This report examines housing conditions across the Federal Home Loan Bank of Chicago district, identifies barriers to new construction and rehabilitation for owner-occupied homes, and considers how the FHLBank can use its existing programs and tools or create new initiatives to help expand and preserve affordable owner-occupied housing.

Why This Matters

Illinois and Wisconsin have relatively high homeownership rates and lower home prices than the nation, but the supply of affordable homes for purchase faces growing structural constraints. Older single-family homes, two-to-four-unit properties, and low-cost homes in small metropolitan areas and rural areas are important entry points to homeownership for first-time and low-income buyers. But many of these homes require repairs, and financing for rehabilitation is scarce. Meanwhile, weak construction and limited local development capacity restrict the addition of new affordable homes. Addressing these barriers could help preserve existing starter homes, expand the for-sale supply, and sustain the district’s relative affordability.

What We Found

• The FHLBank Chicago district’s housing stock is unusually old, and new construction remains weak. In 2023, 19 percent of homes in the district were built before 1940, compared with 11.5 percent nationally. More than 60 percent of homes in Illinois and 57 percent in Wisconsin were built before 1980. Single-family construction per capita stood at only 37 percent of its 2000 level in Illinois and 66 percent in Wisconsin, compared with 95 percent nationally.
• Rehabilitation needs are substantial, but financing is difficult to obtain. Home improvement loans accounted for only 0.9 percent of mortgage applications in Illinois and 1.1 percent in Wisconsin in 2024. Denial rates were far higher for home improvement loans than for purchase loans. These constraints are especially consequential for older single-family properties and two-to-four-unit properties and for less expensive homes that may need repairs before occupancy.
• Capital alone will not resolve the supply challenge. Among 152 member institutions participating in the FHLBank’s 2026 Regional Member Insights Forums, limited developer capacity was the most frequently cited barrier to expanding construction and rehabilitation lending. Members also identified construction risk, uncertain returns, and limited internal expertise as important constraints, particularly for small institutions and rural communities.

The findings point to three areas of opportunity for FHLBank Chicago to expand its mission-related activities: (1) supporting rehabilitation by homeowners and homebuyers; (2) mitigating risk so members can expand construction and rehabilitation lending; and (3) strengthening the capacity of local developers, financial institutions, and communities. FHLBank Chicago can pursue these opportunities by expanding or adapting existing programs or by developing new tools where gaps remain.

How We Did It

Urban Institute researchers analyzed housing, mortgage, property, and construction data for Illinois and Wisconsin and compared metropolitan and rural markets. The analysis was supplemented by two stakeholder roundtables, in-depth interviews, and feedback collected from representatives of 152 FHLBank Chicago member institutions during five Regional Member Insights Forum sessions.