How Chicago Sparked Family-Housing Boom

CHICAGO developers call it a "Parade of Homes" and indeed, the shiny new houses, set amid the gritty working-class neighborhood of East Garfield Park, appear as showy and hollow as floats in a parade.

But the group of some two dozen houses is no cellophane and cardboard sham: Single-family homes are springing up today in many Chicago neighborhoods once thought headed irretrievably toward decline.

Chicago is booming with a construction rate of family houses unseen in more than 20 years. The city last year granted 1,268 home-building permits, 88 percent more than in 1994 and more than 10 times the number for 1990, according to Bell Federal Savings and Loan Association in Chicago. Many buyers of new homes are middle-class residents who provide the fundamental source of tax revenue and the engine for local commerce, say developers and housing consultants.

The revival of home construction in Chicago, they say, offers some lessons about how large cities might slow the long-running flight of the middle class to the suburbs.

To be sure, among America's old industrial cities, Chicago is more economically diverse and less subject to extreme swings that disrupt neighborhoods. Moreover, Chicago is riding the crest of a economic-growth wave.

City government has enhanced these advantages by giving developers incentives to turn patches of urban wasteland into sites for trim, two-story homes. "It used to be so difficult to build in Chicago that a lot of developers said, 'Why bother?' " says Steven Hovany of Strategy Planning Associates in Schaumburg, Ill. From the late 1970s into the '90s, family homes were built here at a small fraction of the current rate.

"Now the city has cut red tape and begun to cooperate much more with developers than it used to," says Mr. Hovany, a real estate analyst. The city encourages builders to construct affordable houses by providing subsidies and reducing both permit fees and the price of city-owned lots.

For home buyers, Chicago has committed $50 million in bonds to help families reduce down-payment and closing costs by as much as $2,000 each. It also offers low-income home buyers the ability to take a tax credit of 35 percent of their mortgage interest, or up to $2,000 annually. Some 422 applicants have filed for the tax savings since the program began in March 1995, says Chicago Housing Commissioner Marina Carrott.

Overall, the city has subsidized the construction of 486 homes with $8.3 million, according to the housing department.

But City Hall can claim just part of the credit for the rise of new homes and neighborhoods. Raw market forces, including comparatively low and stable mortgage rates, should take most of the honors, say real estate developers and consultants.

The current boom is a response to a shortage of single-family homes because of the steady demolition and abandonment of housing. Developers have recognized there is strong demand for houses among the lower-middle class in Chicago, they say.

Indeed, the average price for a home in Chicago has fallen from $250,000 in 1992 to about $193,000 today, as developers build for the most home-hungry income group, says Tracy Cross, president of Tracy Cross and Associates in Schaumburg, Ill.

But Ms. Carrott says market forces are just part of the reason for the sudden rash of construction in Chicago.

The rate of growth in building permits in the city is outpacing the rate in all but a few of its suburbs. So, on the basis of the pace of house building alone, Chicago apparently is retaining residents and attracting new ones more than in the past, Carrott says.

When Chicago native Rhonda Gumbel-Thomas looked for a new home, she ignored the urgings of her relatives and snubbed the suburbs. Instead, she bought one of 40 new houses in a middle-class area that looks out on Lake Michigan. "We and the other buyers are committed to Chicago and the idea of a strong city neighborhood, and we want to make the city work,'' she says.