Rents are going up, forcing Chicagoans to make lifestyle changes, or hunt for more affordable housing.

When the pandemic started, photographer and public relations professional Micaeh Johnson realized she needed a little extra space for social distancing in the apartment she shared with her now-7-year-old daughter.

So she rented a two-bedroom, two-bathroom townhouse in the South Loop near McCormick Place for $3,250 a month.

Johnson, director at Chicago’s Simply Be. Agency, had been paying $2,875 in monthly rent for her two-bedroom apartment in the South Loop, and upgrading to the townhouse was a stretch for her monthly budget. But the supplemental child care income her company provided during COVID helped. So did staying inside and not traveling.

But once the pandemic started to ease and things began to open up, she felt the pinch again. And then the furnace went out in the townhouse.

“We were paying so much to stay in the South Loop, and our landlord didn’t blink an eye when the furnace went out. We felt isolated, my budget was stretched and I had no idea what I was paying for anymore,” she said.

Carys Saunders, 7, talks about a piece of artwork in her Logan Square home that she painted with her mom Micaeh Johnson, Aug. 15, 2022. (Raquel Zaldvar / Chicago Tribune)

Tired of the struggle, Johnson bought a 1,700-square-foot, two-bedroom, two-bathroom home in Logan Square in December 2021, and she pays just $1,800 a month for the mortgage.

Johnson isn’t the only one grappling with higher rents. Average rents in the Chicago area have climbed almost 9% since 2021, according to online apartment listings marketplace Apartment List. A combination of inflation and climbing demand for units as consumers emerge from the pandemic has driven up rents, with little to no sign that prices will reverse any time soon. At the same time, many of the rental assistance programs offered during the height of the pandemic have ended.

Some people, like Johnson, have been able to transition to homeownership. Others are making lifestyle changes or searching for more affordable units as a way of coping with rising rents.

Alvin Griffin, 46, moved to Homewood in 2017 so his only daughter could get a good high school education. Taylor is now a sophomore in Homewood-Flossmoor Community High School, and Griffin doesn’t envision leaving the area anytime soon.

But when the monthly rent he was paying for a three-bedroom, single-family home jumped to $2,100 last year, up from $1,750 when he moved in, he knew he needed to find a more affordable residence while staying within the Homewood school district.

It took him two months to find the rental that he’s paying $1,500 a month for now. And finding that space wasn’t easy.

Micaeh Johnson and her daughter Carys Saunders, 7, play in the front yard of their Logan Square home on Aug. 15, 2022. (Raquel Zaldvar / Chicago Tribune)

“I would say it was luck,” the PepsiCo employee said. “A friend of mine was on Facebook telling everybody about this rental unit. I called her and things went from there.”

Griffin said the current housing market is hard, but he’s coping the best way he knows how. That means less socializing, less traveling and no new car. Any money he saved with the move is now going into his gas tank because he commutes to his job downtown.

William M. Bennett, an adjunct lecturer of real estate at Northwestern University, said landlords were forced to “hustle and offer concessions” during the pandemic, like offering reduced rent or a few months rent-free, as people remained uncertain about “the benefit of living in the urban environment during a pandemic.”

But the rollout of vaccines in 2021 and the return to in-person work and leisure have resulted in climbing demand for rental units. And according to a report from appraisal company Integra Realty Resources, concessions have been “virtually eliminated from the market as most buildings have filled up.”

“I think in the first half of 2021 … there was a general feeling that everybody was going to be back in the office business as usual in the summer of 2021,” said Ron DeVries, senior managing director at Integra. “So the people that moved home or moved out of state temporarily decided, ‘Well, I better go get an apartment downtown again.’ … But then that requirement never materialized … so I think that it’ll be interesting to see what plays out over the next year.”

According to DeVries, while all submarkets in the city have seen spikes in rent, the “hottest” market for development at present is the West Loop, while Bennett pointed to the West Loop, as well as River North and Fulton Market.

“All of these buildings are at or above the rents where they were before COVID hit,” DeVries said. “So they took a decline of 20% or more in rent, and almost all these buildings are now renting above where they were pre-COVID. So there’s kind of a V-shaped recovery.”

Kyle Stengle, senior managing director of investments at Marcus & Millichap, a company that specializes in commercial real estate sales and financing, said smaller units like studios were hit the worst during the pandemic, as people were “stuck inside” with little to do and in need of more space.

Meanwhile, luxury real estate has had one of the more successful comebacks over the past year.

Micaeh Johnson plays with her daughter Carys Saunders in their Logan Square home on Aug. 15, 2022. (Raquel Zaldvar / Chicago Tribune)

“The higher-end luxury buildings are the first ones to take the hit when the market starts to decline, but they’re also the first ones to come back as the market recovers,” DeVries said.

Real estate agent Maria Smith says rising rents are the reason why she’s seeing more shared living among family members. She said low supply, bigger demand, property taxes and inflation are all reasons for rent increases.

“Landlords are raising rents because the lights are higher, the gas is higher, the water is higher,” said the former property owner of three Southland homes, who tries to educate people on homebuying through comedic social media videos. “I’m seeing children move back in with their parents. I’m seeing a lot of families coming together to buy buildings — two-flats, three-flats. They’re pooling together to buy a building, move in the bottom unit and have somebody in the other units pay the rent. That is the way that people are able to afford real estate because they’re using rents to qualify for the mortgage.”

According to DeVries, higher rents are partially explained by a scarcity of available units, as well as the strong year the market had in 2021.

Going forward, it is unclear if increasing the supply of units will ease rents, as inflation has driven construction costs up — and once renters land a unit downtown they aren’t as incentivized to leave as they were in 2020.

“Even at these higher rents, it is really hard to pencil out the numbers for new buildings so we don’t expect to see hyper supply,” DeVries said.

A report by Marcus & Millichap notes that for the first time since 2000, fewer than 18,000 units will be available in the downtown market this year, and the vacancy rate is expected to be less than half of the 2019 level.

With an “inflationary environment and supply chain issues,” Bennett said continued high demand will “paint a picture where rents and the apartment market should continue to go up at a pace much higher than inflation” for the foreseeable future.

That’s why Johnson says that if you can find inventory, consider buying. “Get creative if you need to rent/sell in the future,” she said. “Rates are high but you can put in a lower offer and refinance when rates go down. I was lucky that when I was at my wit’s end with the South Loop, I found a great home for our family with a home that had been on the market for a while and while rates were low. Now we no longer feel like transients in a city we were born in.”

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via rk2’s favorite articles on Inoreader

August 22, 2022 at 06:55AM

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