Rents and Taxes
- Details
- Category: Latest News
Two recent articles in Crain’s Chicago Business give us reason to be both optimistic and pessimistic about the business of owning rental property in Chicago.
The first article, by Danny Ecker, “Downtown Apartment Rents in ‘Calm Before the Storm’” (August 25, 2023), makes a case for why rents are poised to increase quickly in 2025. Citing data from Ron DeVries at Integra Realty Resources-Chicago, apartment rents in downtown Chicago are projected to see a big jump in 2025 due to the equally sharp drop-off in apartment unit deliveries that is tied to the rapid rise in lending rates. The article links the rise in rates to the difficulties many developers of multifamily properties are having in obtaining financing for their apartment projects. A tighter lending market means fewer projects will get loans, resulting in less construction and fewer deliveries a few years hence.
Apartment rents in downtown Chicago are projected to see a big jump in 2025.
IRR data show that the downtown market will see about 2,900 deliveries of new apartment units this year, increasing to 3,600 in 2024, but then plunging to just 400 units in 2025. Meanwhile, absorption of apartment units in the downtown market is projected to be around 3,000 units per year. This means the market will be relatively balanced this year and next, but seriously under-supplied during 2025.
It is for you to decide which article is a better indicator of where the city is headed and whether investing here is a good or bad idea.
This is good news for owners of downtown apartments but bad news for tenants who can expect a tight market and rising prices. Although not addressed in the Crain’s article, any rise in prices downtown could have a knock-on effect in other desirable neighborhoods, driving rents up in other locales as people priced out of downtown Chicago turn to neighborhood rentals instead.
The second article, an opinion piece by Jeff Baker and Michelle Mills Clement, CEOs of Illinois Realtors and CAR, respectively, “Opinion: Bring Chicago Home Provides Little Hope for the Homeless and Major Pain for the Rest of the City” (October 4, 2023), accuses Mayor Brandon of breaking his promise not to raise real estate taxes by instead shifting this increase to the point of sale. The article notes the dire condition of commercial real estate in the city following the pandemic and widespread adoption of work-at-home habits which have decimated office occupancies and pushed down property values.
The authors of the opinion piece wonder aloud if this legislation, ostensibly designed to stabilize housing for the homeless, could instead “exacerbate the housing instability many in the city are already facing.”
The piece further accuses the Mayor of not developing a plan “to spend all the federal funds allocated to Chicago for fighting homelessness” and failing “to complete a full audit of the existing spending to gauge the effectiveness, before asking for new revenue.” By further destabilizing the Chicago real estate market, the authors of the opinion piece wonder aloud if this legislation, ostensibly designed to stabilize housing for the homeless, could instead “exacerbate the housing instability many in the city are already facing.”
Both articles are worth a read. One will make you feel better about investing in the city – the other one, not so much. It is for you to decide which article is a better indicator of where the city is headed and whether investing here is a good or bad idea.
