Why Doesn't Chicago Build More Apartments?

Chicago's multifamily market is looking more and more like a house of cards in 2026 — skinnier at the top as fewer new units are delivered and with a shakier base as rent growth continues to climb.

A dry supply pipeline and the still-high cost of homeownership are squeezing renters and amping up pressure for Chicago’s developers to produce more housing to meet the need. Developers looking to build on strong renter demand and fill the supply gap are taking on a quartet of headwinds: an unpredictable tax climate, tepid institutional investor interest, regulatory barriers and rising construction costs. 

“If you look at the data, you have to realize we're in a moment of crisis, because if we don't change the trajectory, one of the biggest attractions for Chicago — having affordable rent for young professionals — will be disappearing,” said Michael Fassnacht, Clayco chief growth officer and president of the Chicagoland region. 

Chicago is among the leaders in the country for rent growth, a boon for potential investors and current landlords. But rising rents also present a major hurdle for the area’s future affordability. In 2025, every Chicago submarket posted rent increases above the U.S. average, according to a Cross Street report.

The city has a long way to go to meet housing needs.

To put it in perspective, Chicago’s multifamily inventory expanded at the fourth-slowest pace among major markets over the past three years, according to a Marcus & Millichap report. Completions in 2026 are projected to dip below 4,000 units and expand inventory by 0.5%, almost equal to 2025’s slow pace. 

Chicago’s 5% vacancy rate is one of the lowest among major U.S. metros and is more than 350 basis points below the nationwide average of 8.5%, according to Cross Street. Multifamily finishes are expected to fall to their lowest levels since 2012, a period of scarcity that will accelerate rent growth.  

“It's the same city, the same story,” Cross Street President Shane Rachman said. “It is very steady Eddie, which is why we love Chicago. But the story of that rent growth being equal and now lurching forward while the other cities fall behind is only going to be seen more as that pipeline stays tight, which for the end user means it's getting way more expensive way faster.”

What's Stopping People From Building In Chicago?

Chicago developers face familiar local boogeymen in getting new development off the ground, as well as the macroeconomic challenges that are stifling it nationwide.

Cook County property tax uncertainty is the roadblock that looms largest in preventing new multifamily development in Chicago, with the topic coming up in every interview Bisnow conducted for this story. The Cook County Assessor’s Office uses mass appraisal to value properties based on market averages — factoring in rents, vacancy and cap rates from comparable assets — rather than the property-specific analysis used in traditional investment appraisals.

Critics of the assessment system say it is unpredictable and drives away major investment, and owners of high-value properties almost always appeal their assessed valuations anyway — 97% of all properties worth more than $5M in Chicago saw their assessments appealed in 2021. 

“We know the rents are going to go up if you deliver a certain product,” Moyer Properties founder Greg Moyer said. “Every market is different, but in every market, you can kind of predict where you are as far as supply and demand. … You just can't predict the expenses in Chicago.”

Larger institutional investors, which are typically the money behind the biggest new multifamily construction, make decisions based on certainty, Rachman said. The final tax bill has already been uncertain for people with existing assets, and it is even more of a concern for those looking to put a shovel in the ground. 

“There's no formula,” Rachman said. “And uncertainty is the killer of those deals.” 

Various city requirements for new developments and approval timelines during the development process also weigh on supply growth. 

The city’s Affordable Requirements Ordinance applies to multifamily developments that are made up of 10 or more residential units or require a zoning change, city land or financial aid from the city. Depending on the project, between 10% and 20% of the units must be affordable so residents earning 60% of the area median income don’t pay more than 30% of their income on rent.

Rachman said the ARO component of new developments is sending build metrics a bit out of whack because it is driving an “unmatched yield requirement.” 

“The cost of building a unit is the same. The taxes are going to be similar,” Rachman said. “All the underlying fundamentals are very similar, but then you take a discount on the ARO unit from a rent standpoint.”

Brian Carley, executive managing director of development at Bradford Allen Capital, is developing Arbor House, a 301-unit luxury apartment community in Arlington Heights. He said today’s construction math is tough to justify: Between hard costs and the price of debt, high-rise projects are running at roughly $480K per unit, requiring significantly higher rents to pencil. 

That’s a sharp shift from several years ago, when buildings were trading in the $300K to $350K range per unit and could be delivered for far less, Carley said.

“I would argue that the high rents that we see today are driven just as much by the cost to deliver the actual housing unit [as by] that supply factor,” he said. “I mean, again, it's a mix of the two, of course, but a big portion of it is the cost.”

Why Build In Chicago?

As the national outlook for multifamily has weakened in 2026, Chicago has stood out as an attractive option for investors seeking multifamily returns. While other markets — most notably in the Sun Belt — have seen negative rent growth driven by oversupply, the Midwestern hub has quietly overtaken the rent growth leaderboards through a combination of constrained supply and a steady drumbeat of new renters flowing into the area.

Illinois recorded its third consecutive year of population growth in 2025 as net domestic out-migration fell to its lowest level in 15 years. Many graduates from Big Ten universities in the region flock to the city in search of job opportunities. 

Vicky Lee, executive vice president of capital markets and investments at Focus, said more developers and investors are turning their attention to the city because of oversupply in other regions and positive fundamentals in Chicago. 

“There's a lot of people, a lot of groups that are looking at Chicago in a different light,” Lee said. “You hear more and more that people are interested in looking at the Midwest.”  

Marcus & Millichap projects year-end vacancy to settle at 3.8%, about 200 basis points below the city’s long-term average. The brokerage anticipates Chicago’s rent growth will slow slightly in 2026 to about 3%, following nearly a 50% gain over the past five years, with the year-end mean rent hitting $2,300 per month.  

Certain investors are already capitalizing on the sector’s rosy fundamentals with trades this year, such as the 42-story tower at 73 E. Lake St. selling for $126M or the 197-unit apartment tower in River North going for $85M. Downtown transactions were up almost 42% in 2025, driven primarily by an uptick in institutional interest, although private equity and private investors still account for the majority of sales volume, according to Cross Street.

But there has still been a lag in financing for new construction.  

“We're starting to see some movement, but until someone big steps their foot back in the door, I don't think that we'll see the floodgates open,” Lee said. “But I think all the fundamentals are here.” 

How Does Chicago Build More? What If It Doesn't?

There are a variety of factors that could drive investors to bankroll new development in the city. 

Tax incentives and free land help, but interest rates are the biggest driving factor in bringing development back, Moyer said. Moyer, who is developing multiple properties in the Chicago area, said he has seen the loan-to-value ratio from senior lenders increase and he has been able to get more debt. The cost of construction debt has also compressed, he said. 

Fassnacht said the city needs an attractive story for developers and capital, but it also needs to scale up housing production. There is already a shortage of market-rate and affordable housing, and the city shouldn’t wait to develop as rents continue to climb.

“That's a path, but I don't think that's the path that will get us the scale of new buildings that we need,” Fassnacht said. 

The stakes of failing to increase apartment supply may be apparent in wage growth statistics. 

Average weekly wage growth in Cook County was up 4.2% year-over-year in Q3, slightly below the 4.7% growth rate nationally, according to the Bureau of Labor Statistics. Looking ahead 12 to 24 months, Carley said a lack of new housing could push costs higher than some renters can keep up with. 

“Where does that leave us? In mom and dad's basement — where else?” Carley joked. 

Institutional investors reentering the developmental fray is key to helping jump-start the pipeline, Rachman said, but he hasn’t heard much about them reentering the space in the near future. He said there needs to be a level of certainty around property taxes or worsening conditions in other markets where those institutions have invested to make taking the risk on the county’s taxes worthwhile. 

Increasing the supply pipeline would offer tenants relief on increasing rents, but Rachman said developers largely play into the environment, given that they don’t control it. 

“A lot relies on what happens with the political climate here,” Rachman said. “If we have the exact same parts in place in 2028 that we do today, it'll be a very similar story. Rent growth will be going [up], we’ll not be seeing a lot of adds in terms of new starts, and it's going to remain highly competitive.”

The financial gap between buying an existing building and building a new property may also narrow as more multifamily buildings in the city trade at market value, Lee said. Some buildings have traded at a discount due to capital markets distress, but once that distress disappears, the buy-build spread will tighten.

Developers who can get projects started now will benefit from the region’s latent demand.  

“Right now, it is definitely pent up, and those who are able to get shovels in the ground right now will win,” Lee said.