MARKET BREAKDOWN
REGIONAL SPOTLIGHT: CHICAGO
CHICAGO IS HOME TO...
Over 225 miles of bike lanes and more than 13,000 bike racks
28 CTA bus routes and 8 train routes serving 146 stations
26 miles of lakefront with an 18.5-mile lakefront path
119 hotels with 39,000+ hotel rooms in the Central Business District
56 museums
Over 30 downtown and neighborhood parades
5 citywide music festivals, nearly 50 neighborhood music festivals and 35 neighborhood food festivals
77 community areas containing more than 100 neighborhoods
Over 5,195 restaurants
An estimated 2.7M residents
Over 3,000 bikes and 300 stations through Divvy bike sharing system
tially as residents moved away in search of better public schools, more affordable housing, jobs, and public safety. While this might sound bleak at first because it implies a mass exodus of an important population group, a closer read shows that really, what he is saying is simply that a large portion of the population that used to come straight to Chicago is now opting to go elsewhere. Maybe they are picking somewhere less expensive to live or even somewhere warmer! However, the greater issue is not so much that there is an exodus as that fewer people in that specific population are choosing to move to Chicago. The net population loss, while certainly tangible, should be viewed in perspective. It might be better to describe Chica- go’s population shifts this way: who left Illinois in the past year is about 114,000. That is in the whole state, not just Chicago. Many people came into the state as well, so the net loss was about 35,000, or about 0.02 percent of the entire population. As for investing in Chicago in rental properties? According to the U.S. Census Bureau, the number of people
The younger population that was renting from them prefers to take that extra money and spend it on a different type of housing. Over the last five years, single-family rental owners have been able to steadily raise their rents, but now, the market is starting to stabilize. While stability can be a good thing, it can be hard on landlords accustomed to regular rental rate increases. Of course, we cannot discuss rising rents without addressing another serious topic in the Chicago housing market dis- cussion: housing affordability. The stan- dard definition of an affordable housing market is one in which median household income will allow ownership of a medi- an-priced home or permit a household to rent a median-priced rental unit. More complicated measures factor in cost of liv- ing, transportation and commuter costs, and sometimes even healthcare. Traditionally, Chicago has ranked relatively well on lists of major metropol- itan areas when it comes to affordability. The cost of living in the Windy City is nearly 20 percent less than in New York City, for example. However, according to a study from Zillow, the lowest third of Chicago tenants spend nearly two-thirds of their income on rent, as they do in most of the country’s major metro areas. Recent rises in rental rates are due, in part, to foreign investor presence in the
city. According to Realtor.com, Chicago ranked 16th for searches by interna- tional home buyers, far behind “coastal and warm weather cities.” However, analysts noted, Illinois as a whole, tied with three other states (Georgia, New York, and North Carolina) for sixth- most purchases in the United States by international buyers. The bigger factor in diminishing af- fordability, local investors say, is the slow disappearance of a Chicago tradition, the two-flat and its relatives, the three- flat and the four-to-10-flat. A two-flat is similar to a duplex, but it is multileveled with a staircase going to the second and possibly third floors. Historically, each floor would belong to a different family and these units tended to be very afford- able for lower-income families. A lot of mom-and-pop landlords would live on the lowest level and rent the two upper levels, creating a great second income. Today, however, more and more of these buildings are either falling behind on local building codes and ending up vacant, which attracts crime, or affluent individu- als purchase the entire building and turn it into a luxury home instead of having three separate living spaces. This raises the median cost of renting or owning while reducing available housing inventory. “Real estate prices have spiked in Chica- go with a migration of affordable housing
from urban areas to the suburbs,” observed Chicago’s director of the Preservation Compact, Stacie Young. The Preservation Compact was formed in 2007 to bring public, private and nonprofit leaders in Chicago to preserve affordable multifam- ily rental housing in Cook County and recently initiated a $26 million pool to help investors redevelop duplexes, triplexes, and quadplexes as affordable rentals. Young said higher-income renters, who tend to be young professionals, make up about a third of all renters in Chicago, but that a decline in housing availability at all price points is reducing everyone’s options. Chicago is known by the two-flat as much as stuffed pizza, but what we are seeing today in this sector are tear- downs, foreclosures in low-income ar- eas, and conversion to multilevel homes in affluent areas. The two-flat has been a stepping stone for the middle class and [provided much-needed] housing stock for afford- able family living,” Young added, calling the loss of the buildings “alarming.”
oblivion (it probably won’t) or even if the local population swells or shrinks (within the bounds of reason). For local investors, the question is very sim- ple: Will major corporations continue to build, expand, and relocate in the Chicago metro area? If they do, then the rest of these issues, with the possible exception of the state’s pension fiasco, should largely take care of themselves. The city of Chicago is well aware of this vital issue and spends a great deal of time, money, and other resources promoting itself and its residents as the unique, valu- able resources they are. If businesses come into the area, the jobs, the people, and the taxes will follow. At present, Chicago trends indicate there is, as Yun said, big potential for the city’s housing market in 2018. The question is whether that poten- tial will cause the market to sink or soar. Chicago area real estate investors can hedge their bets in the “soaring” direction by watching incoming economic boosters, monitoring localized policies and politics, and always having multiple, workable investment strategies waiting in the wings for every property. • Linda Liberatore is the founder and CEO of Secure Pay One and a Think Realty Coach. She may be reached at lindal@securepay- one.com, and her coaching materials may be viewed online at https:/ thinkrealty.com/coaches.
Well, people always need a place to live. Chicago still has more than 2.5 million people within its boundaries. Successful investors in Chicago lever- age its relatively lower-cost housing (com- pared to other major cities in the United States) and knowledge of local trends and market movements to reach those mil- lions of potential renters and buyers. tions’ purchasing options and housing preferences is vital to succeeding in the somewhat-tough Chicago market. For example, many investors have historically preferred owning properties on the south side of the city, where they were attract- ing 20-something tenants getting their first jobs. Now, however, that population is more likely to desire a residence in a high-rise unit in the city with a beauti- ful rooftop view. Builders in the city are happy to accommodate such a desire and charge hefty prices to fulfill demand. This shift in preference is causing many older landlords in the city a bit of frustration simply because these landlords are no longer able to charge the competitive rents they were prior. WON’T YOU BE MY NEIGHBOR? Understanding incoming popula-
WILL CHICAGO SINK OR SWIM IN 2018?
For local investors with a finger on the true pulse of the local real estate, the real concern is not so much whether the state will tax its homeowners into
46 | think realty magazine :: january 2018
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