Dennis Rodkin

Crain’s Chicago Business

August 13, 2018















Little Realty
 A newly built house on Dublin Lane in Plainfield.

Building activity came to a near-standstill when the housing market collapsed, and now, a decade later, years of underbuilding have left a big gap of homes missing from housing stock.

Thanks to a decade-long slowdown in homebuilding, the Chicago area is lacking almost a quarter of a million new homes, according to a new report.

If builders’ pace since the downturn had stayed the same as it was in the relatively healthy years 1985 to 2000, the Chicago area would have about 227,300 more new houses than it has, according to a study released this morning by Zillow.

Nationwide, the past decade’s cumulative new-home construction gap is about 6.3 million. That helps explain the super-tight inventory that has been plaguing the real estate market for a few years, according to Aaron Terrazas, senior economist at Zillow.

“Building activity came to a near-standstill when the housing market collapsed,” Terrazas said in a statement, “and now a decade later, years of underbuilding have left a gap of millions of homes missing from the American housing stock.”

On a national level, builders of single-family homes took out, on average, 3.9 new-home permits per 1,000 residents in the years 1985 through 2000, compared to 1.9 permits per 1,000 residents from 2008 through the present. (The years between 2000 and 2008 are excluded because they include the rapidly rising figures of the boom years.)

Chicago was not far behind the national average in 1985 through 2000, with 3.1 permits per 1,000 residents, but in the years since the boom, Chicago builders have trailed the national average, taking out 0.7 permits per 1,000 residents, according to Zillow.

At 0.7 permits per 1,000 residents, Chicago is building new homes at a slower pace than nearly any other major U.S. city. Only Los Angeles and New York have a slower pace, both at 0.5 permits per 1,000, but much of those regions’ new housing is built in neighboring metro areas, including Riverside, Calif., to the east of Los Angeles, and outlying parts of New York and New Jersey.

Being off-pace isn’t necessarily a negative, given Chicago’s other struggles, such as population loss and low employment growth, said Erik Doersching, executive vice president at Schaumburg-based Tracy Cross Associates, a consultant to homebuilders.

“If we had built that quarter of a million homes, we wouldn’t have been able to absorb them,” Doersching said. Employment in the Chicago area is about 133,000 jobs ahead of its pre-crash peak, and typically two jobs equals demand for one new home. On top of that, employment and people’s preferences have shifted back toward downtown Chicago, which would reduce the demand for new single-family houses further, Doersching said.

“Certainly we could be, and we should be, building more new homes,” he said, “but a quarter of a million more in 10 years wouldn’t be sustainable.”

Last week, Cross issued a midyear report on Chicago-area sales of new homes, in which Doersching noted that there are few subdivisions or developments of 10 homes or more underway this year than at any time since 1999, when the firm began counting. In the years before the boom, there were typically about 700 subdivisions being built at any given time. This year there are 272.

In Plainfield, a far southwest suburb that was a beneficiary of the early-2000s boom in new homes, “building permit activity is about one-eighth or one-tenth what it was in our peak years,” said Jonathan Proulx, Plainfield’s director of planning. At the peak in 2006 and 2007, Proulx said, builders took out permits to build about 1,500 single-family homes a year, “and now we’re in the 150 to 200 range.”

Like Doersching, Proulx said that a return to the peak pace isn’t a desirable goal. Services such as schools, police and road maintenance “struggled to keep up with that explosive pace of growth,” he said. Most new-home projects now are in in-fill locations within Plainfield’s existing footprint, he said, “not on green fields or leapfrogging out,” which makes the growth of services “more efficient.”

Zillow found that only one major U.S. city has been building new homes faster after the bust than in the stable late 20th century: Houston. Between 1985 and 2000, builders took out an average of 3.6 new-home permits per 1,000 residents each year, and between 2008 and the present, they’ve increased that to 4.9 per 1,000.

Chicago’s slowdown of 2.1 percentage points from pre-boom to post-boom is not the steepest drop. Las Vegas’s pace is off by more than 11 percentage points, and several other cities—Atlanta, Orlando, Phoenix, Riverside and Sacramento—are off by more than 5 percentage points.

In the raw number of homes that haven’t been built, Chicago is sixth. Atlanta’s change of pace has resulted in about 407,000 single-family homes going unbuilt in the years since 2008.


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