One goal of beating the housing supply drum over and over again on this blog is to get to the point where general interest Chicago media outlets understand the relationship between new development and housing prices and explain it to their readers. Which is why I was incredibly excited yesterday to see a headline in Crain’s called “Why Rents Are Rising on the North Side.”
And why are they? Because there’s no new supply in neighborhoods like – surprise, surprise – Lincoln Park and Lakeview!
As more construction cranes sprout in downtown Chicago, they remain rarer in neighborhoods such as Lincoln Park and Lakeview. Stuart Handler likes it that way.
With few apartment developments going up in North Side neighborhoods, landlords like Mr. Handler have more freedom to raise rents than do owners of downtown high-rises, which are starting to feel the impact of a major construction boom that shows few signs of ebbing.
Incidentally, here is Mr. Handler’s photo in Crain’s:
So, um, all the social justice folks who think fighting development equals fighting gentrification, this old white guy in a suit sitting in front of a gold-plated fireplace just wants to say thanks.
Anyway, this is grade-A stuff so far, since it’s pretty rare for mainstream outlets – even business-oriented ones like Crain’s – to so directly make the link between a widespread shortage of housing supply and rising prices. I’ll be even happier when it gets in the Tribune, but I’ll take this for the moment.
But then the author gets to why, exactly, there’s so little supply in the neighborhoods and so much downtown, and it seems like there’s something missing:
Yet construction has been limited in the neighborhoods because it’s hard to find land for big projects, and rents in many places are not high enough to justify a new building, Mr. Kiser says.
In general, rents must hit around $2 per square foot, at a minimum, to justify the cost of a new building. Many existing structures on the North Side aren’t getting that, while downtown apartments are fetching $3 per square foot or more.
It may be true that there are fewer large empty lots in Lincoln Park than there are in, say, the West Loop, but anyone who’s taken a walk around knows that there are more than a handful of empty or dramatically under-utilized spaces. As for the idea that rents aren’t high enough: I’m not a real estate expert, but Zillow reports that the average rental price per square foot is currently at $2.07 in Lincoln Park. A number of other neighborhoods are quite close to an average of $2/sq. ft., which suggests there ought to be a fair number of spots that hit the magic number. Moreover, where huge empty lots have forced the issue of redevelopment – at Children’s Memorial Hospital, for example, or the New City lot near North and Clybourn – private developers have been more than eager to build, and build big.
In any case, it’s remarkable that Crain’s did not see fit to mention, at least in passing, that a notable constraint on adding lots of supply to places like Lincoln Park is that it’s illegal to do so. Or that, unlike downtown, any building over four stories or so is subject to the veto of powerful and wealthy local residents who are opposed to any new development, often explicitly on the grounds that it might promote more affordable housing.
In conclusion: Lots more articles about the link between housing supply and housing prices, please, but don’t ignore the role of zoning next time.