January 25, 2019

Illinois Finance Forum

Future of Housing Trends and the Housing Market –Demographic Waves in the Region and Future of Housing

2

12.9 M 12.8 M

OUR STATE’S POPULATION

12.2

12.3

12.4

12.5

12.6

12.7

12.8

12.9

13.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Mill

ions

2000-2017

12.4 M

Increase Decrease Stable*Percent change in population by county

Source: U.S. Census; Esri; SB Friedman

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OUR STATE’S POPULATION GROWTH FOCUSED IN FEW METROS

2000-2017Metro (Illinois counties only)

2000 Population

2017 Population

2000-2017 Population Change

CHAMPAIGN-URBANA 210,623 239,124 28,501 14%

BLOOMINGTON 167,644 188,232 20,588 12%

KANKAKEE 103,842 109,605 5,763 6%

ROCKFORD 321,033 338,291 17,258 5%

CHICAGO 8,286,664 8,662,898 376,234 5%

CARBONDALE-MARION 120,912 125,612 4,700 4%

SPRINGFIELD 201,628 208,697 7,069 4%

ST. LOUIS 672,354 688,786 16,432 2%

PEORIA 366,659 372,427 5,768 2%

QUAD CITIES 217,149 209,754 -7,395 -3%

DANVILLE 83,821 77,909 -5,912 -7%

DECATUR 114,499 105,801 -8,698 -8%

CAPE GIRARDEAU 9,684 6,315 -3,369 -35%

Increase Decrease Stable*Percent change in population by county

Source: U.S. Census; Esri; SB Friedman

4

7.9

8.0

8.1

8.2

8.3

8.4

8.5

8.6

2000

2001

2002

2003

2004

2005

2006

2007

2008

2009

2010

2011

2012

2013

2014

2015

2016

2017

Mill

ions

OUR REGION GREW PRIMARILY IN COLLAR COUNTIES

8.53 M 8.51 M

+185,032

+70,907

+126,820

+48,038 +55,370

23,844 -162,155

2000-2017

8.16 M

Source: U.S. Census; CMAP; Esri; SB Friedman

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DISTRIBUTION OF GROWTH

2000-2010 2010-2017*▪ Growth occurred at the

periphery and the core of

the region

▪ Driven by single family

development

▪ Growth occurred at the

core of the region,

including neighborhoods

within the City

▪ Driven by multifamily

development

Change in proportion of regional population by census tract

Increase Decrease Stable**

Source: U.S. Census; CMAP; Esri; SB Friedman

RESIDENTIAL BUILDING PERMITS IN CHICAGO REGION

6

0

5,000

10,000

15,000

20,000

25,000

30,000

2 0 0 0 2 0 01 2 0 0 2 2 0 0 3 2 0 0 4 2 0 0 5 2 0 0 6 2 0 07 2 0 0 8 2 0 0 9 2 010 2 011 2 01 2 2 01 3 2 014 2 015 2 016 2 017

Single Family Muti-FamilySource: U.S. Census

19,649 11,311 4,788 6,376

NET NEW HOUSING PRODUCT DEVELOPED SINCE 2000

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160,000 29,000 42,00061,000

Net New Housing Units: 2000-2017

2-19 Unit 1-Unit Attached 20-49 Unit 50+ Unit1-Unit Detached

-7,000

44,000 -13,000 19,000-13,000 -1,400

2000-2010

2010-2017

PERIOD:

Source: U.S. Census; SB Friedman

Home price recovery and shortening market time signals strengthening for-sale market RESALES OF EXISTING HOMES IN CHICAGO REGION

8

$0

$50,000

$100,000

$150,000

$200,000

$250,000

$300,000

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

ANNUAL MEDIAN PRICESSingle Family Detached, Attached and Condo:

100

46

254K 160K 235K

Source: Illinois Realtors

Case-Schiller Index of Repeat Sales mimics resale trendsHOME PRICES IN CHICAGO REGION

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0

20

40

60

80

100

120

140

160

180

20

00

20

01

20

02

20

03

20

04

20

05

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11

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167 111 142

S&P/Case-Shiller IL-Chicago Home Price Index, Index Jan 2000=100, Monthly, Seasonally Adjusted

1,976 4,699

REGIONAL APARTMENT DELIVERIES

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Post-recession apartment construction heaviest within the City of Chicago and near transit

72%WITHIN THE CITY OF CHICAGO

76%WITHIN A HALF MILE OF CTA OR METRA STATIONS

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000

9,000

20

00

20

01

20

02

20

03

20

04

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

18

Source: Costar

Slowing rent growth and increasing vacancies reflect a softening of a booming rental marketNEW CONSTRUCTION APARTMENT RENTS AND VACANCIES

11

7.6%

11.7%

2010 2018

$0.00

$0.50

$1.00

$1.50

$2.00

$2.50

$3.00

20

00

20

01

20

02

20

03

20

04

20

05

20

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20

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08

20

09

20

10

20

11

20

12

20

13

20

14

20

15

20

16

20

17

20

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CAGR:

6.3%

CAGR:

1.6%

Monthly Apartment Rent/SF of Units Built Since 2000 Apartment Vacancy of Units Built Since 2000

Source: Costar

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

20

05

20

06

20

07

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20

09

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20

25

20

26

20

27

20

28

20

29

20

30

<35 35-54 55-74 75+

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DEMOGRAPHIC WAVES BY AGE OF HOUSEHOLDER (CHICAGO REGION)

35 -54

55 -74

4,750

59,604

37,542

75+159,820

<35

Source: Woods and Poole, US Census and SB Friedman

100,000

200,000

300,000

400,000

500,000

600,000

700,000

800,000

900,000

1,000,000

1,100,000

1,200,000

1,300,000

1,400,000

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

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20

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20

20

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20

22

20

23

20

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20

25

20

26

20

27

20

28

20

29

20

30

<35 35-54 55-74 75+

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DEMOGRAPHIC WAVES & HOUSING CHOICE

26% 7% 66%

57% 8% 34%

61% 8% 30%

52% 8% 39%

35 -54

55 -74

4,750

59,604

37,542

75+159,820

<35

Single-Family Detached

Single-Family Attached

Multifamily

Other

Source: Woods and Poole, US Census and SB Friedman

HOMEOWNERSHIP RATE AND ITS IMPACT ON HOUSING DEMAND

Driven by:

▪ Mortgage rates

▪ Lending criteria/mortgage availability

▪ Economic growth

▪ Demographic shifts and preferences by

generation/lifestyle

Will homeownership rate tick upward or

stabilize?

A 1% increase in homeownership with modest

household growth means an additional 35,000

owner-occupied households

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59%

60%

61%

62%

63%

64%

65%

66%

67%

68%

69%

70%

20

05

20

06

20

07

20

08

20

09

20

10

20

11

20

12

20

13

20

14

20

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20

16

20

17

20

18

20

19

20

20

20

21

20

22

20

23

20

24

20

25

Chicago Region Homeownership Rate

Source: US Census and SB Friedman

HOMEOWERNSHIP RATE BY AGE

▪ For overall rates to rise, 2017 homeownership rates by age

need to increase

▪ Greatest potential for increase in overall homeownership

rate is to have Millennials buy homes as they squarely

enter family age group in the next five years

15

20%

50%

70%

75%77%

80% 80%77%

64%

13%

37%

59%

71%73%

76%77% 77%

70%

15-24 25-34 35-44 45-54 55-59 60-64 65-74 75-84 85+

2005 2017

Chicago Region Homeownership Rate by Age

Source: US Census and SB Friedman

HOMEOWERNSHIP RATE BY AGE

▪ Nationally, Millennial homeownership rate has been lower

than that of prior generations at same age group (25-34)

16

20%

50%

70%

75%77%

80% 80%77%

64%

13%

37%

59%

71%73%

76%77% 77%

70%

44%

65%

15-24 25-34 35-44 45-54 55-59 60-64 65-74 75-84 85+

2005 2017 2025

37%

45.40% 45%

Millennials Gen Xers Baby Boomers

National Homeownership at age 25-34

Chicago Region Homeownership Rate by Age

Source: US Census and SB Friedman

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WILL MILLENNIAL’S START OWNING IN GREATER NUMBERS?

Millennial Debt Millennial Life Stage in Transition

IMPLICATIONS FOR FUTURE HOUSING DEMAND

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Increasing single-family and townhouse home demand

▪ Sized and priced to be starter homes for Millennial's

▪ Vary product to be attractive to other generations

Increasing senior housing demand

▪ The majority of seniors will likely choose to age in place

▪ But many will want to downsize into maintenance free living of various products: condominium, apartments, townhomes, single family

▪ New paradigms for housing: age restricted vs. for all ages

Apartment boom likely to temper rather than crash

▪ Contingent on how homeownership rates and Millennial housing preferences evolve

A possible condominium comeback

▪ Market will likely be smaller than pre-recession high

▪ Contingent on construction lending criteria

▪ Recent development mostly in City but larger developments in suburbs are including condo as a possible future use

HOUSING DEMAND NOT JUST ABOUT PRODUCT, PLACE MATTERS

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Houses with

small yards

and easy to

walk to the

places you

need to go

Houses with

large yards and

you have to

drive to the

places where

you need to go.

53%

49%

54%

53%

2015

2016

2017

42%

46%

47%

Source: National Association of Realtors, National Community and Transportation Preferences Survey, 2017

WALKABILITY VS. PRODUCT TYPE

▪ Millennials and Silent/Greatest Generation prefer walkable community and short commute even if it means

living in an apartment or townhouse

20

Own or rent an

apartment or

townhouse

and you have an

easy walk

to shops and

restaurants

and have a shorter

commute to work.

Own or rent a

detached, single-family

house

and you

have to drive

to shops and restaurants

and have a longer

commute to work.

Silent

Boomer

Gen X

Millennial

55%

45%

62%

45%

45%

55%

55%

38%

Source: National Association of Realtors, National Community and Transportation Preferences Survey, 2017

WHAT CITY PLANNERS AND MANAGERS CAN EXPECT AND DO

▪ Continued rental apartment development requests in the next 3-5 years – in downtowns, near train

stations or highway accessible locations

▪ An increasing pace of for-sale housing (townhomes and single-family) development but lower than pre-

recession highs

▪ An increasing importance of walkability makes downtown adjacent or transit adjacent locations more

important

▪ Rethink conventional subdivisions to be responsive to demand:

▪ Plan for and require corner stores, community centers and parks to be walkable and easily accessible from majority of homes

▪ Allowing for diversity of housing product within a single subdivision to appeal to a wider buyer pool

21

▪ Retail continues to be the fiscal winner

from a municipal finance perspective

▪ On a per acre basis apartments and

mixed-use typically outperform

townhomes and lower density

development

22

THE FISCAL PERSPECTIVE

▪ Prioritizing infill areas with infrastructure capacity is

fiscally prudent

▪ Greenfield development often requires extension of

infrastructure and expansion of municipal service

areas

▪ Need to consider the fiscal stress from associated

long-term maintenance and capital costs

23

FISCAL STRESS FROM INFRASTRUCTURE EXTENSIONS

Service Capacity at Infill vs. Greenfield Locations

Smart Growth is Fiscally Smart

▪ Smart growth, characterized by compact, walkable places with a mix of uses, is more responsive to market demand and is also fiscally

beneficial

▪ Smart growth vs. conventional development

▪ Requires less new infrastructure for the same amount of development

▪ Generates 10 times more tax revenue per acre than conventional suburban development

▪ Saves an average of 10% in ongoing municipal operations costs

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BEING RESPONSIVE TO DEMAND AND FISCAL HEALTH