Chicago won’t run out of homes, unlike other cities

That’s according to a study of which cities have enough housing units to keep up with their fast population growth and which are headed into a housing shortage, published Aug. 7 by the Bank of America Institute. It ranks cities into one of four categories, hot, warm, cool and cold. Chicago is in the third, cool.

The likelihood of a long-term housing shortage is high in the hot group. These are cities like San Antonio, Orlando and Las Vegas, where “buoyant labor markets continue to attract people” but the housing stock is “already relatively stretched,” the report says.

Those cities’ growing shortages are helping jack up home prices. In Orlando, the report says, home prices rose 58% between June 2019 and June 2023.

By contrast, the possibility of a housing shortage is low in Chicago because its existing housing stock is sufficient, given its population loss. Chicago is in the cool group with New York, Baltimore and Los Angeles, among others.

Of 27 big U.S. metro areas, Chicago ranks near the bottom for new housing permits in the first five months of the year, the report says. The number of permits issued in the Chicago area is equal to about 0.05% of the local population. Only Detroit has a lower figure.

The median for the 27 metro areas, 0.2% of the local population, is about four times what Chicago is building.

The low rate of building would be troublesome if the Chicago metro population were growing. That’s the mix that heats up the risk that San Antonio and others will run critically low on housing supply. San Antonio’s population grew by about 1% in each of the first two quarters of the year, the report says.

But Chicago’s population loss, about 0.5% in both the first and second quarters, reduces the pressure to build new homes to make room.

Chicago’s status as a cool market is notably better than being in the group of metro areas described as cold in the Bank of America report. Those are cities where there’s a large stock of existing homes and outflow of population.

In the cold cities, including St. Louis, Detroit and Miami, “house prices might cool faster” than others because of the excess of supply, the report says.

In St. Louis and Detroit, the excess inventory of homes is largely the result of longtime shrinkage of the population, the study’s authors note. Meanwhile, in Miami it’s because inbound population flow, particularly during the pandemic, spurred a construction boom that has not slowed although Miami’s population has begun to dip. That’s “consistent with some press reports suggesting that many people who moved to Miami in the beginning of the pandemic have since moved away, partly due to the rising cost of living in the city,” the report says.

Bank of America’s study looks at all a metro’s housing stock, not only the inventory of homes for sale, to provide “a longer-term view on housing supply,” it says.

That’s because the low inventory of homes on the market is in large part a function of homeowners with old sub-4% mortgages “locking in” to the homes they have rather than trade to a new place with an above-6% rate. If interest rates drop, much more of the housing stock that Bank of America counted could go on the market.