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Homebuilders Association Sues Chicago to Thwart Affordable Housing Ordinance

by Peter Thomas Ricci

The city of Chicago’s controversial affordable housing ordinance is heading for the courts

Construction-affordable-housing-ordinance-chicago

The Homebuilders Association of Greater Chicago has filed a lawsuit against the city, hoping to stop a controversial affordable housing ordinance.

The ordinance, which the city first proposed in late 2014 and is set to go into effect Oct. 13, raises the fees developers must pay to avoid adding affordable housing units to new construction projects. Currently, developers of 10 or more units must devote 10 percent of its units to affordable housing, or pay a fee of $100,000 per unit; with the new ordinance, that fee will jump to $175,000 per downtown unit, while higher-income neighborhood units will stay at $100,000 and lower-income areas will fall to $50,000.

In its lawsuit, the Homebuilders Association argues that the new ordinance is in violation of the fifth amendment.

Chicago needs more affordable housing, and residential developers are ready to help build it. The issue at hand here is that the City is in direct violation of the constitution,” said Steven P. Blonder, the lead counsel for the plaintiffs and a principal at Much Shelist, in a statement. “The Fifth Amendment prohibits the taking of private property for public use without just compensation. The ARO Ordinance’s requirements are doing just that.”

Hoyne Development in Chicago

The association’s lawsuit specifically mentions a Hoyne Development project. According to the lawsuit, in 2012, Hoyne acquired two commercial properties in Chicago, and applied for zoning changes to build three new residential projects on the site, all of which contained less than 10 units. Yet, in April 2013, the city of Chicago determined the developments constituted one 14-unit project, and then placed a hold on building permits until Hoyne set aside two units for affordable housing or paid a $200,000 fee.

The lawsuit then alleges that when Hoyne objected to the fee, countering that the city’s demands exceeded the ordinance’s stipulation (10 percent of 14 units would be 1.4 units, not the two the city had required), the city cited “Department Policy,” which allowed it to “round up” to two units.

“The City of Chicago needs to work with, not against, the real estate development community if it wants to create much needed affordable housing,” said Paul Colgan, government affairs consultant to HBAGC, in the statement. “We have said consistently throughout this process that this ordinance, as written, will not produce the affordable housing that Chicago needs and that we – the builders – are ready to provide. There are better ways to create quality affordable housing options without violating the Constitution.”

Stopping the Affordable Housing Ordinance

Hoyne eventually paid the $200,000 fee, and though the lawsuit seeks to recoup the fee, it is not citing any further damages. As Blonder explained to Crain’s, the lawsuit aims instead to stop the ordinance.

“The lawsuit is aimed at stopping an unconstitutional ordinance,” Blonder said. “If you’re going to impose an impact fee such as this, it needs to be tied proportionally to the impact of the activity. These two six-flats aren’t causing an increase in the need for affordable housing. There’s no proportionality, and that’s really what the problem is.”

The association is arguing that the city should pursue a more incentives-based solution, one that allows greater density to offset the costs of providing affordable housing.

Meanwhile, Shannon Breymaier, a spokesman for Rahm Emmanuel, reaffirmed the mayor’s support of the ordinance in a statement to Crain’s.

“The reforms to the Affordable Requirements Ordinance that passed this year are an important component of this commitment since they will significantly increase affordable housing opportunities,” she said. “We do not believe this suit has any merit, and we will defend our ordinance vigorously.”

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