Illinois must double housing output to meet demand by 2030

Illinois has to build twice as fast to stop its housing affordability crisis from getting worse, newly released academic studies have found.

The state faces a projected shortage of roughly 142,000 housing units and will need to more than double its recent construction pace to catch up over the next five years, according to the Illinois Economic Policy Institute and the University of Illinois’ Project for Middle Class Renewal.

The joint study released Tuesday, and first reported by the Chicago Tribune, found that the state must build 227,000 new housing units by 2030 to meet anticipated demand. That’s a tall order in a market where annual new home listings have dropped 64 percent over the past five years and housing permits are down 13 percent on average.

Nationwide housing shortage estimates vary widely, from Freddie Mac’s 3.7 million to the National Association of Realtor’s 5.5 million.

The supply gap is predominantly driven by strong post-pandemic population trends, rising homeownership rates and upward pressure on both home prices and rents. Since 2019, home values across the state have increased 37 percent, while insurance and property taxes have also climbed.

Meanwhile, Chicago posted the second-highest month-over-month rent increase of any major U.S. city in May and now ranks fourth nationally in year-over-year rent growth.

Researchers found a growing share of homes are being taken off the market by investors, with all-cash offers crowding out traditional buyers. The investor share of Chicago’s housing market grew from 8 percent in 2010 to 14 percent in 2023. Zoning restrictions, parking minimums and slow permitting are also limiting new supply.

Mayor Brandon Johnson has rolled out several initiatives to address the issue, including the “Cut the Tape” program to streamline approvals, a $135 million “green social housing” initiative and a $75 million subsidy program for “missing middle” homes on the South and West sides.

Affordable housing developers have options to challenge local government denials for residential projects in cities deemed to be short of meeting state-mandated housing goals, but such channels are rarely, if ever, tested.

Still, critics say tangible results are still limited, and the state’s latest budget reduced housing-related funding by more than $26 million, or 9 percent, further straining the sector.

The report calls for a slate of policy changes, including easing zoning restrictions, offering tax incentives for commercial-to-residential conversions, and cracking down on short-term rentals to free up units. Some aldermen have already taken steps to restrict Airbnb and similar platforms in their wards.

“The data certainly argues in favor of policy changes that boost supply in order to improve affordability,” the study’s co-author Frank Manzo said.

— Judah Duke