Not so long ago, the Chicago area was one of the biggest markets in the country where a low-income family could afford a home on the cheap.
But after prices spiked during the COVID-19 pandemic, even the cheapest homes became out of reach for many low-income households, according to a recent report from Harvard University’s Joint Center for Housing Studies.
The report showed that many likely first-time home buyers are locked out of home ownership. The effects of that could ripple through the rental market and what were once more accessible neighborhoods and suburbs of the city, real estate and lending professionals said.
“It changes, I think, the fabric of communities in many ways,” 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 struggling with a shortage of nearly 120,000 affordable homes before prices spiked in 2021, according to a 2020 city task force.
Harvard research analyst Raheem Hanifa used data from the US Census Bureau and online housing listing site Zillow to analyze incomes and housing prices in the 100 largest metropolitan areas in the United States.
He found that in the Chicago area, a homebuyer 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 within 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 the cheapest homes were no longer affordable for low-income buyers.
The loss of affordability has not been 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, down from 39 the previous year.
“We’re seeing less and less of these really big metropolitan business places that are affordable,” Hanifa said. “And Chicago was one of the last to make that list.”
Across all major cities, 13.4 million likely first-time home buyers have been priced out, he found.
Price increases accelerated as the housing market took off during the pandemic, but nationwide home prices were rising years before, Hanifa said. The supply of homes for sale has been low, as a massive influx of millennial buyers have begun looking to buy. And revenues haven’t grown as fast as prices, he said.
But prices are just one of the obstacles the booming market has thrown in front of potential buyers. Buyers such as Latosha Barnes-Henderson, 49, and her husband also had to find neighborhoods where property taxes weren’t prohibitive and deal with student loan debt.
Barnes-Henderson’s youngest child was in college and the landlord was raising the rent on their home 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.
Both previously owned property, but Barnes-Henderson said she was shocked when she entered the southern suburbs housing market in June and encountered offers on homes that were sometimes $30,000 above the asking price.
“It was like a big war here,” Barnes-Henderson said.
And on top of the competition, she had previous credit issues that had been resolved, but she kept her score lower than desired. Her student loan debt was impacting 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 outbid six times before finding a 4-bedroom, 2-bathroom home in Country Club Hills with a spacious kitchen and a fenced-in yard for Henderson’s two Cane Corsos. She said other potential buyers had viewed the home, but their offer of about $5,000 more than asked — which was still within their price range — was accepted.
Their situation is probably also played out in other places. In some south and west Chicago neighborhoods, 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 their homes, they often need work.
The boiling housing market has had a ripple effect on neighborhoods such as Garfield Park, Humboldt Park and Belmont Cragin, he said. As buyers have been shut out of the more expensive neighborhoods, they are beginning to seek out 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 people are likely to stay in rentals, driving up rental prices, he said.
Where there are affordable homes, they’re often on the outskirts of the suburbs where land is cheaper, keeping costs down, LeTourneau said. But it’s not always close to jobs or groceries.
Home inventory has been low during the pandemic, and high construction and labor prices have kept smaller homebuilders out of the market, he said. When new starter homes are built, they often come from large developers, who then retain unit rentals, he said.
“It’s like this vicious loop,” he said.
Historically low interest rates were not enough to solve the problem. Without homes to buy, the cost of borrowing doesn’t matter, he said.
There’s no one-size-fits-all solution, but changing zoning to allow denser housing in certain areas could help, LeTourneau said.
Encouraging buyers to consider properties that need rehabilitation work, along with some type of federal purchase and rehabilitation loan to finance it, can also open up options for buyers, Kottman said. The same goes for measures that encourage first-time home buyers to consider Chicago’s two- and three-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 who are about to be overpriced. But they must come quickly.
“We’re going to see fewer and fewer places people can afford,” he said. “And that creeps into middle incomes and people who are higher in the future.”