It Came From City Hall: Chicago’s Affordability Crisis

By: Andy Friedman

Chicago is grappling with a rapidly escalating affordability crisis.  The latest proposed multifamily right of first refusal is the exact wrong way to fix it.

As a Denver native that moved to Chicago long ago, I always marveled at how the city was not only magnificent, but also convenient, charming, diverse, full of pride, and more importantly, very affordable.  Living in Chicago felt like having secret knowledge—getting to live in a city with as much if not more to offer than most other big cities in the country at half the rent.  In 2024, Chicago made the median rent top-10 list in the country for the first time.  Given the current demand-supply dynamic in the city, we aren’t going to be slipping down that list anytime soon.

Chicago has a disjointed approach to solving this crisis.  On one hand, there are the mega-developments—Foundry Park (formerly Lincoln Yards), The 78 in South Loop/Chinatown, Michael Reese in Bronzeville, and The 1901 Project around the United Center.   These are difference-makers but take years if not decades to come to fruition.  The 20 permitted but not yet funded high-rises in Fulton Market are all individual projects but taken together represent another mega development.  Any one of these developments or sites may or may not ever happen.

Another solution to the problem is mid-sized, 20-100 unit neighborhood buildings.  Most of these require zoning changes which means multiple Alderperson meetings, pacifying neighborhood groups, and navigating city red tape.  Most of these buildings are five stories or less, making them financially feasible (6 stories or more requires different code and much higher expense) and much more certain of execution than a high-rise project.  There is actually very good activity in this space, although in a city with 2.7 million residents, it takes a lot of these to make a dent.

On the other hand you have the Northwest Side Housing Preservation Ordinance, which has now spawned the Jackson Park Tenant Opportunity to Purchase Act.  You have talk of rent control.  You have talk of a mansion tax.   There is a meaningful facet of government that thinks if you can somehow freeze everything in time that all the problems will go away.

Why do we have so many permitted development sites that would deliver meaningful supply to the city yet the sites sit idle?  The 20% affordable requirement is the biggest culprit.  These units take in less rent than the cost to run them and destroy investment returns.  The AHSAP tax break is a fantastic program and something the city actually did well, but it’s not enough to overcome the rental income lost.  The next culprit is anti-development politicians.  Again, reference our recent tenant-right-to-purchase ordinances.  Tenants are already free to purchase the building they live in.  Otherwise, those ordinances serve only to make a building sale much more difficult, time consuming and expensive, which is most likely the true motivation behind them.  Chicago sends a message to the world that it doesn’t want your investment dollars.  Hard to fund a high-rise much less a mega-development when you perceive a bullseye on your back.

What I have written above is not novel.  I read similar thoughts from others on a daily basis.  My personal eye-opener was a recent trip to Nashville.  I stayed in an area called The Gulch.  This area is a developer playground—new buildings everywhere.   You want to build an apartment building there?  You can probably start construction next week.   Thousands of new units, new retail, new streets and sidewalks, great landscaping, absolutely gorgeous.  As I walked through it on my first day, the broker in me had to go on Apartments.com to look at rents.  Brand new, large one-bed units for $2,300-$2,400.  In Chicago they would be $3000 to $3500.   The kicker, however, as I went to each building’s website was the fact that they are all offering two and three month concessions.  There’s a ton of supply and prices have not only been restrained—they have decreased, and in an area with major population growth.  Same story has played out in Denver and Austin.  Booming cities where rent spikes encouraged a glut of supply and rents increases were reversed.  It’s real-world evidence of what we learned in Econ 101—increasing supply creates downward pressure on price.

Chicago has one solution and only one solution—build.  We need more residential units and we need tens of thousands of them.  We need rent growth to be curtailed.  We need affordability across the spectrum.  We need the increased property tax revenue.  This will not be solved by the ability to add a granny flat or ADU.  This will certainly not be solved by draconian anti-landlord ordinances.  This problem requires steps that may seem drastic but are commonplace elsewhere in the country.  Make it easy to build.  The easier Chicago makes it to add supply the sooner all of these problems are solved.  There is no other way.