Chicago’s Small Multifamily Market Is Stuck in Regulatory Gridlock

Written by:

Steve Marcinuk

Date:

15 Dec 2025

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Chicago’s small multifamily housing shortage is not due to a lack of demand or insufficient capital. According to Niko Apostal, managing broker at Essex Three-Twelve, the problem is a regulatory system that has effectively halted new construction in one of the city’s most crucial housing sectors.

“Nobody’s building two to four flats anymore, and it’s a shame – they should be building them left and right,” Apostal says. He blames not market conditions but Chicago’s permitting and zoning system, which he describes as “so convoluted, so sclerotic, it’s difficult to navigate, and it takes forever.”

The Six to Nine Month Permitting Bottleneck

Apostal identifies permit timelines as a major obstacle. “There’s no reason why permits should take six to nine months to get for a simple construction, especially if they’ve built the same building before,” he argues. These delays occur even for projects using proven designs that have already received approval elsewhere in the city.

He adds that the problem goes beyond slow paperwork. “It seems like everywhere you turn, you stumble into some type of neighborhood zoning restriction that you have to then get a special use permit or zoning variance to be able to build on,” he says. “It’s like a minefield of problems, and it just makes things go so slowly.”

This regulatory complexity is changing who can build in Chicago. Apostal notes that when construction does happen above the two to four unit level, it is “larger, more established builders and institutional players who are buying land or property to build brand new, and they’re building high-end rental units. They have a lot more financial backing to be able to do so.”

As a result, Apostal says, the permitting burden has excluded smaller builders and individual investors who might otherwise add supply to the market. Only those with significant capital and experience can manage the time and cost required to navigate the process.

Why This Matters for Housing Supply

The impact of this regulatory paralysis extends well beyond individual projects. Chicago now has one of the lowest construction pipelines in over a decade, with only 5,850 units under construction citywide. The two-to-four unit segment, which historically offered affordable entry points for both investors and owner-occupants, has seen new supply effectively stop.

Apostal sees this as a missed opportunity for the city. He argues that Chicago has the neighborhoods, housing stock, and investor demand to support significant new multifamily development, but lacks a permitting process that meets current housing needs.

The regulatory burden is especially significant given Chicago’s unique housing stock. The city has the highest concentration of two to four flats in the country – a property type that has historically helped individual investors build wealth while adding to the rental supply. With new construction in this segment stalled, the existing stock must absorb all demand growth.

Two Incremental Reforms on the Horizon

Apostal points to two regulatory changes coming in 2025 that could provide some relief, though he describes them as minor improvements rather than comprehensive solutions. Starting in April, the city will allow construction of accessory dwelling units – additional units in basements, attics, or coach houses – in almost any zoning class.

The second change addresses parking requirements. Currently, most areas require one parking space for every unit built unless the property is directly next to a designated transit corridor. The city is expanding the definition of transit corridors, so “about eighty or ninety percent of the available spaces are considered transit-oriented,” Apostal says. “That would mean you can build more units without parking.”

Apostal explains that parking requirements have blocked many projects. “Sometimes people might fit two or three more units in a property, but for the parking, you can’t find the space, so you’d have to not build those,” he says. He argues the city is finally acknowledging that “people just don’t need a parking space as much as they used to. These things are sitting vacant, like empty, and preventing the unit from being rented or being constructed.”

Potential Path Forward

Whether these changes will significantly increase housing supply depends on how decisively the city implements them and whether they are steps toward broader permitting reform. Apostal’s assessment is clear: without more fundamental changes to the permitting and zoning process, Chicago’s small multifamily supply shortage will continue, regardless of market demand or financing options.

For now, the two-to-four-unit segment remains virtually frozen for new construction. Existing buildings must absorb all investor demand and rental growth. If other cities face similar regulatory obstacles in their small multifamily sectors, Chicago’s experience serves as a warning of how permitting delays and zoning hurdles can block natural supply responses, even when demand and capital are strong.