FHLBank Chicago Highlights Urban Institute Study on Owner-Occupied Housing Supply in Illinois and Wisconsin
Researchers at the Urban Institute’s Housing Finance Policy Center have released new research examining the availability and supply of owner-occupied housing across the Federal Home Loan Bank of Chicago (FHLBank Chicago) District, which covers Illinois and Wisconsin.
The report, titled Exploring Supply-Side Solutions for Homeownership, examines the factors influencing the availability of homes for purchase throughout the two-state region. The research finds that Illinois and Wisconsin have several characteristics that can support homeownership, including relatively strong homeownership rates and home prices that remain lower than the national overall level.
At the same time, the study identifies several challenges that could constrain the supply of owner-occupied homes. These include an aging housing stock, persistently low levels of new residential construction and limited access to financing for rehabilitation projects.
The research brings together housing market data and perspectives from financial institutions, housing organizations and other stakeholders across the FHLBank Chicago District. Its findings are intended to provide a more detailed understanding of the supply-side factors affecting homeownership and highlight areas where additional resources or strategies could potentially support housing development and preservation.
Housing affordability and availability depend on more than the price of homes currently on the market. The supply of homes available for purchase is also shaped by the age and condition of existing properties, the pace of new construction, access to financing, developer capacity and the ability of communities to preserve existing housing.
The Urban Institute study examines these factors in the context of Illinois and Wisconsin.
According to the research, both states benefit from relatively strong homeownership rates and comparatively lower home prices than the nation overall. However, the availability of homes for prospective buyers is affected by the age of the region’s housing stock.
Nearly two-thirds of homes in Illinois were built before 1980, while more than half of Wisconsin’s homes were constructed before that year. As these properties age, they may require significant investment to remain suitable for current and future homeowners.
Rehabilitation can therefore play an important role in maintaining the existing owner-occupied housing supply.
“Understanding the housing needs of communities across Illinois and Wisconsin starts with strong data and input from the members and partners working in those communities every day,” said Katie Naftzger, SVP and Community Investment Officer at FHLBank Chicago. “This research gives us a clearer picture of the challenges affecting homeownership supply and where there may be opportunities to build on the work already underway across our district.”
One of the central findings of the research is that preserving existing housing will be an important component of maintaining and expanding the supply of homes available to owner-occupants.
Older housing can provide an important source of relatively attainable homeownership opportunities, but properties may require repairs, modernization or other improvements before they can fully meet current housing needs.
The report highlights the rehabilitation needs associated with the region’s aging housing stock. Nearly two-thirds of Illinois homes and more than half of Wisconsin homes were built before 1980, creating a significant potential need for investment in existing properties.
Rehabilitation can include a range of activities, from addressing deferred maintenance and improving building systems to making broader improvements that enhance the usability and longevity of a home.
Access to appropriate financing can be an important factor in whether these projects move forward.
For homeowners and financial institutions, rehabilitation financing can present different challenges from traditional mortgage lending. The costs and scope of renovation projects can vary considerably, while lenders may face uncertainty around project completion, property values and borrower capacity.
The study therefore identifies the preservation and improvement of existing homes as an important area for further consideration.
While rehabilitation is important, the research also points to the need for additional new construction.
The report notes that members surveyed through the research most frequently identified new single-family construction as the greatest opportunity to expand the supply of owner-occupied housing.
This finding reflects the role that new construction can play in increasing the number of homes available to prospective buyers, particularly in markets where existing inventory may not adequately meet demand.
However, expanding construction activity can require more than simply providing additional financing.
Developers may face challenges related to land availability, construction costs, labor, permitting, market conditions and the ability to manage development risk. Smaller or community-based developers may also face capacity constraints that can limit their ability to undertake additional projects.
The research therefore considers both financial and nonfinancial barriers affecting new construction and rehabilitation.
To develop a more detailed understanding of local market conditions, Urban Institute researchers combined quantitative housing market analysis with qualitative information gathered from housing stakeholders.
Researchers participated in two regional roundtable discussions involving local housing experts. They also presented their analysis during five FHLBank Chicago Regional Member Insights Forums.
In addition, representatives from 152 member financial institutions were surveyed.
The survey asked financial institution representatives how the report’s findings aligned with conditions in their local markets, what obstacles they encounter when supporting housing development and preservation, and what resources could help them participate more actively in these activities.
This approach allowed the research to incorporate perspectives from financial institutions operating directly within Illinois and Wisconsin communities.
By combining market data with information from lenders and other housing stakeholders, the study provides a broader perspective on the factors affecting owner-occupied housing supply.
The research indicates that financing is only one part of the challenge facing housing development and preservation.
Members identified several other constraints, including limited developer capacity, construction risk and gaps in institutional expertise.
Developer capacity can be particularly important in markets where there are opportunities for additional housing but relatively few organizations with the resources or experience needed to undertake projects.
Construction risk can also affect lending decisions. Rising costs, project delays, changing market conditions and uncertainty surrounding completed property values can make construction and rehabilitation lending more complex than traditional mortgage activity.
Institutional expertise is another consideration. Financial institutions and community organizations may need specialized knowledge to evaluate construction proposals, structure financing arrangements, monitor projects and manage risks associated with rehabilitation.
These challenges suggest that expanding housing supply may require a combination of financial resources, risk mitigation tools and technical or institutional support.
Based on its findings, the report identifies three opportunity areas for further exploration.
The first is supporting the rehabilitation of existing homes. Given the age of the housing stock across Illinois and Wisconsin, maintaining and improving existing properties could help preserve homes that are already part of local communities.
The second is mitigating risk to facilitate member lending for construction and rehabilitation. Financial institutions may face a variety of risks when financing new construction or substantial property improvements. Exploring approaches that can address some of those risks could potentially encourage greater participation in these activities.
The third is strengthening local capacity. Increasing the ability of developers, lenders and other housing stakeholders to plan, finance and execute projects could help communities make greater use of available opportunities.
These areas are presented as opportunities for additional exploration rather than as a single solution to the region’s housing challenges.
Laurie Goodman, Institute Fellow in Urban’s Housing Finance Policy Center, emphasized the importance of considering the entire housing supply when examining homeownership opportunities.
“The research shows that expanding homeownership opportunities requires looking at the full housing supply picture, from new construction to preserving and improving the homes that already exist,” Goodman said.
She added that combining market data with perspectives from lenders and housing stakeholders across Illinois and Wisconsin can provide a better understanding of the challenges communities face and the areas that warrant further exploration.
The approach reflects the complexity of housing markets, where conditions can vary significantly between communities.
A strategy that works in one market may not necessarily address the needs of another. Local housing conditions, property values, construction costs, developer capacity and lending practices can all influence the feasibility of new construction or rehabilitation.
The research therefore focuses on identifying broader supply-side challenges while incorporating perspectives from stakeholders operating in different local markets.
The study’s findings could help inform ongoing discussions about how financial institutions and other stakeholders can support owner-occupied housing supply.
For communities with aging housing stock, rehabilitation may be an important component of maintaining available homes. In markets where new construction remains limited, expanding development capacity could help increase the number of properties available to buyers.
Financial institutions can play a role in both areas through mortgage lending, construction financing and rehabilitation financing. However, the research suggests that additional support may be needed to address risks and capacity constraints that can limit lending activity.
By identifying these barriers, stakeholders can better understand where existing programs and resources may be effective and where additional approaches could warrant consideration.
The findings will inform FHLBank Chicago’s continued exploration of approaches that could help expand and preserve the supply of homes available for purchase across Illinois and Wisconsin.
The research provides a framework for considering both new construction and the preservation of existing housing as components of the broader homeownership supply.
For FHLBank Chicago members, the findings may also provide additional context for understanding challenges encountered in local housing markets and the potential resources that could support greater participation in development and preservation activities.
The study’s focus on both financial and nonfinancial barriers also highlights the importance of collaboration among lenders, developers, housing organizations and other community stakeholders.
FHLBank Chicago funded the research conducted by the Urban Institute.
Consistent with the Urban Institute’s funding principles, the report’s findings and analysis were developed independently by its researchers. Funders do not determine the research findings or the insights and recommendations produced by Urban Institute experts.
This distinction is reflected in the structure of the research, which combines independently developed housing market analysis with input gathered from financial institutions and housing stakeholders throughout the FHLBank Chicago District.
The Urban Institute’s research highlights the multiple factors that influence the availability of owner-occupied housing in Illinois and Wisconsin.
The two states benefit from relatively strong homeownership rates and lower home prices compared with the nation overall, but an aging housing stock, limited new construction and challenges surrounding rehabilitation financing create additional supply-side considerations.
The research indicates that addressing these challenges may require attention to both the homes already standing in communities and the development of new properties.
Rehabilitation can help preserve existing housing, while new single-family construction can add to the number of homes available to prospective buyers. At the same time, improving developer capacity, managing construction risk and strengthening institutional expertise may be important components of efforts to expand housing activity.
By combining housing market data with insights from lenders and other local stakeholders, the report provides a broader view of the conditions affecting owner-occupied housing supply across the FHLBank Chicago District.
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