Exploring Capital Flows in Chicago

How investment patterns vary across neighborhoods in the Windy City

December 7, 2022

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Like many cities across the US, Chicago has been facing an economic whiplash over the past decade. After the Great Recession, investment growth in the city rebounded in subsequent years only to stall and reverse during the pandemic-related economic downturn.

But there isn’t just one story of investment trends in Chicago. Depending on where you look, Chicago can be highly invested and affluent or it can be disinvested and declining. With nearly 3 million residents spread across 234 square miles, the city’s economy looks very different depending on the neighborhood where someone lives or works.

How much public and private investment—such as small-business loans or home mortgages—flows to a place affects whether that place can grow and thrive. Below, we explore investment patterns in Chicago. We find that Chicago has room to grow both in increasing its overall investment pie and in more equitably dividing the slices of that pie among neighborhoods with different racial and income demographics.

By better understanding these patterns and inequities, local leaders can focus their efforts on creating more economic opportunity for all Chicago residents.

How investment in Chicago compares with investment in other US cities

Between 2010 and 2020, among the 100 largest US cities by population, Chicago ranked 40th in overall investment per household annually, and it has remained steady in that relative position over the past several years. Chicago’s central business district was dented by the pandemic but remains strong, and the city stands out for its large amount of nonresidential investment (including commercial and industrial lending) as well as for its strong mission investment sector. Compared with other large US cities, Chicago’s weakest investment category is multifamily financing.

How the amount of capital flowing into Chicago varies by investment category

Certain investment categories make up a much larger share of total investment volume in Chicago than other categories. Here, the boxes represent the relative size of that category’s total investment volume, on average, between 2010 and 2020. Because of some huge infrastructure and office projects, nonresidential lending makes up the largest investment type—just under half of all investment in the city. Single-family lending is the next largest category, much more broadly held, representing more than a third of all investment in Chicago. Multifamily and small-business lending are significantly smaller, at 9 and 4 percent of total lending, respectively.

Similar to other cities, mission and public funding—which are considered indicators of the government’s and the social sector’s commitment to closing equity gaps—make up a very small amount of total capital flows in Chicago compared with private-sector sources. These differences show that although mission and public investment are important to communities and can jump-start local economies (as INVEST South/West aims to do), they alone cannot solve inequities in private-sector funding.

How Chicago investment patterns have changed over time

After 2011, investment accelerated in Chicago as the economy expanded after the Great Recession. Overall investment per household more than doubled in just two years (driven largely by single-family and nonresidential lending) and reached a peak in 2018. But since then, including during the pandemic, overall investment in the city has tapered. This is largely because of a contraction in nonresidential investment.

Small-business lending steadily increased in Chicago from 2010 through 2020, rising by two-thirds. (We do not include Paycheck Protection Program loans, because for many companies, they were more like government transfers than loans.) Multifamily lending varied over the period, rising to higher volumes between 2015 and 2017 but returning to lower levels by 2020. Public- and mission-sector investments were fairly steady year over year, aside from a big increase in stimulus funding in response to the pandemic.

How investment varies among Chicago neighborhoods with different racial demographics

Chicago is a starkly segregated city, and segregation goes hand in hand with neighborhood distress. In Chicago, largely because of significant disparities in residential investment, overall investment patterns are exacerbating these racial inequities.

In fact, we found that in general, the larger the share of Black residents in a neighborhood, the less investment that place receives. Between 2010 and 2020, census tracts where more than 80 percent of residents are Black receive just 37 percent as much overall per-household investment as received by tracts where less than 20 percent of the residents are Black. These disparities are evident but not quite as extreme for neighborhoods with different shares of Latine residents.

On the other hand, the larger the share of white residents in a Chicago neighborhood, the more investment per household that neighborhood generally receives. Between 2010 and 2020, Chicago census tracts where more than 80 percent of residents are white received nearly five times the overall per-household investment as received by census tracts where less than 20 percent of residents are white. The trends are not as linear for Asian residents, but neighborhoods with a share of Asian residents at least as large as the US overall (6 percent) access more capital than neighborhoods with smaller shares of Asian residents.

The size of the racial disparity varies among different investment categories. For instance, nonresidential investment and small-business lending are more equitable among census tracts with diverse racial demographics. Mission and public investment better serve neighborhoods with larger shares of Black and Latine residents. But given the small size of such investments, they cannot overcome the stark inequities created by multifamily and single-family investments in Chicago neighborhoods.

How investment varies among Chicago neighborhoods with different poverty levels

In addition to stark segregation patterns by race or ethnicity, Chicago also has significant segregation by income. Because of historical and current systemic racism and discriminatory practices around property appraisal, sales, purchase, and lending, neighborhoods with large shares of people of color are often also neighborhoods with large shares of people experiencing poverty. In fact, 78 percent of majority-Black census tracts and 38 percent of majority-Latine census tracts in Chicago had poverty rates above 20 percent in 2020.

To examine investments, we separated Chicago neighborhoods into equal-sized groups by poverty rate, which produced quartiles of 0–11 percent, 12–20 percent, 21–31 percent, and over 31 percent. We found that Chicago has significant income disparities in residential investments but not in other asset classes.

On average, the lowest-poverty neighborhoods receive 3.6 times more single-family lending per household and 1.8 times more multifamily lending per household than the highest-poverty neighborhoods receive. Nonresidential and small-business investments do not disproportionately go to low- or high-poverty neighborhoods, and more mission and public-sector lending goes to the highest-poverty tracts than to other tracts. But the extreme disparities in single-family investment lead to low-poverty neighborhoods in the city receiving disproportionately more overall investment.

Where investment is flowing to Chicago neighborhoods

Because Chicago is so segregated, investment patterns correspond with patterns in where different groups live. For instance, larger levels of overall investment are concentrated around the South Loop and West Loop and in the North and Northwest areas of the city. These are also the places with larger shares of white residents and lower levels of poverty.

On the other hand, the South side, further West side, and parts of the Southwest receive much less overall investment per household. These areas have larger shares of Black and Latine residents and higher poverty levels. But these geographic disparities in overall investment are driven largely by inequities in residential lending; other investment categories have different trends among different neighborhoods.

Expanding investment can create economic opportunity for all Chicago residents

These investment patterns show that even though Chicago as a whole is accessing a decent amount of capital relative to other cities, those resources are not spread evenly across the city, and that inequity is driven by residential lending patterns. The racial and income disparities in investment reflect inequities in neighborhood market conditions, levels of wealth and access to credit, and capacity to absorb capital. But these long-standing trends are not only a result of decades of disinvestment and exclusion; they are also a cause of continued inequality across neighborhoods.

Although growing the size of the mission-driven investment sector is important in addressing these equity gaps, Chicago neighborhoods need much more mainstream capital from the private market. Potential solutions vary based on the investment type as well as the property’s land use and the neighborhood’s market demand. Strategies to boost investment include expanding the use of special-purpose vehicles to increase mortgage access; leveraging grants, guarantees, and loss reserves to grow small-business lending; and implementing commercial corridor revitalization strategies to bolster nonresidential investment.

Overall, these findings show that extensive and sustained public and private action is necessary to create economic opportunity for residents in all of Chicago’s neighborhoods.