Why is Chicago so affordable?

[Urbanight]

Originally Posted by simulcra

I didn't mean to say that Chicago was not financially important. What I meant to say was that as a percentage of Chicago's economy and employment, finance is not nearly as important as it is for NYC/Boston, and to a lesser extent San Francisco. Chicago has a ridiculously balanced economy, to the point that it's almost boring.

The dominance is what matters in terms of wage. As an example, Chicago may have the second-largest exchange in the world and the largest futures exchange in the world, but Boston is dominated by hedge funds to an insane degree, such that their high salaries dominate real estate pricing far more than the bankers and economists in Chicago. By contrast, while you'll have high paid Harris Bank employees and CME/CBOT employees in lavish Loop condos, since they don't dominate Chicago's economy to the same degree, their high wages don't dominate pricing to the same degree, and is counterbalanced by more middle class wages. The same could also be said about Chicago's healthcare, biotech, and high tech industries. While Chicago definitely has a healthy share of biotech and high tech employees (in fact, has the largest labor pool of IT employees in the country, while NYC has very few by comparison), it's not dominated by those industries like say Seattle or the entire Silicon Valley is.

I think there is plenty of demand to live in Chicago. Look at the number of housing units built here in the pass 10 years. The percentage of units added is just as high or higher than NYC, Boston, SF. I think one reason prices remain low is that there is still a ton of space to build within the city. There is still a lot of space to build in really desirable neighborhoods. That is the true supply and demand rational. Supply is still higher than demand. The Gold Coast, probably Chicago's most desireable neighborhood still has land to build on. There are 3 condo towers going up now within a one block radius. How much space is left to build in NYC, SF, and Boston most desireable neighborhoods? I don't know, but I would bet very little or none. Demand in Chicago is healthy, and desirable land in Chicago is in abundance.

I don't see how dominance in a certain industry will make a difference. Is your arguement people that get paid a lot drive up the cost of real estate? There is no shortage of high-paid employees in Chicago. What does dominance have to do with wages?

[Keithire]

What is the nearest suburb to Chicago, and what are the house prices there?

[maxwellimus]

easy answer kid: supply and demand.

there's not enough demand to meet the supply, therefore, the prices are still moderate in most areas. I dont think Chicago will ever have a connotation as a place with expensive housing due to the amount of land still not developed, along with the fact that Chicago is not really confined by natural landscapes. Obviously there are expensive housing in Chicago, but, as a whole, the city really won't be known for it, at least in my lifetime (and I'm 24 :-)).

I think the only scenario that would allow chicago housing to become relatively on the levels of SF and NY is if something devastating happened to the coastlines and people start moving inward, which, is highly unlikely.

[Northsider]

Originally Posted by Keithire

What is the nearest suburb to Chicago, and what are the house prices there?

There are many, but Evanston and Oak Park are the two that most likely come to mind. I'm not sure about housing prices.

[The Urban Politician]

Originally Posted by maxwellimus

I think the only scenario that would allow chicago housing to become relatively on the levels of SF and NY is if something devastating happened to the coastlines and people start moving inward, which, is highly unlikely.

^ Blaming the coasts for Chicago's lower prices is just plain ridiculous.

There is plenty of wealth around Chicago--the Chicago area has a larger GDP than London, and Forbes ranked Chicago the third or fourth most economically powerful city in the world last year. Yet look at the difference in land prices between London and Chicago.

Lack of wealthy professionals is not a problem for Chicago. Chicago's problem is actually the opposite--lack of affordable housing for the poor.

Chicago is cheaper because it builds so much. Check out the Economy Thread--Chicago continues to be a place where developers from everywhere come in and build, build, build. As long as that's the case, supply far outpaces demand.

Those are my 2 cents.

[The Urban Politician]

This article, posted in the Economy Thread, was originally written in 2002. It's actually about a different topic, but in its description of how Chicago works and functions it helps explain why things are cheaper in Chicago. It also explains how our otherwise haughty Sunbelt brethren quiver when they're head to head with Chicago for corporate HQ:

Friday, May 17, 2002
Boeing meets Chicago
City of Broad Shoulders is quick on its feet
Puget Sound Business Journal (Seattle) - by Steve Wilhelm Staff Writer

The Boeing Co. moved its headquarters to Chicago for many reasons, among them the city's reputation as a place where things get done.

Despite a history of machine politics and epic political corruption, Chicago maintains its image as a city of action.

By contrast, Seattle and the Puget Sound area increasingly struggle with stalled big projects and glacial policy changes, seemingly stuck in a standoff among paralyzed politicians, social visionaries, single-issue zealots, environmentalists, tax-hating populists and transportation-planning partisans.

Seattle's consensus-driven, process-intensive politics compromise its ability to accomplish anything quickly. On the regional level, big civic projects such as light rail or new airport runways often bog down in protracted disputes.

The uncertainty of action on vital issues such as traffic relief, Boeing has said, is one of the factors that led it to look elsewhere - and may force the company to move manufacturing jobs out of Washington.

Powerful aspirations

Chicago is the bull of the Midwest - a brawny colossus that stretches mighty arms of rail, finance and industry in all directions. Chicago still dominates the heart of the United States.

Since its beginnings, Chicago has been a city of powerful aspirations, bristling at the notion that it's second to New York City as a metropolis. Chicago's founders thought big - building big skyscrapers, big rail systems, a big city. Chicago is an act of will.

"This (Boeing's move) will tell you how great we are, and we are great," said Burton Natarus, Chicago alderman for the downtown 42nd Ward and a 31-year veteran of Chicago politics.

Chicago is about expansion, often without the endless public hearings and referenda so common here. Chicagoans build transit, reverse the direction of their rivers, build layers of superhighways, develop the world's largest convention center. The city bustles with power. It's run from the top, by a tight coalition of businessmen, politicians and even labor leaders, with a tradition of accomplishing what they decide to do.

As an example, the city mobilized quickly and effectively to put together the financial incentives package that helped lure Boeing.

"Boosterism has built Chicago from nothing," said Paul O'Conner, executive director of World Business Chicago, the city's economic development group. "It's a huge mobilization of the collective will. You either pull it off or you'll become St. Louis."

Chicago is a city of dynasty. Framed and signed photos of Chicago Mayor Richard M. Daley watch over the desks of most of Chicago's elite. The current Daley has been mayor since 1989, and his legendary father Richard J. Daley was mayor from 1955 through 1976. The mayor is head of the city, schools, police and the airports. The 50 elected aldermen serve their wards. The leaders at the top build the city.

"I think cities in America are like Greek city-states. ... It's one against another," said Don Turner, president of the Chicago Federation of Labor. "We have a close link between labor and business. People do things here for the good of Chicago. That's what we do. That's the ethos here."

Unassuming presence

In such a city, the new headquarters of The Boeing Co. seems surprisingly unassuming. It doesn't dominate the landscape like Boeing's Seattle headquarters on East Marginal Way did, when the company was the axis of manufacturing for the region.

Instead, the new Boeing is perched almost invisibly on the top 12 floors of the former headquarters of Morton International Inc., on the west bank of the Chicago River. There's a Boeing logo atop the building, and Boeing's name above the entrance. What's missing is the sense of grand entry, of entering an aerospace empire, that characterized Boeing's old corporate headquarters.

To enter Boeing's Chicago headquarters a visitor passes through three levels of security - in each case, one person sitting behind a nondescript desk. At the second desk, in a side room at the top of an escalator, the guard listens to a local AM station on a small radio while fiddling with security passes stuffed in a small box. The only evidence that this is the home of a $58 billion aerospace company is a mural on the wall, smaller than arms' width, illustrating a montage of Boeing products from Bill Boeing's seaplane to the International Space Station

The slim dark Boeing building is just west of downtown Chicago's famed "Loop," home to most of the city's tallest business buildings. It's a 25-block rectangle formed by the city's elevated railway known as the "L." The Boeing building is a few blocks southwest of the city's "Miracle Mile" (Michigan Avenue), a broad boulevard of high-end department stores, from Macy's to Saks to Nordstrom.

While just three blocks west of City Hall, Boeing is a step outside Chicago's urban core. You could miss it unless you were going there.

While Boeing seems at the edge of Chicago's urban heart, city fathers hope its presence will help move more corporate activity westward. They're hoping for more corporate growth in the area near Boeing's building, dubbed the "West Loop."[/QUOTE]

[maxwellimus]

I'm not blaming anyone or anything, UP. I'm just merely stating a scenario. I stated the reasons for Chicago's low prices in my post to undeveloped lands and no natural restrictions confining the city. Resulting in a simple case of having more supply than demand.

Originally Posted by The Urban Politician

^ Blaming the coasts for Chicago's lower prices is just plain ridiculous.

There is plenty of wealth around Chicago--the Chicago area has a larger GDP than London, and Forbes ranked Chicago the third or fourth most economically powerful city in the world last year. Yet look at the difference in land prices between London and Chicago.

Lack of wealthy professionals is not a problem for Chicago. Chicago's problem is actually the opposite--lack of affordable housing for the poor.

Chicago is cheaper because it builds so much. Check out the Economy Thread--Chicago continues to be a place where developers from everywhere come in and build, build, build. As long as that's the case, supply far outpaces demand.

Those are my 2 cents.

[simulcra]

Originally Posted by Urbanight

I don't see how dominance in a certain industry will make a difference. Is your arguement people that get paid a lot drive up the cost of real estate? There is no shortage of high-paid employees in Chicago. What does dominance have to do with wages?

I work off a few first principles to reach my conclusion.
a) dominance in a certain industry generally implies that you also get the top companies in the industry. ie, seattle has microsoft, amazon, boeing, new york has jpmorganchase, goldman sachs, all assorted wall street investors, boston has putnam, john hancock, fidelity ventures, colonial mutual funds, etc.
b) the top companies in the industry generally have the largest revenues - as a result, they tend to be able to pay significantly higher wages to their employees in an effort to attract top talent. while i'm a bit too lazy to look up actual numbers, I can use anecdotal evidence and compare the starting salaries at say, Microsoft and Amazon versus starting salaries at smaller, though still significant, IT companies in Chicago and in Seattle as well as experiences from people I knew in college going to work for say, Goldman Sachs and something local in Chicago (Harris Bank?)
c) creative class employees (those especially likely to be employed at a high wage position) tend to have similar tastes in urban neighborhoods (that is, they seek out aesthetics, culture, night life)
d) the liquidity of the population will generally exceed the liquidity of real estate construction. that is, if people start to move into a neighborhood because it's starting to become really popular, the ability for people to start moving in far exceeds the ability of construction crews and developers to build new units to accomodate them. <- this point here is probably the most important, as it's pretty much the main reason why real estate values increase dramatically in newly popular neighborhoods (*cough* wicker park *cough*)

Given all this, I can say with reasonable certainty that certain cities and certain neighborhoods within those cities have enormously higher levels of desirability and "prestige" than areas in Chicago. As a result, in cities with dominant industries, there will be a greater bidding up of real estate prices as people's liquidity and generally higher wages will help them get into those neighborhoods while development lags behind people's propensity to move into them. In Chicago, you'll still get some of that (south loop, wicker park, bucktown, near west side, whatever that small neighborhood near boystown is that's named like SoHo), but in general Chicago's lack of particular dominance in a particular industry will mean that Chicago simply won't have the same degree of top-end earnings distorting the population's wage distribution and thus causing a drive up in prices.

Simple, if facile, comparison. Chicago's median household income in 2000 was 42000. Manhattan's was 50000, a whopping 25% more. This also masks the fact that, unlike Chicago, Manhattan has a __really__ huge upper tail in the distribution of obscene wealth earners. I'm sure if the census published average household wages, we'd see an even starker difference between Chicago and some of the other cities mentioned before (SF, Boston, NYC, Seattle).

That being said, I'm not making a judgment call in saying that Chicago doesn't dominate a particular industry. Sometimes it seems bad when talent from Chicagoland feels like they need to go to Boston or SF/Seattle/Portland to do a tech startup, but it also means Chicago's growth is balanced and doesn't get disproportionally affected by sector failures (like NYC/Boston in this past recession, Seattle/Portland/SF during the tech bust).

[Urbanight]

^ I still do not see the correlation between Chicago's real estate being more affordable than costal cities and Chicago's economy lacking a single dominant industry.

I think most people seem to think real estate prices in Chicago are where they are because of supply and demand. Demand cannot meet supply yet in Chicago.

But you're saying demand has not met supply because Chicago does not have enough highly paid employees. And Chicago does not have enough highly paid employees because Chicago does not have top companies headquartered here. And Chicago does not have top companies headquartered here because there is not one dominant industry.

Yes, Chicago does have a diverse economy, but it still has a lot of top companies. The part where you lose me is dominance in a single industry = higher wages. You lose me because you have no proof. Other than cost of living adjustments, show me the difference between a banker in Boston and a Banker in Chicago. I'm familiar with the legal industry, and for lawyers there is barely a cost of living adjustment across cities. You also don't take into account regional or department HQ's in Chicago. How much do those employees get paid compared to the employees at the global HQ?

And Wicker Park/Bucktown prices did rise dramatically, just like other neighborhoods in Chicago that gentrified quickly. But you seem to assume that if Chicago had a single dominant industry when Wicker Park/Bucktown became hot the residential prices would skyrocket to what NYC, SF price? You would need to look at the percentage of increase in real estate prices, not the actual real estate prices. You will not find many neighborhoods in the country with more desirability than Wicker Park/Bucktown, or the Gold Coast, the most desirable neighborhood in Chicago.

And yes, more wealthy people = higher real estate price. A city's economy being dominanted by a single industy = more wealthy people? Don't agree.

[The Urban Politician]

^ Yup. I think your take (supply/demand vs. single industry dominance) probably explains Chicago's cheaper prices better than Simulcra's explanation, all due respect of course.

Chicago is simply too large of a city and has too many well-paid professionals for me to accept that somehow Boston or Seattle should cost more to live in simply due to industry specialization. It really has more to do with supply outrunning the hell out of demand. Chicago builds a lot, I mean a LOT, often far more than what is warranted. That keeps prices perpetually low.

[Steely Dan]

i would agree with the idea that chicago is cheap because of its strong propensity to build far more than is warranted as opposed to simulcra's (rather silly IMHO) contention that it is cheap because it lacks dominance in an industry (chicago actually does dominate in some financial sectors like commodities and futures and such, but that's beside the point).

geography also plays a role to a certain degree. i remember having a conversation with fflint from SSP when he visited chicago a couple of years ago. coming from tiny san francisco, he was astounded by the fact that chicago just "keeps on going and going and going, almost like it never ends". he said in san francisco if you want to find cheaper housing, you eventually have to move across the bay, which is a HUGE psychological leap that many people simply will not make, thus they will tolerate extremely high housing prices to remain on the peninsula even if they have to make great sacrifices to be able to afford to do so. in chicago, he said, you can just keep moving a little bit further south and west (generally speaking) until you finally find a price point to fit your budget, so there is no great psychological barrier like san francisco bay that makes people willing to spend such an absurd percentage of their income on their housing costs. chicago's large flat unlimited barrier-free geography does play a part in our cheaper prices. land is cheaper here because we have so damn much of it. it's the one resource we simply won't run out of until the chicago and denver CSAs merge together in several centuries.

[The Urban Politician]

Originally Posted by Steely Dan

geography also plays a role to a certain degree. i remember having a conversation with fflint from SSP when he visited chicago a couple of years ago. coming from tiny san francisco, he was astounded by the fact that chicago just "keeps on going and going and going, almost like it never ends". he said in san francisco if you want to find cheaper housing, you eventually have to move across the bay, which is a HUGE psychological leap that many people simply will not make, thus they will tolerate extremely high housing prices to remain on the peninsula even if they have to make great sacrifices to be able to afford to do so. in chicago, he said, you can just keep moving a little bit further south and west (generally speaking) until you finally find a price point to fit your budget, so there is no great psychological barrier like san francisco bay that makes people willing to spend such an absurd percentage of their income on their housing costs. chicago's large flat unlimited barrier-free geography does play a part in our cheaper prices. land is cheaper here because we have so damn much of it. it's the one resource we simply won't run out of until the chicago and denver CSAs merge together in several centuries.

I agree that this is a huge component that also bears discussion. The "psychological barrier" also applies very well in New York. Truth is, there is a huge psychological barrier, perhaps much bigger than in San Fran, for New Yorkers to leave Manhattan. New York being the most "local" of cities in the country with by far the lowest car ownership/usership, people are very reliant on mass transit and their own two feet to get around. Thus, moving to Queens, Brooklyn, or the Bronx is like moving to another state. I think that far inflates Manhattan prices to a degree greater than can simply be explained by Wall St or international investment. If Manhattan were not an island, I think it would still be expensive but not to nearly the degree that we currently see.

Chicago, on the other hand, has a downtown that many, even those in the suburbs, see as pretty easily accessible not only by bus/rail but by car. Why not live out in Niles or Morton Grove and buy a big house for a cheaper price? Chicago's central city competes with its suburbs to a greater degree than NYC does, mostly due to its increased car dependence; add to that the perpetual building that continues to replenish supply and I think we have a great working explanation for Chicago's lower prices.

[Miracle Mile Man]

http://finance.yahoo.com/real-estate...y-most-to-live

But not all cities with national recognition and abundant amenities have astronomical costs. Housing costs in Chicago are $1,254. That's 30 percent less than what they are in San Jose, Calif. -- one of the top three cities for housing costs, along with Bridgeport, Conn. (and the surrounding metro, which includes wealthy enclaves like Stamford and Norwalk) and Oxnard, Calif. (which includes Ventura and Thousand Oaks). Baker says Chicago's relatively low costs result in part from loose building regulations and an abundance of land. This means developers can quickly meet demand with new housing, keeping costs relatively low. "At least on three sides, you can just keep building out," Baker says.

[simulcra]

I do so enjoy being the minority voice, makes me feel special (or crazy).

I don't mean to say that supply/demand has nothing to do with it. As a child of neoliberal economics from Chicago itself, supply/demand has a lot to do with it, I just find that there's a lot more emphasis on the demand side rather than the supply side (which everyone else seems to be supporting).

I realize I'm probably not making my point very clear, as a lot of what I say has a lot of implied conclusions and logical connections, but just to state that I'm not alone here, a lot of what I say is derived from writers like Sassia Sasken and Bill Bishop.

I also think I'm being unclear when I say "industry dominance," because I notice that people are making counter points to things that I wasn't really saying. Here's a bit of (completely unscientific) anecdotal data: when I would go to events and clubs in Chicago and the inevitable "what do you do?" question came around, the answers I got were fairly diverse - writer, journalist, nurse, etc. When I do the same in Seattle, I'd say that about 33%-50% of the people I meet are tech-related, and a good portion of those people are from the big three - Microsoft, Boeing, or Amazon.

The point of that (boring) story is that I'm pretty sure we're all in agreement in saying that Chicago has a progressive, diversified economy. I'm sure we can all agree when I say that Chicago also has a massive municipal GDP, and that when we consider Chicagoland in general, the 4th largest city in the US (Houston) pales in comparison to Chicagoland's economic might. But I'm saying that in the economics of place, that is only part of the reason for wages. What also matters is specialization - higher specialization demands higher wages because higher specialization requires more time on the part of the worker to cultivate. And in spite of today's global marketplace (or perhaps because of), an industry needs to be sufficiently large to support successive degrees of increasing specialization and, thus, higher wages. Thus, magnitude (in b/millions USD) is only one component - share of the local economy (%) is also important.

Simple example. Chicago has the largest IT labor pool in the nation (yes, larger than Silicon Valley). However, there is almost no venture capital available for funding tech startups in Chicago. IIRC, the majority of all of the nation's venture capital for tech startups is in Silicon Valley. Among other things, that's because the tech industry there has become so increasingly part the local economy that financial investors were able to increasingly specialize until now, Silicon Valley is home to the pre-eminent tech venture capitalists in the world. Long story short, this feedback loop of "uneven development" means that the high share of IT companies as a part of the local economy as well as the size of the IT industry in the local economy means that companies there tend to be at the top of the game (Apple, Google, etc). Meanwhile, companies in Chicago will tend to be more understated and, while still offering good pay and decent jobs, won't be paying nearly as much.

I think that some people are getting defensive over this, and I'll say that this is not a Chicago-bashing sentiment. It's a double-edged sword, really. If you're in NYC and want to do IT, you'll probably have better options in Chicago. If you're in Silicon Valley and want to be a day-trader, you'll probably have better options in Chicago. If you're in DC and want to do media/design, you'll probably have better options in Chicago. If you're in LA and want to do health care, you'll probably have better options in Chicago. If you're in Boston and want to do manufacturing, you'll probably have better options in Chicago. Similarly, if there's another tech sector bust, Chicago will be better off than Seattle/SF. If the internet really does kill the tv star, Chicago will be better off than LA. If a republican administration shuts down half the federal government, Chicago will be better off than DC.

It just also means that due to the fact that Chicago's economy merely has magnitude (as oppossed to magnitude and %share of local economy) for any given industry, Chicago may not necessarily be the top-end result. As a result, wages in Chicago will tend to be lower for a given industry than in cities that have such a dominance. As a result, given that people tend to pay a fixed % of their income on housing (hovering around 30%) regardless of their income level and location (with manhattan being a potential outlier), their willingness to pay for new housing will be lower, which will then depress home prices in the region. I might even go so far as to hypothesize that, percentage-wise, there's a close to 1-1 relationship between % difference in two cities' median homeowner wage and their median house price (though I don't know where to look up homeowner wages).

Even if that hypothesis doesn't pan out, it basically boils down to this point: people tend to spend 30% of their income on housing, regardless of how much they make and where they live. Given that wage implies housing costs, which comes first in this chicken-and-egg? A lot of you are saying housing costs (through limited supply). I would say wages.

EDIT: This is already insanely long, but I have an earnest question for people who say geography/supply are the main factors. How would you explain to me the costs of living in LA, San Jose, Portland OR, Boston, DC, etc when these cities have no obvious geographical constraints and, in most cases, are less dense than Chicago? NYC/Seattle/SF is easy to explain with geography/supply, but what about these cities?

[The Urban Politician]

Originally Posted by simulcra

I do so enjoy being the minority voice, makes me feel special (or crazy).

I don't mean to say that supply/demand has nothing to do with it. As a child of neoliberal economics from Chicago itself, supply/demand has a lot to do with it, I just find that there's a lot more emphasis on the demand side rather than the supply side (which everyone else seems to be supporting).

I realize I'm probably not making my point very clear, as a lot of what I say has a lot of implied conclusions and logical connections, but just to state that I'm not alone here, a lot of what I say is derived from writers like Sassia Sasken and Bill Bishop.

I also think I'm being unclear when I say "industry dominance," because I notice that people are making counter points to things that I wasn't really saying. Here's a bit of (completely unscientific) anecdotal data: when I would go to events and clubs in Chicago and the inevitable "what do you do?" question came around, the answers I got were fairly diverse - writer, journalist, nurse, etc. When I do the same in Seattle, I'd say that about 33%-50% of the people I meet are tech-related, and a good portion of those people are from the big three - Microsoft, Boeing, or Amazon.

The point of that (boring) story is that I'm pretty sure we're all in agreement in saying that Chicago has a progressive, diversified economy. I'm sure we can all agree when I say that Chicago also has a massive municipal GDP, and that when we consider Chicagoland in general, the 4th largest city in the US (Houston) pales in comparison to Chicagoland's economic might. But I'm saying that in the economics of place, that is only part of the reason for wages. What also matters is specialization - higher specialization demands higher wages because higher specialization requires more time on the part of the worker to cultivate. And in spite of today's global marketplace (or perhaps because of), an industry needs to be sufficiently large to support successive degrees of increasing specialization and, thus, higher wages. Thus, magnitude (in b/millions USD) is only one component - share of the local economy (%) is also important.

Simple example. Chicago has the largest IT labor pool in the nation (yes, larger than Silicon Valley). However, there is almost no venture capital available for funding tech startups in Chicago. IIRC, the majority of all of the nation's venture capital for tech startups is in Silicon Valley. Among other things, that's because the tech industry there has become so increasingly part the local economy that financial investors were able to increasingly specialize until now, Silicon Valley is home to the pre-eminent tech venture capitalists in the world. Long story short, this feedback loop of "uneven development" means that the high share of IT companies as a part of the local economy as well as the size of the IT industry in the local economy means that companies there tend to be at the top of the game (Apple, Google, etc). Meanwhile, companies in Chicago will tend to be more understated and, while still offering good pay and decent jobs, won't be paying nearly as much.

I think that some people are getting defensive over this, and I'll say that this is not a Chicago-bashing sentiment. It's a double-edged sword, really. If you're in NYC and want to do IT, you'll probably have better options in Chicago. If you're in Silicon Valley and want to be a day-trader, you'll probably have better options in Chicago. If you're in DC and want to do media/design, you'll probably have better options in Chicago. If you're in LA and want to do health care, you'll probably have better options in Chicago. If you're in Boston and want to do manufacturing, you'll probably have better options in Chicago. Similarly, if there's another tech sector bust, Chicago will be better off than Seattle/SF. If the internet really does kill the tv star, Chicago will be better off than LA. If a republican administration shuts down half the federal government, Chicago will be better off than DC.

It just also means that due to the fact that Chicago's economy merely has magnitude (as oppossed to magnitude and %share of local economy) for any given industry, Chicago may not necessarily be the top-end result. As a result, wages in Chicago will tend to be lower for a given industry than in cities that have such a dominance. As a result, given that people tend to pay a fixed % of their income on housing (hovering around 30%) regardless of their income level and location (with manhattan being a potential outlier), their willingness to pay for new housing will be lower, which will then depress home prices in the region. I might even go so far as to hypothesize that, percentage-wise, there's a close to 1-1 relationship between % difference in two cities' median homeowner wage and their median house price (though I don't know where to look up homeowner wages).

Even if that hypothesis doesn't pan out, it basically boils down to this point: people tend to spend 30% of their income on housing, regardless of how much they make and where they live. Given that wage implies housing costs, which comes first in this chicken-and-egg? A lot of you are saying housing costs (through limited supply). I would say wages.

^ I appreciate your point, and NO I don't think you're Chicago-bashing. I understood your point before you had to reiterate it in this follow-up post. I fully get what you're saying, I just don't think that your explanation accounts for the lower price of real estate in Chicago. What you're implying is that Chicago, being nonspecialized, is a town of middle-wage people. Perhaps that's somewhat true, but Chicago is also a town that has far more wealthy people in sheer volume than cities like Boston, Seattle, etc. And with people like that floating around, they have the wealth to buy up real estate downtown (which they're doing) and hence drive up the price of that real estate. Problem is, Chicago just has so much damn real estate that less wealthy people don't really have to compete with them to own a place downtown (or on the north side). Of course, that may change if NIMBY's keep blocking development in the "best" neighborhoods.

EDIT: This is already insanely long, but I have an earnest question for people who say geography/supply are the main factors. How would you explain to me the costs of living in LA, San Jose, Portland OR, Boston, DC, etc when these cities have no obvious geographical constraints and, in most cases, are less dense than Chicago? NYC/Seattle/SF is easy to explain with geography/supply, but what about these cities?

^ They haven't built as much real estate. Why do you think Chicagoland keeps winning the Site Selection award year after year? People descend on Chicago like vultures and build stuff. Whether it's an unnecessary hotel highrise hotel downtown or a completely unleased distribution center outside of Joliet, people just build, build, build.

[Urbanight]

The problem with the "industry dominance = higher wages" theory is the fact of how easy it is to move. A hedge fund in Chicago has to pay a competitive wage, same goes for tech companies, marketing companies, investment companies, hospitals, accounting firms, law firms, etc. If a company's wage is not competitive with a rival in any other city, the employees will move to a city where they can get a competitive wage. Moving to another city is not that difficult. Chicago is great, but no one is going to stick around if they can get paid more doing the same thing in another city. And of course wages are not exactly the same due to cost of living adjustments.

[simulcra]

Originally Posted by The Urban Politician

^ They haven't built as much real estate. Why do you think Chicagoland keeps winning the Site Selection award year after year? People descend on Chicago like vultures and build stuff. Whether it's an unnecessary hotel highrise hotel downtown or a completely unleased distribution center outside of Joliet, people just build, build, build.

I don't quite follow...? Wouldn't this mean Chicago would be more unaffordable than the other cities if Chicago gets more building done? Atleast my understanding of real estate development is that since it takes so much time to actually build something, there's a lag of supply compared to demand, so if there's a lot of building going on, prices are skyrocketing.

Chicago is great, but no one is going to stick around if they can get paid more doing the same thing in another city. And of course wages are not exactly the same due to cost of living adjustments.

Well, if you had an insight into the stuff I think about, this is exactly what I think about in terms of Chicago's pecking order in the US. This is why I'm *very* interested in census/demography in Chicago since the 90's and where it's going in the future. Of all the cities we named, Chicago is the only one experiencing low or negative growth (well, I think Boston and SF had population declines or low growth rates associated with the tech bust). Chicago's stagnant population could be a sign that formerly dense working class/immigrant neighborhoods are being transformed wholesale into less dense, creative class neighborhoods (good!) or it could mean that there's a very slow brain drain as people slowly filter out to more specialized cities.

[The Urban Politician]

Originally Posted by simulcra

I don't quite follow...? Wouldn't this mean Chicago would be more unaffordable than the other cities if Chicago gets more building done? Atleast my understanding of real estate development is that since it takes so much time to actually build something, there's a lag of supply compared to demand, so if there's a lot of building going on, prices are skyrocketing.

^ I think everyone is trying to say that regardless of demand, people build in Chicago. Supply continues to outweigh demand.

[The Urban Politician]

Originally Posted by simulcra

Chicago's stagnant population could be a sign that formerly dense working class/immigrant neighborhoods are being transformed wholesale into less dense, creative class neighborhoods (good!) or it could mean that there's a very slow brain drain as people slowly filter out to more specialized cities.

^ Where the heck are you getting this stuff? Now people are leaving for "Specialized cities?"

Your whole working explanation makes absolutely no sense, sorry but I just think you're oversold on this "specialist vs. generalist cities" theory. There may be a small element of this, but I think it's far too limited of an explanation to account for all of these demographic issues.

[simulcra]

Originally Posted by The Urban Politician

^ Where the heck are you getting this stuff? Now people are leaving for "Specialized cities?"

Your whole working explanation makes absolutely no sense, sorry but I just think you're oversold on this "specialist vs. generalist cities" theory. There may be a small element of this, but I think it's far too limited of an explanation to account for all of these demographic issues.

*Shrugs* I'd like to hear alternative demographic theories, but the most compelling one I've heard has been like this.

There are plenty of demographic issues at work in Chicago and in the nation as a whole, but the one that concerns me the most is where all the top talent is going, as controlling for other factors, it seems to be the best future predictor of economic/population growth. I never meant to imply that I thought that this "general/specialist" city migration (as you put it) was the sole element for Chicago's demographic issues (sorry if it came across that way). I realize there are a lot of other issues EG school quality, job location, crime, transportation accessibility, etc. I meant more in terms of regional relocation - ie if a person leaves Dallas for Austin - what drove them? In most cases I would venture to say that the desire for a better commute, safer neighborhood, or better school was not a driving factor, as you can make those improvements without leaving an entire regional economy (ie move from Englewood to Rogers Park or from Hyde Park to Naperville). What most likely prompts a person to move into a completely different regional economy is job prospects. I glossed over the nuances of this when I was talking about my either/or explanations for changes in population in Chicago neighborhoods, but that was because explaining out even a part of this took a long paragraph, but that's my bad for misrepresenting my ideas.

Given that we were talking about Chicago's median home price/affordable cost of living, I took this as a barometer for the regional economy (hence all my discussion on specialized economies and the like), ie maybe home prices are depressed because higher wage people tend to congregate in greater proportion in more specialized regional economies.

Finally, broadly speaking, (creative class) people (who tend to be more mobile than others) do tend to leave unspecialized cities for more specialized ones as career mobilization occurs (controlling for size of the economy). That is, for a person to keep climbing the corporate ladder in finance, they may go from Houston to Chicago to New York. This is not to say that I think this is the only determining factor - Portland OR is not quite a particularly specialized or large economy but will probably surpass Seattle in terms of population in maybe 2014 or so due to an astronomical growth rate. But I would also say that there's a non-trivial rate of re-filtering of IT professionals from Portland to Seattle or San Jose, and as Portland's economy and municipal status matures, dominant industries and types of jobs will matter more for its long-run home price/cost of living changes.

I realize that it's unlikely that I'll be able to convince anyone of the wage-perspective of housing affordability/cost of living, namely because at least in the literature, there's no clear answer anyway. At the very least, I want to at least highlight an alternate viewpoint that is also considered fairly valid by the literature (even if I personally botch the explanation of it from time to time).