December 10, 2018

Balanced Housing Markets And Declining Homeownership in Downtown Chicago

Map illustrating the boundaries of the 10 regions defined by HUD and their included states.The sales market in downtown Chicago HMA is balanced with an estimated sales vacancy rate of 1.8 percent while the rental housing market is balanced with an estimated vacancy rate of 6 percent.

HUD’s Comprehensive Housing Market Analyses provide information on changes in local economies, housing markets, and populations and provide 3-year forecasts for demand in the area. This article is part of a series that sheds light on the content of these analyses.

The Downtown Chicago Housing Market Area (HMA) is part of Cook County, Illinois, which is the central county of the Chicago-Naperville-Elgin, IL-IN-WI Metropolitan Statistical Area. Downtown Chicago includes the neighborhoods of The Loop, Near West Side, Near South Side, and Near North Side. Downtown Chicago is a center for technology, finance, and health care and is home to the corporate headquarters of many major companies.

Downtown Chicago’s population is estimated at 255,100, or approximately 5 percent of the nearly 5.18 million residents of Cook County. Net inmigration has accounted for more than 80 percent of Downtown Chicago’s population growth despite overall net outmigration in Cook County.

A recent Comprehensive Housing Market Analysis on Downtown Chicago highlighted the economic and housing market activity in the area.

Homeownership in the area is declining
Downtown Chicago typically has had a lower homeownership rate than the rest of Cook County. Since 2010, the homeownership rate in Downtown Chicago has declined to 38.5 percent compared with 55.5 percent in Cook County as a whole. The report attributes the declining homeownership rate in Downtown Chicago to household preferences and rising foreign-born and student populations.

A balanced sales market amid slowed condominium construction and increased sales prices
The sales market in Downtown Chicago is balanced, with an estimated sales vacancy rate of 1.8 percent. The analysis attributes the improved conditions in the sales market to population growth and limited condominium construction.

Condominiums make up most of the home sales in Downtown Chicago, where approximately 76 percent of housing units are in buildings with 50 or more units. Since 2013, the area has averaged 250 new condominium sales annually.

Approximately 65 percent of new home sales over the past year were condominiums, and the average new condominium sales price was $1.44 million, up significantly from $758,200 a year earlier. Much of the new condominium construction in Downtown Chicago consists of higher-priced boutique properties.

Despite the rise in sales prices, builders have not increased condominium construction. Approximately 2,900 units were permitted over the past year, a decline of more than a 50 percent from the previous year. Builders in Downtown Chicago are developing new rental housing instead of condominiums.

During the next 3 years, demand is expected for 3,350 new homes in Downtown Chicago. Condominiums are expected to make up more than 95 percent of home construction in the HMA. The 1,000 homes currently under construction will meet a portion of this demand.

High net inmigration and high student population yield a balanced rental housing market
The rental housing market in Downtown Chicago is balanced, with an estimated vacancy rate of 6 percent. Approximately 82 percent of renter households live in multifamily buildings with 20 or more units. Strong demand for apartment units because of increased net inmigration contributed to rent growth and declining vacancy rates. Over the past year, apartment completions totaled 4,400 units, the highest number since before 2000.

Student housing makes up an estimated 15 percent of renter households in the HMA. Approximately 58,000 students are enrolled in area schools, and 44,350 of those students live off campus.

During the next 3 years, demand is expected for 8,075 new market-rate rental units. Please see the recent Comprehensive Housing Market Analysis for more detailed information on economic and housing activity in Downtown Chicago.

 
 
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