Red Tape, Low Demand Blamed for Slow Chicago Homebuilding

Chicago is bringing up the rear in new home construction among the country’s 10 largest metro areas, a result of slow population growth, heavy regulation and long-standing industry frustration, Crain’s reported.

Municipalities across the Chicago area issued just 4.5 permits for new homes per 1,000 existing housing units last year, according to Construction Coverage. That’s less than half the national average, which is 10.1 permits per 1,000, and ranks Chicago last among the country’s largest markets. Dallas led the pack with 22.2 new homes per 1,000 units, nearly five times Chicago’s rate.

The city’s underbuilding streak isn’t new. Before the 2007 recession, Chicago averaged about 25,000 housing starts a year, similar to other top metros. Last year’s total was 18,064. Builders and brokers cite regulatory hurdles, tepid demand growth and unfavorable economics compared to peer cities.

“What you have to go through to build can be so prohibitive,” said Jason O’Beirne, a broker with Jameson Sotheby’s International Real Estate. He pointed to outdated zoning and slow rezoning processes as obstacles.

Another agent described working in suburban Michigan, which, compared to Illinois, had far fewer demands and where inspectors “just showed up and put a sticker on the window.”

Even when projects succeed, it takes extra stamina. Jeff Benach of Lexington Homes said national builders are largely uninterested in the Chicago region because they “can do so much better in other cities.”

Chicago’s population stagnation doesn’t help. The metro grew just 1.4 percent in the 2010s, and while more recent Census data shows a slight uptick, the long-term trend limits urgency for real estate development. If existing stock can meet demand, builders say there’s little incentive to take on local barriers.

Gov. J.B. Pritzker has introduced legislation to ease zoning and permitting statewide, including support for accessory dwelling units and smaller lot sizes. But few major changes have passed.

Home prices in the region are rising at four times the national pace, and inventory is far below pre-pandemic levels, making for a supply-and-demand mismatch.

— Judah Duke