Illinois must build 227,000 units in 5 years to keep up with housing demand, report finds

Miami Herald

13 hours ago

Illinois has a shortage of about 142,000 housing units and must build 227,000 in the next five years to keep pace with demand, a number that would require recent annual production rates to double, according to a new economic study.
The joint study published Tuesday by the Illinois Economic Policy Institute and the Project for Middle Class Renewal at the University of Illinois Urbana-Champaign found that although the rental and for-sale housing markets in Chicago and Illinois as a whole remain more affordable than many coastal cities, such as New York and Los Angeles, and some other states, Illinois still faces a severe housing shortage that is escalating affordability challenges.
National housing shortage estimates are wide-ranging, with Freddie Mac citing 3.7 million and the National Association of Realtors reporting 5.5 million.
"Prosperity and economic growth require people not only working, but then investing in their communities," said report co-author Robert Bruno, a professor of labor and employment relations at the U. of I. and director of the Project for Middle Class Renewal. "A key asset is having a place to live. And there are multiple ways that you can provide that housing … and Illinois could be doing a better job."
The researchers, who analyzed U.S. Census Bureau data, found that housing demand in Illinois has been fueled by numerous factors, including rising incomes, robust employment and population growth and higher rates of homeownership compared to the national average.
Meanwhile, in the past five years, the report found that new home listings dropped by 64%, new housing construction permits fell by an average of 13% and the state's vacancy rate for both rental and owner-occupied units reached historic lows. Home values have gone up 37% in the state since 2019, the report found, with insurance and property taxes also rising.
Rent prices in Chicago show no signs of easing either. In May, rents in Chicago increased 2% compared with 0.4% nationally, which was the second-fastest month-over-month rent growth of the nation's largest 100 cities, according to Apartment List. The city's year-over-year rent growth stands at 5%, landing it in fourth place for fastest growth among the nation's 100 largest cities.
The real estate market for for-sale homes has been experiencing significant housing inventory challenges in recent years because of higher mortgage rates, keeping prices elevated and would-be homebuyers renting for longer.
The report also found that investors have been icing out everyday homebuyers by snatching up homes with all-cash offers in the Chicago area, with the investor-owned share of the housing market increasing from 8% in 2010 to 14% in 2023. Red tape, such as zoning laws and minimum parking requirements, have limited new construction as well.
While Mayor Brandon Johnson and Gov. JB Pritzker have touted housing availability and affordability as key concerns and priorities of their administrations, the task to overcome the city and state housing shortages has become a heftier one.
Land can be scarce; bureaucratic red tape that impedes construction can be abundant; building material costs are high and potentially are getting higher with President Donald Trump's constantly evolving trade wars; and local, state and federal funds available to subsidize the burgeoning development costs are getting more limited in some instances because of fiscal challenges, issues that are exacerbated by a federal government that is eager to use far-reaching powers to control state and institutional purse strings and is focused on axing spending.
The report comes as Johnson has made significant investments in an effort to mitigate the shortage, while the state recently reduced the amount of budgetary funds that go toward housing for the 2026 fiscal year beginning July 1 by more than $26 million, a roughly 9% decrease. The reduction in funds hit as area housing groups who rely on city, state and federal dollars are already struggling to provide subsidized housing to some of the lowest income residents in the state as they are facing multimillion-dollar budget shortfalls.
About a year ago, Johnson launched the Cut the Tape initiative which aims to reduce the bureaucratic red tape to speed up housing development and, in turn, reduce costs; affordable housing developers say they are still awaiting tangible changes resulting from this initiative. The Johnson administration recently created two new programs to build "green social housing" and "missing middle" housing as well.
The former seeks to create mixed-income rental buildings that are built to certain energy efficiency and decarbonization standards and in which at least 30% of the units are affordable. The city would own a majority stake in the buildings, a first-of-its-kind role for Chicago. The latter allows investors to buy city-owned lots for $1 each and receive up to $150,000 per unit to subsidize construction costs. The goal of the missing middle program is to build low-cost, for-sale homes on the South and West sides, potentially reversing a decades-long population decline in disinvested communities.
Johnson has said one of his top goals as mayor is to make Chicago the "safest, most affordable city in America," and has cited an uptick in tourism, downtown hotel occupancy and annual census numbers as proof of results.
The green social housing program is expected to be seeded with $135 million and the missing middle program comes with $75 million, with the dollars coming from the city's $1.25 billion housing and economic development bond.
"It is good to have the commitment, great to have the dollars invested," Bruno told the Tribune, "but then what knot do you have to untie … so that you can start really building more affordable housing?"
An ordinance allowing for more accessory dwelling units, which are independent residential units on the same lot as a home, has stalled for over a year, with aldermen in the bungalow belts resisting because they are worried about density in their single-family home neighborhoods.
How can Chicago and Illinois lawmakers address the housing shortage and affordability challenges? The authors suggest a variety of solutions, some of which Chicago officials and other state leaders are already working on, including easing zoning restrictions, quickening permitting processes, offering tax incentives to convert commercial buildings to residential units and increasing surtaxes on short-term rentals such as Airbnb. Aldermen recently took a step toward giving themselves the power to ban Airbnb and other short-term rentals from opening in their wards, a move that could potentially lead to an increase in housing supply.
"While policymakers in Illinois cannot dictate national mortgage rates or tariffs on imported lumber and steel, they can take action to reduce barriers for prospective buyers, renters and developers," said report co-author Frank Manzo, an economist at the Illinois Economic Policy Institute, a La Grange-based nonpartisan research organization.
"And the data certainly argues in favor of policy changes that boost supply in order to improve affordability."
(Chicago Tribune's Alice Yin and Jake Sheridan contributed.)
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