Why Chicago’s housing market is so much cheaper than Toronto’s

Janet L. Smith of the University of Chicago at Illinois explains why the real-estate markets of these two similarly sized cities are so different
By Daniel Kitts - Published on Jul 02, 2021
Left: Chicago skyline (iStock/Gian Lorenzo Ferretti Photography); right: Toronto skyline. (iStock/FilippoBacci)

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It’s no secret that Toronto’s housing market is expensive. So expensive, in fact, that it’s causing real-estate prices to surge in communities far beyond it.

This is a bit of a problem for a city that expects to grow by 700,000 residents in the next 30 years, as The Agenda discussed on Wednesday. 

The Agenda, June 30, 2021: Toronto growth plan

You might say that’s the cost of being in a big city. Many large global economic centres are pricey. Think of London or New York. 

But big doesn’t always mean expensive. Take Chicago. 

Both Great Lakes cities, Chicago and Toronto each have populations approaching 3 million. They are also financial centres and home to many major corporations. 

But in the Windy City, the average price of a home in the city is about US$350,000. In Toronto, the average price of a home is about US$890,000 ($1.1 million Canadian).

No two cities are the same, of course. But the gap between Chicago and Toronto prices is still somewhat startling. 

To understand why Chicago is so much more affordable than Toronto, TVO.org speaks with Janet L. Smith, a professor of urban planning at the University of Illinois at Chicago. 

A man filming in The Agenda studio

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TVO.org: What accounts for the huge gap between Toronto and Chicago housing prices? 

Janet L. Smith: We’re dealing with different countries, but we’re also dealing with different cities in terms of tax policies, incentives: things that encourage both demand and supply. I’m always cautious about that when you’re trying to standardize, if you will, for comparison purposes.

But I would say that Chicago has a really bifurcated housing market. So that median price reflects very high prices and some very low prices. In some parts of Chicago, you can still find stuff under $100,000 — not good quality, but also probably because it’s in a neighborhood that is considered less desirable of a market. I know Toronto has that, too, but I feel like it’s probably a little flatter, meaning the highs are not as high and the lows are not as low.

TVO.org: What do you think accounts for Chicago’s market being more bifurcated than Toronto’s? 

Smith: Racial segregation. Hands down. Our comparative knowledge of Toronto and Chicago is work that we did with David Hulchanski at the University of Toronto on what he calls “the three cities.” And we did the same analysis in Chicago. I would argue that, hands down, racial segregation has contributed immensely. That’s changing in certain neighbourhoods, because the shrinking middle — that is [people who are] middle income — they have two choices: they could spend a lot of money to move up the ladder into housing that is unaffordable to them but maybe desirable by location or school district, or they can look to neighbourhoods that are sort of on that margin of change. Whether you call it gentrification or just finding affordable housing in the city, we have neighbourhoods changing racially — but also economically.

TVO.org: Why has this been seemingly more entrenched in Chicago ?

smiling long-haired woman in glasses
Janet L. Smith is a professor of urban planning (Courtesy of Janet L. Smith)

Smith: In the ’60s, we saw a huge racial change and a practice in the real-estate industry called blockbusting, where Blacks weren’t being shown certain neighbourhoods to even look for housing. And if the neighbourhood became too non-white, the rent and housing prices started to go down. 

TVO.org: One reason given for the Canadian housing market’s high prices is that our urban real estate is seen as a good place for wealthy international buyers to put their money. Is that an issue in Chicago? 

Smith: I would argue that Chicago had potential for that and may still have now. But I think we don’t have it like New York, where you have Russian oligarchs buying up Trump Tower properties and looking at it as a place to land a couple times a year to go shopping, or just as an investment. I don’t think we’ve gotten that international.

TVO.org: I’m surprised that there wouldn’t be a large number of international buyers saying, “Chicago is a cool place. Why don’t I buy a condo there?”

Smith: But I think we would be considered second class compared to a New York City, for example. 

Even though we have our stock exchange and market, we have a lot of incredible architecture, the pull for international business, I would argue, is still to the coast: San Francisco, Los Angeles, New York, Miami. Research has shown that investors, particularly Chinese investors, gravitate to the coasts.

TVO.org: Many critics of Toronto’s high housing prices blame policies at the municipal, provincial, and federal levels. Can some of Chicago’s lower housing costs be attributed to better policy? 

Smith: I would be hesitant to say it’s due to policy, because the historic practice of local government in Chicago, specifically with the previous mayors and even probably still, is to be very encouraging of high-end investment. As someone who’s worked in Chicago for almost 25 years — as an academic but also as an advocate — it’s a big fight to get affordable housing. It took years to fight the city of Chicago to get some sort of agreement to ensure there would be preservation and production of affordable housing around the Obama Center that’s going to be built on the south side of Chicago. A huge fight. Ugly fight. And Obama was on the side of the city, not on the side of the community.

This interview has been condensed and edited for length and clarity.

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