Market-oriented housing reforms gaining traction in Illinois
Gov. J.B. Pritzker recently signed an executive order to increase access to housing for middle-income families. While many of the proposed solutions still miss the mark, there are some important supply-side reforms that could mark a positive shift for Illinois.
Illinois is making a solid advance in how it helps middle-class families afford housing, but while Gov. J.B. Pritzker now recognizes he’s dealing with basic supply and demand issues, his plan is a questionable mix of boosting supply and goosing demand.
On Dec. 11, Pritzker signed an executive order changing Illinois’ housing policy. Pritzker recognized insufficient supply as the primary driver of high housing costs for middle-class families.
The context for this shift is a report on what’s called the “missing middle,” people who earn between 80% and 140% of the area median income. These are working families who need middle-class housing, the next step up as families rise out of poverty.
Housing that is appropriately priced for the middle won’t create as much of a burden on these families and will improve social mobility within the state. This new focus is important because Illinois has been struggling with housing prices for years.
“We’re facing a housing crisis, in my district and across the state,” said state Rep. Will Guzzardi, D-Chicago. “More and more people can’t afford to pay rising rents or keep up with mortgage and tax payments, and buying a first home feels out of reach for too many.”
Housing production slowed across the nation during the COVID-19 pandemic. The nation as a whole seems to be making a steady comeback, but Illinois’ housing market has remained stagnant. This is a problem because, as Pritzker said in his remarks on the executive order, solving the housing crisis “starts with a simple problem of supply and demand.” Namely, when supply does not increase with demand, the prices go up.
This is precisely what’s happening in Illinois. It’s important that policy leaders across the state have begun to reach this consensus. Now that the problem has been correctly identified and agreed upon, what remains to be debated is which solutions effectively address it.
The ad hoc working group established by the governor set out to identify these solutions. It was comprised of 19 housing developers, non-profit leaders, financial experts, local leaders and other industry experts. Their work particularly emphasized communities experiencing economic growth, including Bloomington-Normal, Decatur and Rockford. While many of the working group’s proposed solutions continue to fall into old habits of turning to the government and subsidies to address housing, not all of them do. Among the solutions proposed in Springfield, several deserve recognition for their market-oriented effectiveness.
The promising reforms focus on increased supply by addressing the root cause of rising costs: government restrictions that have artificially constrained the housing supply. As Pritzker pointed out in his remarks, restrictive zoning practices and bureaucratic red tape make it hard to meet housing demand and subsequently drive up costs. By targeting specific regulatory barriers that have long impeded housing development, these reforms could unleash significant private-sector investment and innovation in Illinois’ housing market.
One exciting proposal the group includes is eliminating local restrictions on accessory dwelling units. This represents an important step toward expanding property rights, acknowledging that property owners, not government officials, are best positioned to determine the optimal use of their land. By removing these restrictions, the state would enable thousands of property owners to create new housing units, such as granny houses or basement flats, alongside existing single-family homes that don’t require public subsidies. Additionally, these units help with aging in place, assist in building household wealth and often provide housing cheaper than the market rate.
Another promising reform is reducing or eliminating parking minimums. Mandatory parking minimums have long served as a hidden tax on housing development. They force builders to construct parking spaces regardless of the market demand for that feature. Reducing or eliminating them will allow developers to respond more effectively to consumer preferences, reduce construction costs and enable more efficient land use patterns, particularly near major transit stops.
Reforms addressing lot size requirements and multi-family housing restrictions strike at the heart of exclusionary zoning practices that have artificially limited housing supply. By requiring localities to accommodate multi-family development on larger lots, the proposal would create opportunities for added density in areas where demand is highest.
Perhaps most significantly, the proposal’s provisions limiting local authorities’ ability to deny compliant housing developments arbitrarily would introduce needed predictability into the development process. This reform recognizes that regulatory uncertainty and discretionary review processes delay housing unnecessarily, driving up costs and discouraging investment. By establishing clearer rules of the game, these changes reduce wasted time and cost.
Unfortunately, along with these good supply-side reforms came the usual demand-side subsidies, which do little to improve the feasibility of building and drive housing costs higher. These include programs that provide student loan forgiveness, tax credits and grant matching. However well-intentioned these programs may be, they won’t improve housing affordability to the same degree supply-side reforms will. This has been demonstrated across the country.
For example, cities in Colorado have recently improved their affordability because construction has been allowed to flourish. In 2024, they passed important legislation to ensure this, such as zoning reform, eliminating mandatory parking minimums, lowering accessory dwelling unit restrictions, and more.
Similar impacts have been seen in California, where housing is always at the top of people’s minds. While pricing remains a challenge in California, their reforms making accessory units easier to build and permits easier to access have created progress. One recent example is legislation that allowed for more housing in commercially zoned areas, which has resulted in the planned development of 800 units above a Costco in South Los Angeles.
The success of these supply-side reforms in other states suggests reducing government-imposed barriers could generate significant housing market improvements without requiring additional public spending or market interventions. Illinois would do well to focus on these solutions before it implements any further programs that increase spending.
This could mean expanding policies already mentioned in the working group’s report, such as:
- Allow for by-right accessory dwelling units: Regulations on these housing units should be reduced, and they should be allowed without discretionary approval as long as they meet codes throughout the state as an affordable housing option. They’re wildly popular, with 71% of Chicagoans supporting them.
- Reduce minimum lot sizes: The report currently expands multi-family housing to large lot sizes in single-family zoning, but reducing the minimum lot size altogether would also help. Minimum lot sizes use space inefficiently by forbidding people to build homes to fit diverse needs. Reducing minimum lot sizes increases housing density while preserving neighborhood character.
Focusing on supply-side reforms could also inspire new policies to be added to the set considered in Illinois. Two policies not included in the changes advocated by the working group but that should also be considered are:
- Allow housing in commercial zones: Office vacancies have increased across Illinois in the wake of the COVID-19 pandemic, including a 25.8% rate in Chicago’s Loop. Current restrictions block the conversion of this empty space to housing. Legislation allowing residential use in commercial zones would enable adaptive reuse of vacant offices.
- Expand design self-certification statewide: Recently enacted in New Jersey and proven effective in Chicago, design self-certification allows architects and engineers to attest to code compliance for certain projects. This bypasses traditional reviews and could potentially reduce permit wait times to as little as 10 days rather than months.
While not perfect, Pritzker’s housing reform package represents a meaningful consensus on supply as the issue driving high housing costs and a move toward market-oriented solutions in housing policy.
Policies focused on reducing regulatory barriers and working with housing developers to increase supply deserve strong support from market advocates, even as opposition is maintained to unnecessary subsidies and government interventions. These reforms are important as Illinois works toward more efficient, market-driven solutions to the challenge of housing affordability.