

    i would submit that, possibly, the city’s strategy is to gentrify multiple neighborhoods before densify-ing a few gentrified neighborhoods

  5. Chicago needs to do a transect study and then a form based code. That’s the only way to truly gauge where courtyard apts and mid rises are appropriate to mix in with single family, which quite possible could be everywhere. Keep in mind that restrictive limitations on multifamily construction in single family areas is another form of redlining or exclusionary zoning and may be made illegal by HUD in the near future.

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