Will Chicago’s Gentrification Survive the Recession?

June 8, 2009

About Chicago

I just read a fantastic article on Forbes about a topic that I have been wondering a lot about: continued gentrification of Chicago as the recession drags on. I have been pessimistic about the chances that neighborhoods like Uptown would continue to renew and rebuild…be a magnet for the middle class. However, after reading this interview with Pat Lashinsky of Zipreality.com, Michael Feder of Radar Logic, Spencer Rascoff of Zillow.com, and Peter Slatin of Real Capital Analytics, I’m beginning to think my pessimism may have been misplaced. At least I hope it was and their optimism is correct.

People Want to Live Close to Work

Will Uptown's revival continue or falter?

Will Uptown's revival continue or falter?

The first point for optimism is, as Mr. Lashinsky pointed out, that people want to live as close to work as is possible. It seems to me that two facts are going to keep this trend going: First, is the cost of energy: with gas going up to over $3.00 a gallon in the past couple of weeks, and very little long-term chance that the 30 mile commutes will ever be as economically feasible as they were when gas was $1.00 a gallon, this trend is likely to not reverse any time soon. The second fact is that Chicago is a gorgeous place to live now. The gentrification that has happened in Chicago has made it not only possible, but down right attractive to live in the city for nearly everyone.

Of course, the Loop is not the only area in Chicagoland with jobs. The suburbs lay claim to some of the area’s largest employers; some of my friends actually reverse commute from the central part of the city to the far flung suburbs. However, when young people move to Chicago looking for work, they aren’t dreaming of living in a generic box behind another generic box off a cul-de-sac in a faceless suburban sprawl. They are dreaming of brownstones, high rises, and walking down bustling sidewalks to meet friends at sidewalk cafes. This is going to mean that much of the young talent is going to be located in the city. Hopefully this means that new upstart companies, as well as the Fortune 500, will continue to want to call Chicago home and the upward spiral will continue. But, if the job losses continue and young people continue to give up on their dreams of big-city life (as the rental data is hinting at) in order to return to live with their parents outside of the city, this force for renewal and growth will be gone.

Price Is Relative

As someone who grew up in Montana and South Dakota and then having spent ten years living in Tokyo, I have experienced both ends of the price-per-square-foot continuum. While living in Tokyo I didn’t think twice about spending $2,500 a month for our tiny one-bedroom apartment?a price that could have allowed me a five bed, five bath, four-car garage with a pool in my hometown. But I wanted to live in Tokyo and my income allowed us to live very comfortably even with that rent. Actually, I’ve never had more disposable income than when I was paying the most for a home I ever have.

People understand this. They know that relatively speaking, right now is an amazing time to buy. Mortgage rates are at historic lows and prices are bottoming out at RELATIVELY amazing prices. As Mr. Slatin put it in the article, “The concept of a ‘great’ deal remains relative, and isn’t that what pricing is all about?”

The bottom line is for many people, the cost-to-performance of living in central Chicago is still very low. This is going to mean that the demand for homes is going to remain and gentrification of neighborhoods is likely going to continue, but undoubtedly at a slower pace.

Slow Gentrification is Still Progress…Gains Will Hold

Mr. Slatin had a wonderful quote in this article in response to discussion about Bucktown and The Westloop,

While there will surely be regression in some newly gentrified neighborhoods, for the most part, gains will hold. Residents, investors, retailers, etc. will fight to keep areas moving up or at least flat. Where holes do develop–and they will–investors will buy up REO. There’s still plenty of life and enticement in most of these neighborhoods, and emptied out tracts are far less alluring.

The other panelists agreed with him, but made sure to say that the progress we have seen in the past years will slow. The coffee shops, restaurants, and boutiques going into the new areas of town may not survive, but eventually they will find the dollars they need to help transform the neighborhoods.

Chicago City Gov’t Has to Continue to Support the Growth of the Middle Class

Again, Mr. Slatin pointed out a large potential danger to the whole upward, albeit slow, spiral, “One danger to these neighborhoods remains the inability of local governments to support their growth through schools, green space, transit, etc.”

As I talk to my circle of friends, this is completely true. One of the main reasons we are all still in the city is that there are fantastic public elementary schools for our children to attend. But ask these people who have eschewed the suburbs for the convenience and vibrancy of the city what they are worried about and they all reply that there are not enough good high schools to accept all the fantastic kids coming out of the elementary schools. Their parents stayed and took a chance on CPS, and under Arnie Duncan they by-and-large have delivered. However, can we count on a Dailey insider who has never run a school let along a school system to continue this and deliver high schools that will prepare our children for college? I hope my concern is unfounded.

But of course it’s not only about schools: potholes that gobble up trucks, the crumbling supports for the Metra and I-90 we all pass by every day hoping the whole thing doen’t come down on us like it did in Minneapolis, and reductions in police to protect the city area all trends that have to somehow be reversed.

As Always, It’s All About Supply and Demand

The Forbes interviewer for the story was the prolific Chicagoan Stephane Fitch, who is apparently my not-so-far-away neighbor. He talked about his neighborhood of Uptown.

…I live in Chicago’s Uptown neighborhood. Still, lots of gentrification needed in Uptown, I think it’s fair to say. It’s the classic gentrification play. But none of my neighbors thinks the gentrification will continue where I live. Not with the nicer neighborhood just to my south, called Lakeview, looking more nearly affordable for modestly well-off professionals.

That sums it up…if the jobs stay, people will want to live in this beautiful, livable city and that will mean more jobs and continued renewal of amazing swaths of this amazing city we call home. If the spiral doesn’t continue up or at least stay flat, Lakeview will prevent Uptown from improving, and eventually Lincoln Park will begin to nibble away at Lakeview, and on down we will go.

I’m optimistic and think (hope) we will continue to improve upon what is already here.

We would like to thank Supafly for sharing today’s photo of Uptown via the Creative Commons License.

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About Rod Holmes

Rod has been a broker working in Chicago since 2004. He has worked with developers, buyers, sellers, and as well as managing offices. He is currently a partner in Chicago Style SEO working primarily with real estate firms to improve their Internet marketing. Rod lived for nearly ten years in Japan where he owned a corporate training and executive coaching firm with clients including Hitachi and 3M Japan. He lives in Lakeview with his wife and two children. He enjoys coaching and watching his kids participate in sports, cycling, camping, and traveling in general. You can find Rod online on Twitter at @roddesu, Facebook and LinkedIn.

View all posts by Rod Holmes

5 Responses to “Will Chicago’s Gentrification Survive the Recession?”

  1. Rod Holmes Says:

    People have been writing/talking to me about this post and have been pointing out that much of the good news above for Chicago will come at the expense of the suburbs…people don’t want to drive everywhere…they can’t live the the poorly planned burbs.

    Reply

  2. Isabella Says:

    yes gentrification is so great. displace the lower class and diminish their chances for good housing in a decent neighborhood for the sake of the selfish middle class. Open up your sushi places and your bars. Let uptown transform from the haven for minorities into the trendiest places for the middle class.

    Reply

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