I recently posted about sprawl in its purest form in Cleveland. Cuyahoga County massively expanded its urbanized footprint while the population remained the same.
A couple of recent articles from Crain’s Chicago highlight the same thing happening in that city – with the same results in terms of negative filtering of homes and stagnant to declining housing prices.
Metro Chicago has lost population for the last two years. But a better way to characterize it is stagnant. The population shrinkage is tiny. On the other hand, the growth that came before it was tiny too. Chicago metro grew from about eight million to about nine million people between 1990 and 2000. Yet here we are nearly 20 years later and there’s no sign of ten million, a level that I would assume would be hit at some point, but which is not a slam dunk.
Metro Chicago growth by county. Image via Crain’s Chicago.
Yet despite this stagnation of regional population, exurban communities are starting to expand and grow again. Per Crain’s:
The Chicago area is on its third straight year of population decline, but there is one pocket of growth. The far western edge of the metro area is adding residents again, albeit slowly. You can see it in subdivisions in Kendall County, such as the Grande Reserve in Yorkville, where home construction on tracts of former farmland has restarted.
Kendall County, which was the fastest-growing county in the country before the Great Recession, still leads the way in the Chicago area. The number of residents grew 1.3 percent in 2017, according to the latest estimates from the U.S. Census Bureau.
…
“There’s a reshuffling and shifting going on,” Chicago-based demographic researcher Rob Paral says of the population trends. “Overall, there’s stagnation. You’ve got one major node that’s doing well. This is a problem. It’s not like things are going to crash. There’s just no or slow growth. There’s no reason to think it’s going to change in the near future.”
One reason that growth has ticked up there is that at least some Kendall County communities appear to be handing out housing incentives:
This is what a recovery looks like on a small scale: Yorkville, a town of about 19,000, had 212 housing starts last year, up from 151 in 2016 and 84 in 2015. At the pre-recession peak in 2006, it was about 1,000, says City Administrator Bart Olson. The city primed the reboot with an incentive program, funded by developers and the city, that gave checks of about $10,000 to buyers of new homes. Two-thirds of new residents surveyed say they moved to Yorkville because of it, Olson says. The program, used by more than 400 people in five years, ended in December. “I’m anxious to see what happens,” says Mayor Gary Golinski. “I imagine we’ll see a small decline. But I feel like things are on an upswing.”
What are the results? Another new Crain’s article reveals that Chicagoland has the lowest price appreciation of any major metro in the country last year – even lower than Cleveland and Detroit. Even super-high end suburbs like Lake Forest and Wilmette have seen actual price declines:
If homeowners want to make money on real estate, metro Chicago is not where they want to be. Since the housing market crashed in 2007, home prices here have recovered more slowly than in almost every other urban center. Last year, home values increased nationally 6.3 percent, and they shot up by double-digit rates in two big markets: Seattle (12.7 percent) and Las Vegas (11.1 percent), according to S&P CoreLogic Case-Shiller Indices. Chicago, which has languished near the bottom for years, finished dead last among the 20 largest U.S. cities in 2017, with a 2.6 percent rise. With values increasing at the slowest rate in two years, Chicago was the worst again in January.
The local market also has the nation’s largest number of underwater homes, meaning an owner owed more on the mortgage than the property was worth. At year-end, more than 135,000 Chicago-area homes were underwater, more than the total in New York and Los Angeles combined, CoreLogic reported in March.
Why is Chicago lagging so badly? Economists and others say the key problem is exceptionally slow employment growth, tangled with two issues most Illinois residents are familiar with: population losses and high taxes that are likely to go higher.
“There’s a direct correlation in the declining demand for homes,” says Michael Hicks, an economics professor at Ball State University in Muncie, Ind., who studies the Midwest economy. “It doesn’t take very much outmigration or static population growth to stall home price growth.” That’s in part because each household that moves away essentially adds two units to the Chicago area’s for-sale inventory: the house they put up for sale and the one they didn’t move into.
Hicks hits on the population part of the equation, but new housing construction in a market with a stagnant population means negative filtering of real estate prices, and ultimately abandonment of the least valuable housing. It devalues real estate generally.
The focus of the Crain’s article is on high end real estate. But the most pernicious aspects of this are for working class and minority home ownership. Black homeowners in many of the south suburbs have seen their investments essentially wiped out by price declines, even though they’ve continued to faithfully make payments. This is one factor that drives highly divergent household income levels between blacks and whites.
Again, as Paral notes, you can point to segments of the region that are hot. But these hot pockets are part of an overall metropolitan system. To the extent that there are localized booms on the North Side and Oswego, this only makes other parts of the market even less valuable than they otherwise would be. I believe this is the root of Pete Saunders critique of the Yimby movement to build even more in the hottest areas. Maybe he will chime in with a post with more thoughts.
You left out some crucial elements in the article you posted:
1. Sales in traditional suburban luxury enclaves are slumping in part because more people are buying in downtown Chicago
2. The actual hot area is the central area of the city. Within a 2 mile radius of downtown, about 86,000 residents were added in 15 years (2000-2015). This is not your typical suburban housing tract development oriented around cars—this takes on the form of highrises, midrises, and townhomes. This is dense, walkable development. I’m not aware of another American urban core that experienced this dramatic of a growth, which appears to actually be accelerating.
You can’t have this conversation without acknowledging that there is a significant difference between suburbs adding population, and walkable urban cores growing dramatically. The suburbs are stagnating, but the region is urbanizing.
For the first time since the 1950’s, the core is growing arguable at THE EXPENSE of the suburbs. What’s not to like?
Wouldn’t it be just as accurate to call it ‘Economic growth without Sprawl’, considering that the growth story in Chicago is occurring in the city? If Chicago can pull off creating a professional class hub in central Chicago while off-loading the poor and working classes, it will be an example for many American cities. The danger that resentment of Chicago’s success inspiring Trumpian political retribution is the one unknown it seems to me. Whatever happens, these are the kinds of social and economic transformations that haven’t happened since the 1940s in America.
More accurately, let’s call it what it is: “Metropolitan Economic Growth Without Population Growth”.
Why is it only happening in the third-largest metro in the US and not in the rest of the top 10, which include both “legacy” and “recent growth” metros?
Isn’t Chicago just following the lead of NYC and other coastal metros? Manhattan has been transformed into a playground and meeting place for the global elite in the last 30 years. Chicago is just trying to play the same game.
Chicago has actually had reasonably good job growth the last 15 years, adding about 688,000 jobs. That compares to 612,000 in Salt Lake, 697,000 in Seattle, 496,000 in Charlotte, and 361,000 in Boston. So why isn’t Boston the subject of this article?
There is a difference between job growth and good job growth. Why are housing prices in Seattle rising so much more than in Chicago. It may be that the jobs there pay much more overall. “Growth” can be defined many ways. One way is the average take-home pay.
Are house prices in central Seattle rising faster than house prices in central Chicago.
I’m pretty sure that Boston is about half the size of Chicago, so its numbers are about proportional. Meanwhile, Seattle is a third the size, and Salt Lake and Charlotte are a quarter of the size, so their numbers are huge, proportionally.
Chicago’s metro is not adding people. Those others are.
Perhaps Aaron could share an analysis of the outbound migrants’ destinations. Anecdotally, we “know” in the Midwest that Chicago attracts B1G university grads from all over the Midwest…do those folks go “home” (to their state of origin) or move to bigger cities?
I don’t think you’ve been paying much attention.
Chicago is growing its educated and higher income classes, and exporting its lower income/blue collar classes (net change). By far the largest group leaving Chicago are black families, and generally not highly educated ones (Chicago is gaining those, actually, faster than any other city).
What’s “B1G”?
To Matt’s question about whether housing prices in central city Seattle are increasing more than Chicago’s: I don’t know for sure, but last year Seattle had twice the number of high-rise cranes in the air, mostly for housing construction, than the next American city on the list. Rents here in the central city have skyrocketed, largely due to the number of incoming tech workers, with much of this growth around South Lake Union, which is now a major “innovation district” about a mile north of downtown. Gentrification is a huge issue here, with many people saying they are being pushed out not only by rising rents but rising property taxes, which rise with values. One of the main reasons that Amazon is looking to create an “HQ2” is that housing costs here have risen so quickly that the company is now having difficulty recruiting workers from Silicon Valley, traditionally its major source of labor. With rents high, it must bid more to lure workers who are already here. 15 years ago a number of tech companies like Google came here to steal workers from Microsoft, Expedia and the other resident tech companies. The combination of bidding wars and higher housing costs have pushed up wages relative to other markets.
I don’t think Chicago is “following” any coastal metros. It’s central area growth is staggering. No coastal metro is doing the same. NYC is obviously on another scale and hard to compare to, but I would argue that, at the present rate, Chicago is essentially creating a mini-borough around the core of the city.
Would it look better on paper for Chicago to actually show population growth? Of course it would. But you can’t ignore what’s happening here. Let’s focus less on Kendall County and more on this transformation, which is really the more interesting story.
Isnt’ the difference only a matter of degree? NY and DC have both been transformed into professional class centers in the last 30 years. How is that different from Chicago?
I know there are a lot of people out there who have a distaste for those aren’t rich and educated. But my jaw is dropping in this thread by the people who have an out-and-out hatred for them. Maybe instead of reading Rand’s “Atlas Shrugged,” more people need to read Bob the Angry Flower’s “Atlas Shrugged 2.”
http://angryflower.com/348.html
I’m not sure where you got the tone of “distaste for those not rich”. If you’re going to talk about a region’s prosperity then naturally you are going to talk about wealth and education. Hate gentrification if you want to, but some would view it as a preferable process over widespread disinvestment and abandonment like what we are seeing in Detroit.
I think what Mr. Cook is referring to is economic growth raising the median income, which is indicative of participation by more people in that growth. Other commenters have noted that people are leaving because they have not benefited from/participated in the high-end growth.
Growing the top end population marginally has the effect of raising the average income without significantly budging the median. And at least in terms of the overall metro population, a gain of 86,000 over 15 years on a base of 9 million is marginal…just less than 1%.
I’d wager that Chicago’s median and average incomes diverge significantly. That is not a sign of “gentrification” but of “stratification”.
But even the Crain’s story featured a high end home in Lincoln Park declining 20% in sale price over the last decade. If there is so much high-end demand, why would prices in Lincoln Park be falling?
Where did you get the idea that I should care about the same old lazy metric of metro population, where 90% of that is worthless auto-dependent sprawl? Yay, it’s growing. Should that be what we celebrate?
86k people in half of a 2 mile radius growth in 15 years is indeed a big deal–especially in an American city. It’s a commitment to urbanism. It’s a new city within a city. And no other city is seeing this particular pace of core growth.
And Lincoln Park is doing more than fine. I can’t speak to this one house that was mentioned.
Like it or not, the unit of economic analysis in the US and everywhere else is the metro.
Pretty much every other good-sized US city has also had a 1% or more boomlet downtown over the same period.
While their suburbs grew faster.
This discussion seems to have gotten off-track, perhaps because population and housing demand by itself is not enough to measure the prosperity of an area. After all, you can have a stable population base (not growing and not shrinking) and yet the wealth of an area can be declining. It’s very likey that median real wages in the area have declined, and therefore people can’t afford to pay as much for housing. Is Chicago generally as prosperous as it was 15 years ago? Are schools and transportation systems as good or better, or have they declined? All of these things are signs of the wealth and prosperity of an area, and it doesn’t sound like that is increasing.
Bingo. The growth of population and income is mostly in the Top 1-5% City area of Chicago.
How are you arriving at this conclusion?
If a region’s GDP is rising, its lower income households are leaving, and higher income households are arriving, how is it not becoming wealthier?
Perhaps germane to this discussion: high-end properties in Manhattan are seeing their prices start to drop like a rock. Part of the problem with chasing a high-end market is that your base is extremely limited.
https://www.bloomberg.com/news/articles/2018-03-23/the-manhattan-luxury-home-market-is-screaming-i-m-overpriced
The FT is attributing a cooling in demand for NYC housing to changes in the tax law. With SALT elimination and mortgage deductability limits it will be interesting to see what happens.
Those will have little impact on cheap midwestern markets. Some speculative real estate investment may shift from the coastal metros to the interior as a result. You can buy a castle for $500,000 in Ohio.
This doesn’t hold true with respect to Chicagoland. Property taxes are insanely high, especially in the suburbs. Many middle-class families already pay $10k in property taxes alone. A modest $400k house in Oak Park, for example, could expect to pay $10k – $15k in property taxes every year. To put that in perspective, that’s what a $1M – $1.5M house in California would pay, or what a multi-million dollar ski chalet in Aspen would pay.
It appears we’re on the verge of another burst of sprawl. The latest census numbers find growth fastest in exurbs, and a decline in urban cores, especially in the most expensive cities on the coasts. Meanwhile, small and mid-sized metros that had fallen behind are now gaining people at faster rates.
https://www.brookings.edu/blog/the-avenue/2018/03/26/us-population-disperses-to-suburbs-exurbs-rural-areas-and-middle-of-the-country-metros/
Joel Kotkin and Wendell Cox make good points in that the numbers are reflective of millennials aging into family status (the first wave are approaching 40, and birth rates are up for women 30 and over, while continuing a sharp decline in younger ages, especially teens), as well as baby-boomer seniors relocating.
https://www.city-journal.org/html/what-census-numbers-tell-us-15799.html
Where sprawl comes in is I’m not sure either population is suddenly going to fall in love with rehabbing old homes in the city and inner-core suburbs. It’s a lot easier and faster to keep sprawling, because even for the first 10 years or so everything is new, the schools are new, and it all looks lovely. Where you really get more infill is with immigrant populations, and Trump’s policy to drive out any immigration, besides the inhumanity of it, is not going to help that at all. Without Mexican and Arabic immigrants, in particular, my inner-ring suburb of Chicago would be a slowly declining, ever-hollower shell.
Someone above mentioned that development within 2 miles of downtown is booming (true). There are also parts of the suburbs that are really booming amongst the upper-middle class too. Gen Y has kids now and many are moving to the wealthy suburbs along the BNSF, the UP-W, and the UP-N metra lines (commuter rail). These suburbs (e.g., North Shore, La Grange, Hinsdale, Oak Park, Elmhurst, Glen Ellyn) are all aesthetically pleasing, old villages with walkable downtowns. They feature many houses within walking distance of the metra as well, in addition to the “best” public schools in Illinois (outside of a few magnet schools in Chicago that draw kids from an unusually large area with very competitive admissions). People are moving to these places to avoid CPS, avoid paying an arm and a leg for private school, and to escape the crime and taxes/fees in Chicago.
Live here. A disaster. Savvy folks moving to Wisconsin to escape tax hell of Illinois.
Who the heck wants to live in Wisconsin? Your amenities, zoos, museums, aquariums, don’t even approach what Illinois has. Illinois beats you on schools with University of Chicago, Northwestern, University of Illinois, and IIT. And you guys voted for Trump and Paul Ryan. Sit down please.
Millennial who transplanted to Chicago and lived for there for a few years in Lincoln Park. Average to above average income.
Housing prices were reasonable, entertainment was perfectly well suited, and options for nearly any activity were perfect. However, the two looming factors that made me ultimately leave Chicago were 1. Career prospects and 2. Tax rates.
There isn’t enough talent in Chicago for high growth companies or sectors to invest. You’d need immense tax breaks for companies to put HQs or large offices there. Smart people, yes for sure, but in flat industries. The city would have to put a moat around the best engineering programs and take 1898 or whatever the Pritzker program is to the next level.
And yes, Old Towne, River North, LP, WP, and others are very attractive but that core doesn’t have the derivative jobs, tax revenues, or economic creation to drive new growth.
I loved the city but its clear its riddled with short term thinking around industry and future burdens.
Taxes speak for themselves.
Not true. That may have been your experience. There are people who live in the Los Angeles area or move there, can’t find jobs and move from there. Doesn’t mean there aren’t jobs in the Los Angeles area. And as for Chicago, for four straight years and counting, the Chicago metro has led the entire nation in corporate relocations and expansions. That means more companies are leaving other US cities to come to the Chicago metro, or current Chicago metropolitan companies are expanding. Chicago has led this high caliber category for four years in a row out of hundreds of metro areas. The problem is this: Lots of people speak about Chicago but lack knowledge about Chicago. Others read it -and since they lack knowledge about Chicago- they think it’s true. Do your research. Chicago leads nation in corporate relocations to the city; Illinois’s total taxes are not as high as taxes in several other states, people generally say this only because they’ve read others say this. In total tax responsibility, Illinois is usually around number 8 on the list. There are even some smaller states with higher taxes than Illinois. And don’t be fooled by Texas’s no state tax. The property tax on a house there is so high, it is in effect taking the place of having no state tax, so you’re NOT saving anything.