Despite having a young, highly skilled population with relatively higher COVID-19 vaccination rates, Chicago ranks second to last—behind only San Francisco—among the 20 largest metropolitan statistical areas, or MSAs, in jobs recovered from pandemic losses.
It couldn’t be clearer when looking at the link between the city’s lagging housing market, labor market, and how the city taxes and spends that it must change its strategy.
Although pandemic demand resulted in a hot Chicago housing market this past year, the increase in housing values has likely not made Chicagoans feel any wealthier. That’s because property values increased at half the growth rate of property taxes in the past decade, leaving the city with the largest share of homeowners who were far underwater on their mortgages before the pandemic.
Under Mayor Lori Lightfoot’s tenure, housing values grew less than the city’s property tax increase. The bad news is that city property taxes are set to increase again, despite payrolls in the Chicago area still down approximately 340,000 jobs, or 7%, relative to the pre-pandemic period. While the country’s largest MSAs are only missing 30% of COVID-19 job losses on average, the Chicago area is still missing 50% of COVID-related job loss.
Cities that benefited from large increases in housing demand during the pandemic also saw large increases in employment, according to data from the Bureau of Labor Statistics and the All-Transactions House Price Index.
Population growth and a surge in housing wealth fueled employment growth in cities like Phoenix, Tampa, Dallas—with Phoenix having surpassed the city’s pre-COVID employment level.
Research shows that amenities, the quality of social networks, local public services as well as taxes are typically reflected in property values. Higher property values raise household wealth, which fuels consumer spending and job creation. On the labor supply side, workers move to areas that offer more for less.
Despite amazing natural amenities, a highly skilled labor force, a diversified economy that includes vibrant financial services and growing technology sectors, Chicago faces violent crime, corruption and Mayor Lightfoot’s latest budget suggesting that employment growth in the city is likely to remain stuck in neutral.
Lightfoot’s proposed spending on social services is mostly reliant on new debt and federal aid, which means new programs are unlikely to stick. The main reason: 21.4% of the city’s own source revenue is tied up in rising pension costs, which now consume $2.3 billion of the city’s budget.
This problem isn’t new. Pension costs are skyrocketing, squeezing city budgets by more each year and forcing lower public investments than what is necessary to address crime, youth joblessness, homelessness, worker skill shortages and a declining quality of municipal services.
Our city should be investing in the future, not just paying for mistakes of the past. Chicago’s pension spending is already up nearly $1 billion during Lightfoot’s tenure.
The city’s most prominent business leader, billionaire philanthropist Ken Griffin, has recently been very outspoken about the possibility of moving his enterprise, its people and the economic activity it generates somewhere with different policies. As costs for the city and the state continue to increase, another high-profile move out of the city and the state would likely signal that America’s third-largest city is declining, leaving those who stay holding the bag.
Chicago can’t afford to stay on its current path. Only a constitutional pension reform would free up the funds necessary to improve the quality of services, lift up the city’s most vulnerable residents and return the city to its glory days. The city needs new private and public investments more than ever to help Chicagoans that are currently feeling the pinch to find good-paying jobs.
But Chicago needs Springfield to act before pension reform can become a reality. Until state lawmakers get serious about providing relief, Lightfoot and the rest of the city’s leaders must start using their microphones to demand better. Chicago’s future depends upon it.
Crain’s contributor Orphe Divounguy is chief economist at the Illinois Policy Institute.