Housing boom puts Chicago area out of reach of many low-income buyers | New
It wasn’t that long ago that the Chicago area was one of the biggest markets in the country where a low-income family could afford a low-cost home.
But after the price spike during the COVID-19 pandemic, even the cheapest homes have become out of reach for many low-income households, according to a recent report from the Joint Center for Housing Studies at Harvard University.
The report showed that many potential first-time buyers are no longer owners. The effects of this could spill over into the rental market and into what were once more accessible neighborhoods and suburbs of the city, real estate and lending professionals said.
âI think it changes the fabric of communities in many ways,â said John LeTourneau, president of the suburban Mainstreet Organization of Realtors.
The report also highlights one way the housing market boom has exacerbated Chicago’s affordable housing shortage. The city was already grappling with a shortage of nearly 120,000 affordable units before prices skyrocketed in 2021, according to a 2020 city task force.
Harvard research analyst Raheem Hanifa used data from the US Census Bureau and online real estate listing site Zillow to analyze home income and prices in the 100 largest metropolitan areas in the United States.
He found in the Chicago area that a buyer earning between 50% and 80% of the area’s median income could afford a home for $ 201,664.
In June 2020, a home slightly below the median price was comfortably in that range, selling for $ 196,450, Hanifa found.
But a year later, a home that was 80% of the median price would sell for $ 220,562, meaning even low-cost homes were no longer affordable for low-income buyers.
The loss of affordability was not limited to Chicago. Hanifa found that low-income families could afford a home in just 20 of the country’s 100 largest metropolitan areas in 2021, up from 39 the year before.
âWe’re seeing fewer and fewer of these really large metropolitan business centers that are affordable,â Hanifa said. “And Chicago was one of the last to be on that list.”
In all of the largest cities, 13.4 million likely first-time buyers were overpriced, he found.
Price increases accelerated as the housing market took off during the pandemic, but house prices nationwide were rising years before, Hanifa said. The supply of homes for sale was low, as a huge influx of millennial home buyers began to look to buy. And incomes haven’t grown as fast as prices, he said.
But pricing is just one hurdle that the booming market has thrown in front of potential buyers. Buyers like Latosha Barnes-Henderson, 49, and her husband have also had to find neighborhoods where property taxes weren’t prohibitive and deal with student loan debts.
Barnes-Henderson’s youngest child was in college and the landlord was raising the rent on their house in Matteson, so she and her husband, Kevin Henderson, decided it was time to buy. They were looking for a house between $ 250,000 and $ 300,000.
The two had previously owned a property, but Barnes-Henderson said she was shocked when she entered the southern suburban housing market in June and encountered offers for homes at times $ 30,000 at – above the asking price.
âIt was like a big war here,â Barnes-Henderson said.
And in addition to competing, she had past credit issues that had been resolved, but kept her score lower than desired. Her student loan debt was taking its toll on her credit, she said. She and her husband worked with Neighborhood Lending Services, an affiliate of the nonprofit Neighborhood Housing Services, which helped them navigate the mortgage situation and process, she said.
They were outbid six times before they found a 4 bedroom, 2 Â½ bath home in the suburb of Country Club Hills, Ill. With a spacious kitchen and fenced yard for the two Henderson Corsos. She said other potential buyers had visited the home, but their offer of about $ 5,000 above demand – which was still in their price bracket – was accepted.
Their situation is probably playing out in other places as well. In some neighborhoods on Chicago’s south and west sides, competition for homes under $ 300,000 is fierce and prices have risen sharply, said David Kottman, director of loans for Neighborhood Lending Services. And even when buyers can secure homes, they often need work.
The buzzing real estate market has had a ripple effect on neighborhoods such as Garfield Park, Humboldt Park and Belmont Cragin, he said. As buyers have been excluded from the more expensive neighborhoods, they begin to look to low- and middle-income neighborhoods where they can bid rather than ask. Then the residents of these neighborhoods cannot afford the homes for sale.
Unable to buy homes, more and more people are likely to stay in rentals, pushing up rental prices, he said.
Where there is affordable housing, it is often on the fringes of the suburbs where land is cheaper, which keeps costs lower, LeTourneau said. But it’s not always near jobs or grocery stores.
Home inventory was low during the pandemic, and high construction and labor prices kept small home builders out of the market, he said. When new starter homes are built, they often come from large developers, who then retain the rental of the units, he said.
âIt’s like this vicious loop,â he said.
Historically low interest rates were not enough to solve the problem. Without homes to buy, the cost of borrowing didn’t matter, he said.
There is no one-size-fits-all solution, but changing the zoning to allow for denser housing in some areas could help, LeTourneau said.
Encouraging buyers to consider properties in need of rehabilitation, as well as some type of federal purchase and rehabilitation loan to finance them, can also open up options for buyers, Kottman said. The same is true of measures that encourage first-time homebuyers to consider Chicago two- and three-unit apartments, where additional rental units can provide homeowners with another source of income.
Hanifa, the research analyst, said it was about investing in more affordable housing and programs such as down payment assistance, which can help preserve affordability for those on the market. point of losing their price. But they have to come quickly.
âWe’re going to see fewer and fewer places that people can afford,â he said. “And it’s creeping up towards middle incomes and people who are higher in the future.”