Current Conditions and Trends
The movement for housing preservation strategies thus far has focused primarily on the preservation of affordable rental housing because while rental as a share of all housing stock has decreased over the past several years, so have real incomes. This has resulted in supply gaps for rental housing.
Rental housing has decreased as a percentage of national housing stock since 1990. Conditions in northeastern Illinois run parallel to national trends. Between 1990 and 2006, the seven counties in northeastern Illinois – Cook, DuPage, Kane, Kendall, Lake, McHenry, and Will - experienced a 7.5% decrease in rental housing units while owner-occupied housing units increased by 28.3%. Cook County alone has lost 96,366 rental units, while the collar counties witnessed a slight increase in rental housing since 1990 (see Table A below). Cook County's share of the region's rental housing decreased from 80.4% to 77.8% between 2000 and 2006. The combined increase in rental housing in the collar counties was not enough to compensate.
Meanwhile, the number of households spending 30% or more of income on housing has increased since 2000, which can be attributed to declining household income and increasing housing costs over the same time period. Housing experts refer to these households as "housing cost burdened." In partnership with the Metropolitan Mayors Caucus, Chicago Metropolis 2020 published an analysis of the supply and demand for housing at different price points in 2005. Results indicate that the number of families stressed by excessive housing costs is projected to grow from 730,000 to 870,000 across the region in 2030 based on current conditions and trends (Chicago Metropolis & Metropolitan Mayors Caucus, 2005).
Responding to the decrease in rental housing stock, initiatives to prevent further decline are underway across the nation. In 2007, the John D. and Catherine T. MacArthur Foundation increased a commitment to "preserve and improve at least 300,000 units of affordable rental housing across the country" by a factor of three to $150 million (MacArthur Foundation, 2007).
Acknowledging the urgent need to reverse a downward trend in affordable rental housing stock, the Urban Land Institute assembled the Preservation Compact of Cook County in 2005 with support from The MacArthur Foundation (Urban Land Institute 2007). Preservation Compact analysis concluded that the demand for affordable rental housing in Cook County alone will outpace supply in the year 2020 by almost 38,000 units (DePaul University, 2006).
We shall now address how housing preservation impacts northeastern Illinois and why housing preservation is a worthwhile strategy to implement.
Housing units built before 1994 have distinct price advantages in terms of both building and transportation related costs. Therefore preserving this existing stock and maximizing its utility would reduce regional housing costs over time.
The percentage of households burdened by housing costs has increased, regardless of tenure since 2000 (see Tables 1 and 2). This is because increases in household incomes have not kept pace with increases in housing values since 1990 (see Table 3). The discrepancy was particularly dramatic between 2000 and 2005 (see Table 4). In order to understand the underlying causes of such trends, it is important to recall that during the early 2000s, the housing market produced primarily high-cost housing units: condominiums and large luxury homes. Real incomes decreased during the same timeframe. It is now commonly understood that subprime lending enabled traditionally non-credit worthy households to qualify for unaffordable mortgages.
While forthcoming data is likely to suggest that housing costs have decreased as a result of recent collapses in financial markets, it is less certain how producers will respond to this volatile context in terms of new construction. In the short term, housing starts have decreased across the region (Metro Study, 2008). With previous projections predicting unmet demand for low-income and smaller housing options in the long-term (DePaul University, 2006 and Chicago Metropolis & Metropolitan Mayors Caucus, 2005) it is possible that new construction will favor these housing types in the short-term. However, it is also possible that as production slows, there will be less of an incentive to build housing types with lower profit margins and higher perceived risks (i.e. subsidized housing).
The concept of affordable housing is often erroneously linked to government subsidized housing. In fact, a majority of the region's affordable housing is rented or bought on the private market. However, the demand for low-priced units is higher than the current supply (Chicago Metropolis & Metropolitan Mayors Caucus, 2005). This is a trend that is likely to continue unless development patterns change or some sort of intervention takes place.
The Center for Neighborhood Technology has done extensive research showing that the real cost of housing includes the cost of a household's daily commute to work (Center for Neighborhood Technology, 2006). Other research shows that public transportation is available to residents in nearly 60 percent of neighborhoods with older housing. CMAP research shows this to be similar in northeastern Illinois (see Map 1). In contrast, three quarters of housing built after 1994 has no public transportation available nearby (Rypkema, 2002). When transportation costs are taken into account, it is likely that those who live in housing built before 1994 are paying less in housing costs than those living in newly built homes. Therefore, preservation strategies that maximize the utility of older housing would reduce housing costs.
Strategies that preserve and maintain existing housing stock also help to preserve the unique heritage and identity of every community in the region. As discussed in the Teardowns strategy report, community character is an important issue to most stakeholders and housing experts around the region, but there is no real consensus on its definition. For the purposes of this report, we define community character as those attributes of a community that make it unique, both in terms of the built environment and its population.
As it pertains to the built environment, community character refers to architectural styles and types of residential structures that make a certain community unique. For example, Oak Park is known for homes designed by Frank Lloyd Wright. Parts of Chicago are known for small, bungalow style homes. The preferences of single family home buyers have turned from valuing large amounts of green space (yards) to valuing large structures that occupy as much lot space as municipal zoning codes allow. During the housing boom of the early 2000s, this resulted in the demolition of older, smaller homes. As discussed, production favored larger, luxury homes during that same time. Some have criticized these trends, saying that the result has been an explosion of new communities with increasingly uniform housing units.
In terms of population, communities provide a sense of place and identity to those who inhabit them. For example, Chicago's Pilsen neighborhood has a remarkable history as a port of entry, first for Bohemian and then Mexican immigrants. Since the 1970s, development pressures have driven up housing values, threatening to cost its mostly low- to moderate income population out of the neighborhood. However community organizations in Pilsen have managed to maintain its Mexican American character through a combination of community organizing, planning, increased home ownership and strengthened cultural identity. Some experts interviewed for this report have commented that a lack of diverse housing types in one neighborhood can result in a lack of human diversity in terms of income, age, race and/or ethnicity.
Strategies that combine preservation or rehabilitation of unique or historic structures with incentives to maintain their affordability would allow communities to maintain their identities both in terms of the built environment and in terms of population. A Federal strategy along these lines, the Historic Rehabilitation Tax Credit (Ceraso, 1999), has been used along with Low Income Housing Tax Credits to produce such outcomes. Locally, the city of Chicago has used the historic Greystone and Bungalow initiatives to preserve unique characteristics and provide affordable housing. Strategies that preserve affordable rental housing assistance also help to maintain community character if they are used to prevent condominium conversions in multi-family buildings.
Finally, preserving northeastern Illinois' housing stock could give the region's economy a boost concerning jobs created, wages earned, and tax revenue created. The National Association of Home Builders has calculated that the construction of 1,000 single-family homes generates 2,448 jobs in construction and construction-related industries, approximately $79.4 million in wages, and more than $42.5 million in federal, state and local tax revenues and fees (National Association of Home Builders, 2008). However, the same amount of money spent on housing rehabilitation – which would create two to three times more housing units – would generate 2,838 jobs and $88.7 million in wages (Rypkema, 2002). However, the private housing market responds to demand for specific types of units at certain price points not direct injection of funds. So, in a real-world scenario, it is more likely that investment would be reduced by a factor of two or three to create the same number of units. In this scenario fewer jobs would be created. However, it is likely that strategies preferencing preservation over new housing construction could reduce aggregate spending on housing production across the region.