The Policy Shop: How government costs us affordable housing
Government in Illinois has a lot to do with why housing costs are so high. Zoning and land-use reforms can boost the supply of affordable housing without forcing taxpayers to subsidize it.
When you constrain the supply of something, you get less of it. If demand remains constant or increases, prices go up.
Zoning and land-use regulations constrain the housing supply, which raises prices. Apply those factors to a city where there’s a limited supply of land to begin with, and you have an housing affordability crisis.
That’s where Chicago is.
Government regulations account for $69,496 of the $292,000 median home price in Illinois as of April 2024, according to a report by the Illinois Policy Institute. In Chicago, regulations account for $88,060 of the $370,000 cost of the average house.
That is in essence a hidden tax and money that fails to create housing units. Chicago’s median household income was $71,673 at the end of 2022, meaning the zoning tax on many Chicago properties is more than most households earn in a year.
Zoning and land-use restrictions are preventing new housing construction and aggravating a housing shortage, leading to higher prices.
The institute found Illinois had the third-worst rate in the nation for building new housing units in 2023. Governments only approved 269,000 new housing units from 2009-2023. Only 57,070 units were OK’d since 2021.
Institute experts said there are solutions for incentivizing more housing supply, including: streamlining permit processes; allowing more multi-family housing; expanding access to additional dwelling units such as granny-flats or basement apartments; and easing regulations on lot sizes, parking minimums and aesthetic requirements.
Chicago’s not great at those things presently. The metro area ranked last among the country’s 10 most populous metropolitan areas for new units approved. Chicago’s land use restrictions also cut supply: 25% of the city restricts residential housing development without special approval, and only 21% is currently zoned for multi-family housing.
“Local leaders must remove unnecessary restrictions and limits on new housing units to successfully address this crisis. The plight of housing affordability in Illinois will continue to worsen until they do,” said Josh Bandoch, head of policy for the institute.
Other research came to the same conclusion: more housing units on smaller spaces creates more affordable housing. “Where land is expensive, building multiple homes on a given lot is the most direct way to reduce housing costs, because it spreads the cost of land across multiple homes,” the Brookings Institution wrote.
The problem stretches across the nation. Overly restrictive zoning costs $558.8 billion annually and is growing. That is the lower end of the estimate by Harvard University professor Edward Glaeser and University of Pennsylvania professor Joseph Gyourko.
Creating more affordable housing is not a matter of massive government spending on construction. It can be as simple as allowing extra living spaces to be built on existing residential lots, creating fewer restrictions on what can be built where and generally letting demand dictate supply rather than government dictating supply.