The Institute for Housing Studies at DePaul University has released a new report in which it examines Chicago’s vacancy and rental prices in relation to areas of highly concentrated foreclosures. The authors conclude that due to the demand for rental housing in areas of high foreclosure rates, rental prices in those areas are likely to increase.
The study finds that both the city of Chicago and the suburban area of Cook County are experiencing above-normal vacancy rates. Vacancy rates in the city currently are ranging from 8% to 8.4% and those in the suburban portion of the county are ranging between 8.5% and 9%. The authors suggest that the sustained above-average vacancy rates are in response to relatively weak consumer demand, high unemployment, and lower consumer confidence.
Overall, the authors find that estimates of apartment rents continue to decline in both the city and the suburbs, with rents down by 4% in the city of Chicago and by 7% in suburban Cook County over the past five quarters. However, the authors find that decreases in rents are not uniform across the city; instead, areas of concentrated foreclosures have begun to show signs of increasing rental prices.
The authors examined rent changes from 2006 through the first quarter of 2010 for five submarkets of the city: North, Northwest, Central, West, and South. Throughout this time period, nominal rents in the North, Northwest, and Central submarkets – where foreclosures are less concentrated – were down between 6% and 10%. However, rents in the other two areas, where foreclosures are highly concentrated, are actually increasing. The South submarket saw an increase of 2.1% in nominal rents since 2006. In the West submarket, rents increased by 4.7% from 2008 to 2009, and in the first quarter of 2010 have rebounded to their 2006 values.
Based on these data, the authors conclude there is a correlation between high foreclosure rates and increasing rents, and find two likely contributing factors. First, the authors suggest that as foreclosures increase so too does the demand for rental properties and thus, property owners are able to increase rents. The authors also suggest the high concentration of foreclosures provides lenders in the South and West ends of Chicago with strong incentives to hold vacant properties off the market, further decreasing the supply of rental units even as the demand increases.
The Cook County Rent and Vacancy Report for First Quarter 2010 is available at: http://chicago.uli.org/Community%20 Building/~/media/DC/Chicago/documents/FINAL.ashx