Location, Location, Location
Chief among concerns dissuading builders from satisfying the need for smaller, more affordable homes is the rising cost of land in and around Chicago.
“Land costs are expensive,” Eisenberg said. “It means you can’t build cheap homes.”
Plot prices have become so high, in fact, that Coveny said building a home in the $200,000 to $250,000 range is nearly impossible without going out to the very fringes of the exurbs where land prices are more affordable.
Some builders have supplemented production losses by diversifying their building, including constructing multifamily structures and condominiums, but in the suburbs, where land is more widely available and cheaper than in Chicago proper, local governments have set density standards that limit building volumes.
“A lot of suburbs don’t want density,” Coveny explained. “Therefore, you don’t get a lot of attached housing – not a lot of apartments or condos. You get some, but not many.”
The HAGC president added that in a select group of suburbs, building has maintained a strong pace, but clarified the difference between those markets and others: money.
The Death of Community Banks
“In Hinsdale, Western Spring, Claredon Hills and suburbs with homes in the million and up range, where people aren’t dependent on a mortgage or bank to make a deal work, that’s where building volumes are up,” Coveny said. “It’s easy for builders to do that job.”
Following the 2007 crash, as regulators came down hard on lenders for a bevy of what many experts described as irresponsible mortgage approvals, legislators introduced the Dodd-Frank Act, which worked to tighten lending standards in hopes of avoiding a similar boom and bust in the future. While the risk of a similar bubble has been drastically cut, several negative effects were left in the bill’s wake, including a decrease in market share for smaller builders.
“Mom and pop builders have seen their market share decline,” Eisenberg confirmed. “Small guys can’t get loans. They used to be able to build three or four homes at a time, but now their production is down to near only one at a time.”
In a Feb. 2015 study from Harvard’s Kennedy School titled “The State and Fate of Community Banking,” researchers found that immediately following the crash, market share for community banks fell 6 percent. However, since the second quarter of 2010, when Dodd-Frank was passed, the study explained that:
“(Community banks’) share of U.S. commercial banking assets has declined at a rate almost double that between the second quarters of 2006 and 2010. Particularly troubling is community banks’ declining market share in several key lending markets, their decline in small business lending volume and the disproportionate losses being realized by particularly small community banks.”
Without available credit, many small builders, who depend on small projects, have suffered, and bigger firms have migrated to the higher end of the market.