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Vice President Kamala Harris shined a spotlight on the nation’s housing crisis last week during the Democratic National Convention, which brought thousands of delegates, media and other attendees to the United Center and McCormick Place.
When accepting the Democratic nomination for president, Harris vowed to “end America’s housing shortage,” underscoring plans her campaign released this month that would help lower the cost of housing by making homeownership attainable for more families and spur development of “starter homes,” including efforts to lower rental costs.
Some Chicago real estate professionals said they’re unsure if Harris’ proposals would be the right solution for Chicago, which is facing a housing market marred with a lack of available homes, increasing home prices and high development costs.
“Right now, I’m worried that it’s adding gas to a fire,” said April Baker, a Realtor at Berkshire Hathaway HomeServices Chicago.
Harris wants to offer up to $25,000 in down payment assistance for first-time homebuyers who have paid their rent on time for two years. First-generation homeowners would be eligible for more assistance.
Her proposal also calls for the construction of 3 million new homes over the next four years. When created, that supply could help satisfy new buyers incentivized by the down payment assistance program.
But the measures — paid for through taxes on corporations and high-earners — could create a frenzy in Chicago where supply is not keeping up with demand. Housing experts said the down payment credit, while beneficial, could add more buyers at a time when new home construction is lagging. The National Association of Homebuilders reported construction on new single-family and multifamily homes in the Midwest was down in July by 5.1% year over year.
In Chicago, there’s a historic lack of homes on the market. There were 4,955 homes for sale in July, about 8% fewer than at the same time last year, according to data from trade association Illinois Realtors.
Six-month supply of homes
Baker said the problem extends to Chicago’s suburbs. She’s based in Berkshire Hathaway’s Oak Park office, which serves Forest Park, Oak Park and River Forest.
She said in a balanced housing market, there’s enough homes to support sales for six months. But in the neighborhoods she serves, there’s only a two-month supply.
A shortage of homes is driving up prices, with the median sales price in Chicago at $360,000 in July, up nearly 6% from July 2023. Buyers could also be taking on additional costs after sweeping practice changes for Realtors went into effect Aug. 17, potentially upending how real estate agents have historically been paid.
Baker said about 25% of her clients are first-time buyers. She was initially excited to see a major proposal targeting new homeowners but worries what the impact will be on housing prices.
“My concern here is that by incentivizing more buyers to come out into the market with these funds … now we’re going to have prices that keep rising,” Baker said. “Is that really helping affordability?”
Driving up demand
Jeff Benach, principal of Chicago-based Lexington Homes, said that of the housing proposals Harris wants to implement, the down payment assistance has the most “potential holes.”
The $25,000 figure will stretch differently in each housing market, where starter home prices vary, he said. “What part of the country is that the right number in?” Benach said.
The down payment assistance proposal may look “unhelpful” on its own, Redfin’s Chief Economist Daryl Fairweather said, but in concert with her other proposals it makes sense.
“Builders aren’t going to want to build if they think that there’s going to be an oversupply that drives down prices,” Fairweather said. “But if they know that there’s going to be buyers waiting for them with this down payment assistance money, I think that you can have all the pieces move together at the same time, where there really isn’t as much disruption to the housing market.”
Fairweather said building 3 million new homes is an “ambitious number,” essentially doubling the pace of construction. But hitting that figure could help slow down rental prices, she said, as families who were renting move into their new homes, taking pressure off the rental market.
But she’s unsure if it would help bring down home prices since the down payment assistance program would likely generate the demand to meet the new supply of housing.
The 2024 election is “the first time I’ve seen housing be so front and center,” Fairweather said. She also said Harris’ cost-saving platform is helpful for making affordability issues top-of-mind for local governments, who could cut administrative red tape that can slow down new development.
Incentives for builders
The Harris-Walz campaign also outlined plans to provide a “first-ever tax incentive” for homebuilders constructing starter homes for first-time buyers, a $40 billion innovation fund to support housing supply solutions, cut development red tape and expand tax credits for affordable rental units.
The nonpartisan watchdog group Committee for a Responsible Federal Budget estimated the campaign’s housing policies would cost $200 billion over 10 years, more if the policies were made permanent.
Christopher Coleman, vice president of development at Mount Prospect-based Wingspan Development Group, said in an emailed statement that “more stable fiscal and monetary policy” is a better solution than the Harris-Walz down payment proposal.
He pointed to recommendations from the National Multifamily Housing Conference, which called for a federal Moderate-Income Housing Tax Credit and more funding for Section 8 and similar programs, among other items.
Charlton Hamer, senior vice president of Habitat Company’s Affordable Group, said the pandemic worsened the stock of affordable housing units. He appreciates new policies addressing the lack of housing but said there’s still a need for more sweeping conversations about new construction.
“There’s some things that we can do right now — without spending — from a policy standpoint, or a reduction in requirements and scrutiny, that can make things more efficient [and] produce more housing,” Hamer said.
Habitat builds everything from market-rate properties to mixed-income and affordable housing projects in Chicago. Hamer said there’s a common misconception that because units have affordable rent, they’re cheap to build. Habitat’s costs to build affordable housing can be just as much as its costs for market-rate housing. In some cases, it costs more.
The company’s 43 Green residential project at 4308 S. Calumet Ave., where about half of the units are income-restricted, cost about $500,000 per unit to develop. Hamer said the most expensive units at the development cost the firm $900,000 a unit — making it pricier than Habitat’s new luxury apartment building, Cassidy on Canal, which welcomed its first residents in May with rents between $2,550 to $5,660 a month.
Hamer said Harris’ plan directly targets “the big three,” addressing food, shelter and health.
“I like that housing is at the forefront,” Hamer said. “There’s an acknowledgment of this housing crisis — that’s what it is.”