In March, after months of debate behind closed doors, Chicago’s City Council voted overwhelmingly to overhaul the city’s Affordable Requirements Ordinance (ARO), a key tool meant to encourage the private development of affordable housing in a city where the waitlist for public housing continues to grow.
On the Horizon
But with the changes scheduled to take effect in October, some local developers warn the ARO’s new fees and requirements are too onerous. Representatives of the development and construction industries voiced such concerns to powerful Aldermen like Brendan Reilly, whose downtown 42nd Ward has more than a dozen high-profile projects pending or already under construction. Reilly had expressed his concern about the ARO’s potential chilling effect on development, but voted for the measure in March, citing last-minute improvements to the ordinance.
Enacted in 2003 and amended in 2007, the existing ordinance requires developers of private residential projects to make 10 percent of their units affordable, or pay $100,000 to a city-run affordable housing trust fund for every unit they do not build. It applies to any new or rehabbed development with more than 10 units that seeks a zoning change, a planned development designation, city land, or a city subsidy.
The new ARO raises that fee to $175,000 and $125,000 for downtown developers and those who build in higher-income census tracts, respectively, while slashing that price to $50,000 per unit in areas home to mostly low- and moderate-income residents. It also requires developers of projects downtown and in high-income areas to keep at least a quarter of the required affordable units either on site or within two miles of the new project.
Mayor Rahm Emanuel said the new ARO will add 1,200 affordable housing units and generate $90 million to build more over the next five years. That would still leave a ways to go for Emanuel to meet his stated “goal to create, improve, and preserve more than 41,000 units of housing in the city by 2018.” Asked about plans to close that gap, the Chicago Housing Authority deferred to the Mayor’s office, who did not reply to repeated requests for comment by press time.
Historically most developers have avoided building new affordable units when faced with the choice presented by the ARO. The existing ordinance brought in $4.7 million through in-lieu fees in 2013 alone, but fewer than 200 actual units in profitable markets after more than a decade on the books, according to an analysis from the Metropolitan Planning Council.
Emanuel’s push to encourage more affordable housing in dense, downtown areas comes after a hotly contested reelection race in which his liberal challenger, Jesús “Chuy” García, labeled him “Mayor 1 percent.”
But some developers, whose business has picked up substantially since the recession, worry the new rule will squeeze out new projects that require complex financing.
“It’s going to have an impact on either our margins—which are slim to start with—or land prices,” said Alan Lev, president of the Home Builders Association of Greater Chicago and CEO of the development firm Belgravia Group. Lev said he has already tried to rush a deal for a new condo building downtown to get the landowners on board before the October 12 deadline to file for a zoning change under the old rules. He said the new ARO would add about $1 million to the total project cost.
“I’m all in favor of affordable housing,” said Lev, who sat on Mayor Emanuel’s task force to help draft the ordinance. “I’ve always thought there were better ways to go about it. Why is it on the backs of new development instead of spread amongst all sorts of projects?”
Incentives vs. Requirements
Lev suggested the city instead offer more incentives, such as tax breaks, to developers that include affordable housing.
A four-percent tax credit on bonds from the Illinois Housing Development Authority recently helped tie together one of the single biggest affordable housing investments in Chicago in years: Related Companies bought Illinois affordable property management company Metroplex, scooping up more than 1,500 units in Chicago. Of those units, 628 are in the Marshall Field Garden Apartments complex, a historic development in the affluent Old Town neighborhood due to lose its affordable housing designation in 2017. Related hired NIA Architects to lead a $175 million renovation of the six-acre property, and has pledged to keep the units affordable for 30 more years.
Presiding over multi-billion dollar deals like Manhattan’s Hudson Yards and the Chicago-record-breaking sale of a 504-unit luxury tower at 111 West Wacker Drive, Related seemed to some an unlikely candidate to preserve affordability in the Section 8 units at Marshall Field.
State bond money and historic tax credits sweetened Related’s redevelopment of the property, which is on the National Register of Historic Places. But affordable units also offer steady income for private developers, who can count on the subsidized rents of their tenants even during dips in the rental market.
“Chicago has been a place where the private development community has really taken the lead on affordable housing,” said Jacques Sandberg, who heads up affordable housing for Related Midwest. “[The Chicago Housing Authority] years ago concluded that it made sense for them to look to the private sector to carry out development, and we’ve been happy to step into that role.”
As for the ARO, Related Midwest president Curt R. Bailey said it may help shift the development of affordable housing back toward downtown and away from “the fringes of the city.”
“It’s the law now, and we’re going to figure out a way to build within those plans,” said Bailey. “It’s going to make the bar a little higher to build in downtown, but at the end of the day it should produce a better city for us if we have affordable housing downtown.”