Is Chicago building too much?

Even though its population is stable or declining, Chicago has been building a great deal.¹ Figures from the Census Bureau suggest that this is indeed an odd situation. Here’s a chart showing the relationship between residential building permits issued in 2015 and estimated change in population from 2014 to 2015 for American metropolitan statistical areas:²

And here’s another that shows the relationship between the valuation of these 2015 residential building permits and (again) estimated change in population from 2014 to 2015 for American metropolitan statistical areas:

These graphs require a bit of explanation. Note that:

[1] The data shown are for metropolitan statistical areas (MSAs), not cities and not “combined statistical areas” (CSAs) (the latter would subsume Baltimore, Riverside, and San Jose, for example, into larger units). It is possible to get building permit data for “places” (like Chicago), but, because different cities have different relationships to their MSAs, MSA-level data may be more useful for urban-area-to-urban-area comparisons.

[2] The graphs identify a few large urban areas by codes that (I hope) are easy to interpret. “Chi”=Chicago.

[3] 2014-2015 population change is estimated data. Some have questioned the Census Bureau’s determination that the Chicago MSA suffered a population loss in this period.

[4] Results would have been bit different had I chosen different years for the graphs (for example population change or permits from 2010 to 2015)—but they would not have been very different. There is a pretty high correlation between data sets for different years.

[5] Not every housing permit leads to construction.

There is, in general, a close relationship between the number of building permits and the size of population change (correlation= .891, r-squared=.793), and there is nearly as high a correlation between permit valuations and the size of population change (correlation=.888, r-squared=.789). Urban areas that are growing fastest build more.

Note the extent to which Chicago is an outlier. It is building much more than its population loss suggests it should be. (New York, often accused of not building enough, is also building more than its population change would predict. San Francisco, also criticized for building too little, seems to be building nearly as much as it should be given its medium-high population growth.)

Of course, any healthy city, even if it’s losing population, is going to want to do some building. Older structures do need replacement. But it’s not likely to build an enormous amount.

Is Chicago building too much? A case could be made. The fact that real estate in Chicago remains much cheaper than in coastal America would provide some support.

Of course, Chicago, like all American cities, has a complicated geography. While some parts of the Chicago area are losing population quickly, other areas are growing. One reason that Chicago is building so much is that areas of population loss and areas of population growth barely overlap at all.

Population loss on the largest scale has been occurring in certain African-American neighborhoods (click here, here, and here for maps). People have been leaving troubled places like Englewood on the South Side and Lawndale on the West Side for decades. Furthermore, in the first decade of the 21st century, the closure of the housing projects caused near total loss of population in a few tracts. There is little new building in these neighborhoods (with the exception of the area on the Near North Side where the Cabrini-Green housing project once stood, which has begun to acquire expensive high-rise housing).

There has also been a slow loss of population in a few generally stable neighborhoods, for example, along the North Side Lakefront, throughout the “bungalow belt” in the outer parts of the city, and in some first-tier suburbs. In these areas, aging of the population, declining family size, and gentrification (in varying proportions) have resulted in minor population loss. There is generally only a small amount of new building in these areas (new housing on the North Side Lakefront would be very attractive, but NIMBYism and the 1970s downzoning make new construction there difficult).

Population gains and substantial new construction have mostly taken place in distant suburbs, within two or three miles of the Loop, and in certain parts of the North Side. New housing is still replacing farmland in the outer urban area. And there has been large-scale replacement (or renovation) of industrial buildings, older office towers, run-down housing, and parking lots near downtown, a process that goes back at least to the construction of Marina City in 1964—and perhaps even further on the North Side Lakefront, which never ceased to be an attractive place to live for hundreds of thousands of people.

It is in these central areas where housing permit valuations in the Chicago area are highest. Is Chicago building too much? The fact that builders keep building suggests that they’re pretty sure that there’s still a market for their products. Slowly rising rents imply that they’re right. (Condo prices are generally still lower than they were ten years ago, however. Most new apartment buildings are rentals.)

The increased residential densities of the inner city generally have the support of many powerful forces: government agencies like the Department of Zoning and the Department of Planning and Development; non-governmental organizations like the Metropolitan Planning Council; corporations that appreciate the advantages of a “vibrant” city center; and urban theorists who favor density.³ There is no doubt that many ordinary Chicagoans as well are delighted by the dynamism of the central city.

Edward Glaeser has even argued that Chicago’s habit of continuing to build makes it different from just about all other older, denser American cities.⁴ The resulting relative inexpensiveness of real estate is, according to this analysis, one of the reasons that central Chicago is healthy, since it makes it an attractive place to major corporations. Corporate employees are not faced with the kind of housing-cost challenge that they’d encounter, for example, in New York or San Francisco. The implication here is that, if Chicago built less and its housing became more expensive, corporations would leave, there would be less demand for housing, and prices, eventually, would fall. Chicago may be stuck with continuing to build.

Chicago’s relatively inexpensive housing does create a class of losers. Those of us who’ve invested in Chicago real estate couldn’t easily afford to sell and use the proceeds to move to New York or San Francisco. One might expect that there would be protests about this, but, so far, NIMBYism has mostly concerned itself with building in established neighborhoods.⁵ There seems to be very little effective opposition to what amounts to an inner-city “growth machine” in Chicago.