Andrew DePietro
Home prices have been through a whirlwind over the last three years, thanks mainly to the effects of the pandemic. When it first struck in 2020, home prices and rents declined just as the economy as a whole took an initial nosedive. But as time wore on and the pandemic moved into its second year, 2021, American housing markets experienced an explosion of activity. Now, after several consecutive rate hikes by the Fed, American housing market activity has cooled off a bit as affordability has become an issue for many homebuyers.
When it comes to average rent in the United States, to a large degree it mirrored the trends in housing market activity. However, rents across the U.S. have sustained fairly substantial growth while homebuying has slowed down. Using data sourced from Zillow's Zillow Observed Rent Index (ZORI), we decided to analyze the trends in average rent in various major cities; here, we're focusing on the average rent in Chicago.
Average Rent in Chicago
Despite witnessing its population decline steadily year after year, Chicago remains the third largest city in the U.S. According to the Census Bureau's 2021 American Community Survey 5-Year Estimates, the population of Chicago is 2,742,119, having just under 500,000 more residents than Houston whose population is 2,293,288. As America's third largest city, Chicago naturally has a ton of housing units, but despite a year-over-year decline in average rent from November 2019 to November 2020 of 4.4%, rents have been on the rise ever since then in the Windy City.
According to Zillow's data, the estimated average rent in Chicago is $1,925, as of November 2022 (the most recent rental data available at the time of writing). While that figure is certainly cheaper than the average rent in America's largest city — New York City, with an average rent of $3,353 for that same month — as well as cheaper than the nation's second largest city — Los Angeles, with an average rent of $2,915 — Chicago's average rent is comparatively expensive for the Midwest region of the U.S.
Here's a look at how the average rent in Chicago of $1,925 stacks up against some other major Midwest cities for November 2022:
- Average rent in Minneapolis: $1,649
- Average rent in Cincinnati: $1,486
- Average rent in Columbus, Ohio: $1,407
- Average rent in Indianapolis: $1,313
- Average rent in Detroit: $1,282
- Average rent in Cleveland, Ohio: $1,276
- Average rent in Kansas City, Missouri: $1,276
- Average rent in Omaha: $1,236
- Average rent in St. Louis: $1,187
- Average rent in Milwaukee: $1,149
The average rent in Chicago is more expensive than all 10 of these major cities of the Midwest, with Minneapolis the closest at an average rent of $1,649. Indeed, the growth rate in the average rent in Chicago is among the most robust in the Midwest region: From November 2021 to November 2022, Chicago's average rent rose by 8.6%, from $1,773 to $1,925.
However, looking at Chicago's average rent through the lens of average annual growth from 2017 to 2022 reveals a different picture. Chicago's five-year average growth rate in rent was only 3.6% per year. Compare that to Indianapolis's five-year average growth rate of 8.1% per year; Cincinnati's 7.8% per year; and Detroit's 7.7% per year, just to name a few. In terms of this five-year metric, the annual growth in Chicago's average rent is sluggish compared to the other 10 Midwest cities listed above, with the exception of Minneapolis. That city experienced a five-year average growth rate in rent of only 2.4% per year from 2017 to 2022. So, despite assumptions and images of Midwestern cities as declining deindustrialized urban areas, many of them are displaying dynamic growth in their rental markets.
Below is a table of the average rent in Chicago from November 2017 through November 2022:
Average Rent in Chicago
The average rent in Chicago for all homes, seasonally adjusted, for the months November 2017 to November 2022, as well as the U.S. values.
Table with 5 columns and 6 rows. Currently displaying rows 1 to 6. | ||||
Date | Chicago Average Rent | Chicago Rent YOY Change (%) | U.S. Average Rent | U.S. Rent YOY Change (%) |
Nov, 2017 | $1,618 | 2.2% | $1,468 | 3.8% |
Nov, 2018 | $1,649 | 1.9% | $1,527 | 4.0% |
Nov, 2019 | $1,701 | 3.2% | $1,585 | 3.9% |
Nov, 2020 | $1,626 | -4.4% | $1,601 | 1.0% |
Nov, 2021 | $1,773 | 9.0% | $1,847 | 15.4% |
Nov, 2022 | $1,925 | 8.6% | $2,008 | 8.7% |
Looking at the data, the average rent in Chicago tended to be higher than the U.S. average from 2017 until 2020. That latter year was the turning point, as from then on, the average rent for the U.S. overall remained higher than Chicago's in November 2021 and November 2022. The principal reason for this shift is because from November 2020 to November 2021, average U.S. rent rose by a staggering 15.4%: From $1,601 to $1,847 a year later. For Chicago, the corresponding annual growth in rent was 9%: From $1,626 in November 2020 to $1,773 in November 2021.
Average Rent in Chicago by Zip Code
Breaking down the Windy City into its many zip codes, we can analyze how the average rent in Chicago has changed over the years through a different geographic metric. Firstly, the zip code in Chicago with the most expensive average rent is zip code 60603, at approximately $2,645 for November 2022. Zip code 60603 covers a series of city blocks east of the South Branch Chicago River, stretching from South Wells Street in the west to South Columbus Drive in the east, including the Art Institute of Chicago. Chicago zip code 60603 also includes the location of one of the most expensive colleges in Illinois, the School of the Art Institute of Chicago, according to BrokeScholar.
The Chicago zip code that experienced the biggest year-over-year growth, however, was not zip code 60603. Instead, it was zip code 60606, which saw its average rent rise by 19.6%, from $2,053 in November 2021 to $2,454 in November 2022. That equates to a growth in average rent of roughly a fifth in just one year. Zip code 60606 straddles the South Branch Chicago River and includes the Willis Tower and part of the neighborhood of West Loop Gate. It should be noted, however, that this same zip code experienced a massive drop in rent when the pandemic hit: From an average rent of $2,188 in November 2019, it fell by 14.6%, down to $1,869 in November 2020.
Below is a table with the 10 most expensive Chicago zip codes in terms of their average rent as of November 2022. Also included in the table are their respective year-over-year changes from November 2021 to November 2022:
10 Most Expensive Zip Codes in Chicago
The average rent for the 10 most expensive Chicago zip codes as of November 2022.
The average rent for the 10 most expensive Chicago zip codes as of November 2022.
Table with 3 columns and 10 rows. Currently displaying rows 1 to 10. | |||
Chicago Zip Code | Average Rent - November 2022 | Average Rent YOY Change (%) | |
1 | 60603 | $2,645 | - |
2 | 60607 | $2,628 | 4.9% |
3 | 60654 | $2,619 | 9.5% |
4 | 60611 | $2,603 | 6.4% |
5 | 60601 | $2,601 | 8.0% |
6 | 60610 | $2,470 | 8.2% |
7 | 60606 | $2,454 | 19.6% |
8 | 60605 | $2,420 | 6.3% |
9 | 60642 | $2,399 | 11.7% |
10 | 60614 | $2,342 | 10.5% |
Looking over the most expensive zip codes in Chicago, some definite patterns emerge. Five of the zip codes with the highest average rent in Chicago are north or northwest of the Chicago River: Zip codes 60654, 60611, 60610, 60642, and 60614. Another key pattern is that three out of the 10 most expensive zip codes cover lakefront areas of Chicago: Zip codes 60611, 60601, and 60605.
In the end, for the city as a whole, the average rent in Chicago of $1,925 (as of November 2022) is the most expensive it has ever been. The average rent in Chicago has not only recovered from the negative impacts of the pandemic. It has surpassed its historical peak of $1,723 in March 2020, the same month the pandemic would really make itself felt in the U.S. A problem arises, however, if homebuyers continue to face affordability issues, which increasing mortgage rates have raised, then rents could continue to rise higher as buyers move to renting as an alternative.
**https://www.ziprecruiter.com/Salaries/College-Graduate-Salary-in-Chicago,IL
***https://www.chase.com/personal/banking/education/budgeting-saving/how-much-income-should-go-to-rent
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Comments: Mortgage rates are gradually climbing up. As a result, the prospect of purchasing a new condo or house is becoming out of reach, especially for the first-time buyers. This creates an increase in demand for rental properties. Chicago, along with many other major cities, has seen a rise in the price of rentals. The article does an excellent job analyzing the current trend of the rental market in Chicago compared to rest of the country, with a focus on the how Chicago compares to other major Midwest cities.
Why does this matter? According to ZipRecruiter, the average college graduate in Chicago roughly makes $44,000/year. After paying 21% in federal and Illinois taxes, you will be left with, $34,730 ($44,000- $9,240). This translates to $2,894 a month. Per the article, the average rent in Chicago is $1,925 a month. This means you would spend a roughly 67% (1,925/2,894) of your monthly income in rent. This leaves you with 33% (100-67) for rest of your expenditures, including, food, school, medical, pet, electric and gas bills, and so on. Per Chase Bank, and other financial institutions, one should not spend more than 30% of their income on rent. Therefore, we can deduce average rental prices in Chicago are not attainable for someone with a recent college degree, unless they secure a well-paying job right out of school.
Government: Should the government create a price ceiling, i.e., put a cap on rental prices? This would allow new graduates a better chance to afford a rental property. Please include the potential impact of implementing a price ceiling, such as a potential shortage in rental properties. You could research places such as NYC in 1960's (https://hypocritereader.com/81/rent-regulation-nyc ). Additionally, you could also incorporate the use and availability of subsidies, such as rental vouchers, as part of your analysis.
Free Market: Should the market dictate rental prices based on supply and demand? As prices go up, renters will choose to find alternative living conditions, such as living with parents, and, ultimately, leave the rental market. Eventually, rental prices will go down as the demand for rental properties decrease. Thus, a market-driven solution will work to avoid scenarios such as a shortage of rental properties. Additionally, this would be the most efficient method of solving the issues at hand: high rent prices. In your analysis, you should incorporate concrete examples of cities where such solutions have been implemented.
A mixture of government, and market solution: You could make an argument that a solution where both government and the free market could work together. In your analysis, you must include concrete steps and examples to illustrate your point.
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