Chicago's Older Apartments Are Running Out Of Room To Raise Rent

Class-C apartment operators in Chicago are buoyed by many of the tailwinds bolstering the city’s multifamily market as a whole: limited new supply, rising rent growth and recovering investor interest.

But rising operating costs have squeezed margins for vintage stock harder than their newer counterparts, leaving the affordable market at an inflection point. Insurance, property taxes and utilities have risen faster than rent for older properties.

Owners are battling significant increases in utility and insurance costs, along with higher taxes and interest rates, while facing a shrinking runway for rent increases. Some new investors in the Class-C space over the past several years have poured money into cosmetic improvements to drive rental growth but deferred vital maintenance expenditures, putting some properties in a more difficult position to sell.

“The normal market has been reluctant to admit that there's a problem that's looming,” Colliers Executive Vice President Tyler Hague told Bisnow. “A lot of the equity that went into that space over the last couple of years is now underwater or not doing very well, so it's hard to find people to buy Class-C apartment buildings because now there's a higher perceived risk.” 

Class-C issues have come even as operators have pushed rents at a faster pace than the overall market. 

Rental rates for Chicago’s renters-by-necessity, a Yardi Matrix proxy for Class-C and workforce multifamily, have increased from about $1,000 per month in 2010 to nearly $1,700 in 2026 year-to-date, a 72% cumulative gain. Over the same period, overall market rent went up from roughly $1,300 to about $2,100, a 56% increase, according to Yardi Matrix. 

Some of these rental increases were driven by investors who came in during the last cycle, bought older-vintage buildings cheaply, and put money into cosmetic improvements in units to make them more marketable. But some of those didn’t address longer-term property concerns, like replacements for roofing, windows, plumbing and electrical, Hague said. 

“They made them nice, put in granite countertops, a backsplash, new lighting, and then the rents went up $300 to $400 a month,” Hague said. “But the problems at the building that probably have existed for 20 years still loom because they weren't taken care of.”

Rent-by-necessity rates now sit at a level where rent-to-income ratios for typical workforce tenants are approaching 30% to 35% of gross income, compressing the runway for additional rent growth and increasing sensitivity to any softening in employment, according to Yardi Matrix. The spread between Class-C rents and market rates has compressed: In 2010, rent-by-necessity rates were 73% of overall rents; in 2026, they are roughly 80%.

Max Grossman, a director at Interra Realty, said the amount operators can charge for rent is up, but it needs to be to offset the expense load that comes with managing these buildings. 

“There's definitely been solid rent growth to offset those rising costs,” Grossman said, but noted that it requires operators to consistently look for market-rate tenants and aggressively increase rents. “It's definitely becoming difficult to keep profit margins where they used to be.”

Cash-flow issues have been the driver of Chicago's Class-C squeeze, not declining vacancy.

The area’s multifamily occupancy rate has climbed to 96% in 2026 year-to-date, the highest sustained level in the 15-year dataset provided to Bisnow by Yardi Matrix. Buildings are full, but rents at current levels can't clear debt service once insurance, property tax and utility increases since 2021 are layered on top. 

The 454 distressed Chicago properties in the dataset are averaging 94.4% occupancy alongside an average debt service coverage ratio of just 0.94, which illustrates “the operating cost squeeze in its clearest form,” according to Yardi Matrix. 

Hague said buyers, lenders and brokers in the market from around 2016 to 2022 were underwriting aggressively without fully considering potential drawbacks. 

“The mistake a lot of people made is they didn't guard their downside risk and say, ‘Hey, what if my insurance doubles? What if my labor costs double?” he said. “In a competitive environment, I think a lot of these buyers, they were getting equity thrown at them that was cheap, and it was like, ‘Hey, let's buy as much as we possibly can.’”

Caitlin Sugrue Walter, senior vice president and head of research and innovation at the National Multifamily Housing Council, said other investors are getting creative to make necessary improvements to their buildings as they seek a better insurance rate for a lower-risk property. 

But even new buyers coming in at lower rates have higher financing costs than they did a few years ago, Walter said. 

“It's really hard on the housing provider side to access that cash that's needed for the maintenance,” she said. 

Operators that haven't pushed rents to offset increased costs, haven't maintained properties to avoid large capital expenditures on repairs in the near future, or haven't done a good job on tenant selection can create a perfect storm that leads them to consider selling a building, Grossman said.

Investors’ interest in Chicago’s Class-C assets has rebounded from relative lows, but only on a selective basis where buyers see upside, Yardi Matrix data shows. 

Rent-by-necessity transaction volume peaked near $2.2B in 2021 and 2022, with roughly seven sales per month before rate hikes cut it in half, to $1.1B in 2023 and $938M in 2024, according to Yardi Matrix. Volume has since recovered to $1.3B in 2025, with 2026 tracking at a $1.2B annualized pace and monthly sales climbing back toward six. 

Transactions are concentrated in deals with clear upside, as value-add plays in strong neighborhoods, below-market rents or assumable low-rate debt, according to Yardi Matrix. 

“What we're seeing right now is a return to the longerstanding operators becoming more active in the marketplace,” Grossman said. 

Hague said most of the multifamily buyers in the market today are interested in properties built in the 1990s or early 2000s because they are light value-add properties with less deferred maintenance and capital expenditures. Vintage deals require a lot of time, money and effort, he said.  

All of these combined cost pressures will ultimately squeeze tenants, with no new supply easing the squeeze. Walter said that if the city is unable to incentivize new development or reduce regulations to make it feasible for developers to build, then affordable housing for the city’s renters is at stake. 

“Folks would buy the Class-C, they would renovate it, and then they would be forced to increase rents,” Walter said. “In the absence of the ability to develop, that's what folks are going to do. So you would see a worsening of affordability.”