Illinois Housing Crisis: Why the Nation’s Worst Housing Shortage Starts Here
Illinois has long been home to world-class universities, two major international airports, and one of the most diversified economies in the country. But behind that strength lies one of the state’s greatest vulnerabilities: housing. The Illinois housing crisis has become one of the worst in the nation, straining families, discouraging developers, and driving population loss at a time when states like Texas, Florida, and North Carolina are booming.
On a recent episode of The Real Finds Podcast, I sat down with Josh Bandoch, Senior Policy Advisor at the Illinois Policy Institute and author of the upcoming book How to Get What You Want: Mastering the Art and Science of Persuasion. Josh is more than a policy analyst, he’s someone who offers clear, workable solutions for turning Illinois from a laggard into a leader in housing abundance.
📘 Don’t forget to check out Josh Bandoch’s book: How to Get What You Want.
Why Illinois Has the Worst Housing Shortage in the Midwest
The data tell the story. Every year, the Census Bureau tracks new privately-owned housing units authorized per 100,000 people. The national average is 435 units. In North Carolina, that number is 862 units, nearly double. Florida and Texas each authorize in the 700s. Illinois? Just 160 units per 100,000 people. That’s about one-third the national average and nearly five times fewer than North Carolina.
The message is clear: Illinois makes it far harder to build. As Josh explained, “Developers look at the landscape and say, it’s easier to put money to work in places like Texas and North Carolina. In Illinois, projects don’t pencil because approvals take too long and the regulations are too strict.”
Zoning Laws and Permitting: The Twin Elephants in the Room
Ask any developer, and you’ll hear the same frustrations. First, strict zoning codes mean that vast areas of Chicago are off-limits to multifamily housing. About 41% of the city is zoned single-family only, even as demand surges for apartments, condos, and mid-density housing.
Second, the permitting process is painfully slow. Unlike other cities that have streamlined approvals through online platforms or “self-certification,” developers in Chicago wait months—sometimes years for projects to clear. For capital-intensive real estate, that delay kills feasibility.
Josh doesn’t just diagnose the problem—he prescribes solutions. He recommends phased zoning reforms (allowing two-flats or three-flats by right in single-family zones) and automatic approvals after a set period if projects meet safety standards. In his words: “You don’t have to eat the elephant all at once. Start with reforms people can accept, show they work, and then build from there.”
How Brandon Johnson and J.B. Pritzker Are Responding
Despite decades of dysfunction, there are signs of progress. Mayor Brandon Johnson and Governor J.B. Pritzker have each acknowledged Illinois’ unique housing challenges and started putting forward reforms.
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Cut the Tape (Johnson, 2024): This initiative recognized that Chicago’s regulatory environment has become a serious barrier to housing growth. It includes reducing parking minimums near transit, supporting adaptive reuse of commercial space, and advancing accessory dwelling unit (ADU) reforms.
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Missing Middle Report (Pritzker, 2023): This statewide report focused on how middle-income families—teachers, nurses, and first responders—are being priced out of stable communities. By acknowledging the shortage of mid-market housing, the state signaled a willingness to act beyond subsidies and toward structural reforms.
Josh praised these moves as “important first steps,” but he also stressed that follow-through is key. His framework—streamlined permits, zoning reform, and embracing housing abundance offers a roadmap for turning reports into real units on the ground.
Lessons From Other States and Cities
Illinois doesn’t have to reinvent the wheel. Other states, red and blue alike, have already shown that housing abundance is possible.
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Minneapolis: In 2019, the city eliminated single-family-only zoning, allowing duplexes and triplexes in formerly restricted neighborhoods. The result? Rents rose more slowly than in Chicago, while supply expanded.
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Los Angeles: Between 2018 and 2024, more than 17,000 ADUs were built thanks to by-right permitting reforms.
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Montana: Facing a crunch in its fast-growing cities, Montana adopted bipartisan zoning reforms, proving that even small, politically divided states can take big steps.
Josh highlights these examples not just as comparisons, but as proof points for Illinois. His perspective: “If it worked in Montana and Minneapolis, there’s no reason Illinois can’t do the same—if policymakers choose to act.”
Adaptive Reuse: Turning Vacant Space Into Homes
Another bright spot is adaptive reuse. Chicago’s downtown office vacancy rate remains in the mid-to-high 20s. Empty commercial floors sit idle, even as housing demand grows. Recognizing this, Chicago passed a 2025 ordinance allowing the conversion of first-floor commercial space to residential units.
Though it’s early, this is the right kind of experiment. If scaled, adaptive reuse could unlock thousands of units, breathe new life into empty corridors, and stabilize neighborhoods. Josh sees this as one of the most practical near-term solutions, aligning developer incentives with community needs.
Accessory Dwelling Units: Small Homes, Big Potential
Perhaps the most exciting reform on the table is accessory dwelling units granny flats, coach houses, and English basements. Chicago launched a pilot program in 2021, but fewer than 100 units were built because of restrictions. By contrast, LA permitted tens of thousands once the rules were relaxed.
This summer, Chicago’s zoning committee advanced an ordinance to expand ADUs citywide. If passed, it could mean thousands of new units within a decade. Josh is a strong advocate for ADUs, calling them “a great way for families to build wealth, house aging relatives, and access better schools—all without disrupting neighborhood character.”
Why This Matters for Real Estate Investors
For developers and investors, the Illinois housing shortage isn’t just a policy story; it’s a market story. When supply is constrained by regulation, costs rise, deals don’t pencil, and capital flows elsewhere.
That’s why so much money is moving to Sunbelt states. It isn’t just population growth; it’s ease of doing business. Illinois has the talent, infrastructure, and location to compete—but without structural reforms, it risks being left behind.
At the same time, reforms like ADUs, adaptive reuse, and zoning liberalization represent massive opportunities. As Josh emphasized, “Developers are hungry to build in Chicago. If you let them, they will.”
The Path Forward: Fail Better, Build More
Josh closed our conversation with a reminder from Samuel Beckett: “Ever tried. Ever failed. No matter. Try again. Fail again. Fail better.” Illinois won’t solve its housing crisis overnight, but the seeds of change are being planted.
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Policymakers on both sides now acknowledge supply is the core issue.
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Local reforms around parking minimums and ADUs are gaining traction.
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Developers remain eager to deliver housing if the barriers come down.
Illinois has been at the bottom of the national housing charts for too long. With leaders like Brandon Johnson and J.B. Pritzker beginning to recognize the problem, and with voices like Josh Bandoch offering actionable solutions, the next three to five years could be a turning point.
Conclusion
The Illinois housing crisis leads the nation in dysfunction, but it doesn’t have to stay that way. With bipartisan recognition, reforms already underway, and practical strategies from experts like Josh Bandoch, Illinois has a chance to pivot from cautionary tale to comeback story.
For families, that means affordable options. For developers, that means viable projects. And for policymakers, it means proving that Illinois can once again be a place where people want to live, work, and invest.
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