The Absence of Wealth

But the difficulties surrounding building affordable housing are not exclusive to construction companies’ inabilities to secure financing or to find a reasonably priced plot of land. Problems extend to both sides of the deal – to the buyers who’d prefer a new home over an existing one.

“Wealth and downpayment ability are key factors,” Eisenberg said, referencing the most pronounced problems keeping potential buyers out of the new home market. “And what we’ve seen coming out of the recession is that the older you are, the less of a lasting impact the crash has had on your finances.”

He went on to explain that on average if the market is sectioned into age groups, 60 and above have recovered, and some of them have even more than recovered since the bust; people 40 to 60 have almost recovered; and people 40 and under are still underwater.

“The reason behind this division is assets,” Eisenberg explained. “Those who have more assets that are not homes have recovered quicker than those without.”

The result is Millennials, the biggest generation in history and the future of the housing market, are battling growing student loan debt, less access to credit, higher home prices and stagnant wages. That means many of them are being forced to either remain at home with their parents or move into the rental market, where they are staying late into their 20s. That’s a big chunk of the first-time homebuyer market that has dissipated.

A New Direction

There is hope for Chicago’s affordable new-home market, and it lies in demand – if builders can figure out how to tap it.

“We do see a bright spot in pent-up demand,” Coveny said. “We see it, we feel it, we sense it, but we still can’t meet it.”

For building to regain its former footing, and for more affordable, entry-level single-family properties to hit Chicago’s new home market, the industry will need to address the line of barriers restricting entry. 

“One escape valve is easier access to credit,” Eisenberg said. “Borrow a little bit more to buy a little bigger house.”  Another solution, Eisenberg added, would be building smaller in the city, but that would require altering zoning laws.

But unless Millennials start earning more, those improvements will mean little.

Since the recession, economists have been waiting for unemployment to drop so that wages would be inversely pushed up, as has been the case historically, Eisenberg explained. Only, that has yet to happen.

“Unemployment nationwide is at 5.3 percent, and still wage growth remains relatively stifled,” he said.

In April, we reported two-year wage growth in Chicago was trailing home price growth by a sizeable margin. While home prices from 2012 to 2014 grew 20.5 percent, wages during the same time increased only 3.1 percent.

In Chicago’s suburbs, where, in some areas, land is still reasonably affordable, Coveny said HAGC has reached out to municipal governments, urging them to consider lowering fees to help allow and encourage more affordable building. The problems persist because these changes have not yet been widely implemented.

Both Coveny and Eisenberg are optimistic that Chicago and the nation can meet these housing needs, however they acknowledge the possibility that our current direction is the new direction.

“Despite their expense, cities like Chicago and New York have traditionally been seen as affordable on an international scale, but we may see this start to change,” Eisenberg said. “It may be that city’s like Chicago become a luxury good.”