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Chicago Contemplating Changes to Affordable Housing Policies

by Peter Thomas Ricci

In an effort to tackle a housing affordability crisis, Chicago has fielded some bold recommendations from a special task force.

chicago-top-selling-neighborhoods-october-redfin-near-north-side

Creative Commons: Leandro Neumann Ciuffo, http://commons.wikimedia.org/wiki/File:Chicago_skyscrapers_-_2_(8091805157).jpg

The city of Chicago is considering a recommended change to its Affordable Requirements Ordinance, one that could usher in notable changes to how the city confronts a rising crisis in housing affordability.

The recommendations, which arrived a couple weeks ago from a task force formed by Mayor Rahm Emmanuel during the summer, would change city mandates on affordable housing units, as well as the fees that developers must pay to avoid those mandates; unsurprisingly, developers are not pleased with the task force’s recommendations, and according to a recent report from Crain’s, are preparing to fight the measure.

Fees in the Name of Affordable Housing

Here is how the Affordable Requirements Ordinance currently functions:

•The ordinance does not affect every new development in Chicago. Rather, it affects the following: residential projects with 10 or more units that involve city land; projects that require significant zoning changes for increased density; projects that require zoning changes for land where residences were previously prohibited; and planned developments/large-scale building projects downtown.

•If the new development fits any of those characteristics, it therefore falls under the ordinance, and the developer must do the following: set aside 10 percent of the building’s units at affordable, below-market rates; or pay $100,000 per required unit to an affordable-housing fund.

•According to Crain’s, the vast majority of developers opt to pay into the fund, arguing that with how financing works for their developments, they have no choice but to maximize the possible return on each unit.

•For example, the developer of the recent Block 37 building, which is a 690-unit apartment, paid $6.9 million into Chicago’s affordable-housing fund, instead of including 69 below-market units in the building.

Not everyone, though, is pleased with the current ordinance. Housing advocates, for one, have argued that not only is the $100,000 fee too low, but also that in absence of mandated below-market units, neighborhoods will continue to gentrify and push out low-income residents.

Greater Fees = Greater Affordability?

The task force, meanwhile, has recommended some pronounced changes to how the ordinance will work, including:

•Instead of the current either/or approach, developers would be required to include 25 percent of their allotted affordable units, and could only pay fees on the remaining 75 percent of those units.

•So for instance, under the current ordinance, a developer of a 100-unit apartment tower is required to set aside 10 percent of the units (aka 10 units) at below-market rates; the developer, though, could forgo affordable units altogether and pay the city $100,000 per unit.

•Under the new proposed rules, though, that developer must set aside three units at below-market, and then pay fees on the other seven units.

•And the very fees that developers pay would also change. For downtown rental buildings, the per-unit fee would increase to $175,000, while in higher-income neighborhoods outside of downtown, the fee would remain at $100,000; also, in lower-income areas, the fee would fall to $50,000.

•There is one exclusion to the new rules – if a developer is building a structure in the downtown market and wants to avoid the affordable-housing quota, they could pay $225,000 for several of the units, and $175,000 for the majority of them.

No Doubt About an Affordability Crisis

It comes as no shock that developers are not pleased with the task force’s recommendations – in Crain’s article, Amli Residential CEO Greg Mutz called the ordinance “all stick and no carrot,” and argued it would make financing “difficult to impossible” and slow development – but there is one thing that everyone can agree upon, and that’s the fact that Chicago, like all other U.S. cities, is mired in an affordability crisis.

Indeed, the statistics are quite stark:

•According to the latest “Market Statistics” package from MRED, in 2014 alone, housing affordability in the Chicagoland area has worsened by 16.8 percent for detached homes and 17.8 percent for attached properties; furthermore, in each of the last four months through October, affordability has declined by more than 20 percent year-over-year.

•The for-sale market, though, is hardly the only area stricken with an affordability crisis. It currently costs 37 percent of local wages to cover rent for a two-bedroom unit in Chicago, and shockingly, that’s among the most reasonable percentages nationwide; in Los Angeles and Miami, it costs 56 and 61 percent of local wages, respectively.

•Finally, in perhaps the most striking effect yet of falling housing affordability, the share of households including roommates has risen by marked amounts. Since 2000, that share has increased nationwide from 25 percent of households to 32 percent, and here in Chicago, 36 percent of residences have roommates.

We’ll have to wait and see how the new ordinance – should it go into affect – impacts the city’s housing landscape, but one thing remains clear: housing affordability will not be improving any time soon, and with incomes stagnant for the majority of Americans, it’s only a matter of time before that begins impacting housing.

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