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Fall New Construction: How builders thrive in Chicago’s evolving market

by Chicago Agent

Labor

For one, Chicagoland is facing a shortage of skilled labor.

“Labor availability is an issue,” says Lev. “Our subs and general contractors are extremely busy, and their prices have gone up quite a bit. That’s a concern and an issue.”

A report from the Cushman & Wakefield outlined the labor loss in Chicagoland: the construction workforce in the Chicago metro area plunged from 29,600 people in 2008 to 18,100 in 2011, and while it has been slowly building back up, fewer than 22,000 people were working in the industry last year, or about 74 percent of the pre-recession level, according to data compiled by.

Materials

Lev also cites materials costs as a concern. “Pretty much the same building that we built three years ago for $140 per square foot is now $170 per square foot,” he says. “That’s partly due to materials costs.”

And it’s partly due to a building code Lev calls “antiquated.” He says: “It’s not at all in step with the model codes that are used in most other places. And that adds to the cost quite a bit.”

In Chicago, builders are held to standards that keep them operating behind norms. For instance, the city’s building code requires copper and other types of piping over CPVC, which is less prone to corrosion and costs considerably less. “The city is adding costs for things that are unique to Chicago – things you won’t find in codes elsewhere,” Lev says.

Regulations

Complaints against the city’s building code are only part of a much wider set of grievances builders have against how the city and its suburbs continue to shape the new construction market.

“In the suburbs, builders face 297 municipalities and political jurisdictions from which to get approval,” Cross says, explaining the difficulty of adhering to or even understanding the hodgepodge of regulations suburban builders have to follow. “I live in Schaumburg – if I go 1,500 yards, I’m going through three different villages. And none of those villages have the same rules.”

Chicagoland builders juggle regulations on what buildings can go on what lots, how those properties must be built, what materials they can use. Those are necessary to ensure a baseline for quality, but many builders argue the current rules and regulations are excessive. It is an opinion that extends to the national market, according to National Association of Home Builders senior economist Michael Neal.

“In a blog, we recently illustrated the regulatory burden federal, state and local governments are putting on builders,” he says, “and it puts significant upward pressure on the prices that buyers ultimately face.”

One particular Chicago regulation that Lev believes harms buyers is the city’s affordable requirements ordinance, or ARO, which our own Peter Thomas Ricci covers here.

The affordability dilemma

Currently, Chicago is a relatively affordable U.S. city. In this year’s second quarter, 60.5 percent of Chicagoland housing stock was considered affordable by the NAHB’s Housing Opportunity Index – a 100-point scale to compare local incomes against housing costs.

“Our HOI has a dividing line. If you’re above 50, you’re considered affordable, and if you’re below 50, you’re less affordable,” says Neal. “Nationwide, we’re around 50.”

The latest S&P/Case-Shiller Home Price Index reported that May home prices in Chicago increased more than any other major city in the country. And during the first quarter of this year, the supply of starter homes dropped 47.3 percent compared to 2012, according to Trulia.

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