Weighing The Arguments

How the industry moves going forward will largely dictate the future success and ultimate sustainability of the building/job growth balance, which will also be an impactful determinate to inventory and home prices.  Over the next decade, EMSI projects Chicagoland employment will grow by approximately 300,000 jobs, which amounts to an 8 percent increase overall. The local construction industry is estimated to grow at a lackadaisical pace of only 2 percent.

Beaver believes that Chicago will have little trouble reestablishing a sound building balance. Eisenberg reaffirms Beaver’s confidence, saying that Chicagoland, like most major metros, is not designed to accommodate such drastic changes to infrastructure.

“Of course, the ratio of building to job growth will need to be raised to account for Baby Boomers living longer and staying in their homes, laid off employees returning to work and Millennials who’d rather live with their parents than play their hand at a tumultuous housing market, but those changes will have to take place within the confines of the city’s established infrastructure,” Eisenberg admits. “Chicago already has a mass transit system in place, and a large downtown area, there’s really not a lot of room for incredible change.”

Considering the building pace of the last two years, which show significant gains in the request and subsequent approvals of residential building permits, Chicago seems primed for a significant increase in building activity to satisfy persisting demand, but what builders are constructing will likely change.

“Buyers are more cautious now, so most are buying long term rather than the five to seven years consistent with past trends,” Beaver says.

Gunnar Branson, chief executive of the National Association of Real Estate Investment Managers, explained in a 2012 TEDx talk titled “The Moore‘s Law of Real Estate” (which we cover on page 23) the shifting trends in building, and how a need for less storage is shaping the future of construction, especially in regards to multifamily dwellings – the Millennial’s preferred structure.

Branson said that as a need for storage decreases, due in large part to the consolidation of music, books and other information into more compact digital devices, housing units are correspondingly being built to accommodate the need for less living space. Instead, he pointed out, developers are spending more money to maximize the value of each square foot. So while units are shrinking, their value remains constant.

To definitively postulate on long-term preferences, however, is difficult.

“While Millennials are unarguably different from their parents on several quantifiable levels,” Neal explains, “the fact remains that most are only just now beginning their asset-building lifecycle. Taking this into consideration, readjusting the building ratio in the short-term is prudent. Still, NAHB believes the wider construction industry should continue to aspire to eventually realign with the one single-family, or multifamily, home for every 1.5 jobs created.”