Several years ago, it made sense to build an apartment building with interest rates in the 2%+ range. Now rates are around 8% which requires rents 2-3 times higher to support. No rents haven't and can't go up sufficiently to support that.
The pipeline of new apartments is going to rapidly run dry.
Chicago new apartment construction declines
By Sami Sparber, Axios News
Dec 16, 2023
Data: RentCafe; Note: Includes buildings with 50 or more units; Table: Kavya Beheraj/Axios
Around 6,160 new apartment units are expected to be built across Chicago this year, down from roughly 8,970 in 2020, according to a new report.
Why it matters: A housing shortage in the U.S. has contributed to the rising cost of both renting and buying.
What's happening: Chicago is among the 20 metro areas where the bulk of new pandemic-era apartments are located, per the report by RentCafe, which analyzed data from real estate intelligence service Yardi Matrix.
Zoom out: A historic surge in new apartment supply — 1.2 million units were completed during the pandemic — helped curb rent growth nationwide, but some parts of the country saw more housing being built than others.
The big picture: Nearly three-fourths of renters say they're renting in an area where they couldn't afford to buy, according to a new survey from RealPage, a real estate analytics and software company.
Reality check: Around 89% of the U.S. units completed from 2020 through 2022 are high-end, per the report, and not the type of affordable apartments many renters want.
Flashback: Amenity-packed luxury apartment buildings are popping up across Chicago.
Asking rents for new leases in the Chicago metro area are up roughly 3% from a year ago, according to August data from RealPage.
What they're saying: Steep rents and choosy landlords pushed Kirsten Onsgard, a 30-year-old graduate student, to purchase a one-bedroom condo in Rogers Park.
Onsgard tells Axios they have "10 years of good rental history and plenty of savings — I just don't have the monthly income right now" to meet some landlords' requirements such as "4x rent in income."
Data: RentCafe; Note: Includes buildings with 50 or more units; Chart: Axios Visuals
Zoom in: Outside the city, far west suburb Warrenville, near Naperville, led Chicagoland in new apartments built during the last three years, per the RentCafe report.
What's next: Across the U.S., 1 million rental units are slated for completion through 2025, but higher costs and other headwinds could hinder developers' pace in future years.
"Tightening of bank lending standards — combined with rising costs of construction materials, labor and land — has made new projects harder to pencil," senior analyst Doug Ressler at Yardi Matrix says in the report.