By Dennis Rodkin

Crain’s Chicago Business

August 17, 2017

2017.08.17 Chicago lags in homebuilding rebound-PICTUREChicago lags behind most major US cities on construction of new housing, and a key culprit may be the region’s population loss.

In the Chicago area, building permits for all types of housing, for sale and for rent, will end the year 20 percent below the region’s historical average, according to a report released Wednesday by Trulia, an online real estate resource. Only three of the nation’s 20 largest metro areas will end the year farther below their averages: San Diego (29.2 percent off), St. Louis (33 percent) and Cleveland (35 percent).

Although Chicago is doing fairly well on three key factors that drive growth in homebuilding—employment, income and home prices—”we see an important problem in Chicago,” said Ralph McLaughlin, Trulia’s chief economist. “Chicago is losing population. That’s not a good prospect for people who are building homes.”

In the simplest sense, the two-year net loss of 30,894 people adds thousands of existing residential units to the supply, dampening demand for new units.

“With the outmigration, you’re seeing the demand for new homes diminish,” said Tracy Cross, head of the Schaumburg-based firm Tracy Cross & Associates, which tracks homebuilding in the region. He was not involved in Trulia’s study.

Trulia calculated a historical average for each metropolitan area using census data on building permits each year from 1980 through 2016 (a stretch that contains both boom and bust years), as well as its own projected total for this year. The Chicago area’s longterm average was about 20,600 permits, and Trulia forecasts builders taking out about 16,480 permits by the end of this year.

While Chicago is 20 percent below its average this year, Trulia expects three cities to take out at least 60 percent more permits than the longterm average. They are Philadelphia (62.3 percent) and Boston and Dallas (both 61 percent).

Because the Trulia analysis looks at construction of all types of housing, it masks the extreme weakness in construction of new houses in the Chicago area. While permits for that type of housing are off the historical average by more than 60 percent, he noted, because of the downtown apartment-building boom, permits for multifamily housing are up by a similar amount.

The net is a decrease in permits overall, but McLaughlin called the big increase in multifamily construction “the silver lining for Chicago.” It’s a response to increased demand for high-rise rentals, a sign of a thriving job market for younger adults, he said. San Francisco, New York and Austin have also seen large increases in the construction of multifamily units near the city center, he said. Builders “have followed the demand downtown,” Cross said.

He’s not surprised that the new construction in Chicago tilts heavily toward rentals. Savvy millennials, he said, “aren’t going to buy yet, because they need their mobility. They may have to move again,” and slow price growth in the Chicago area’s for-sale housing market could limit their ability to sell the property in a few years without taking a loss.

 

 

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