How Much Affordable Housing is Too Much?

Nervous Chicago business folks won a modicum of reassurance last month when a compromise work-notice ordinance finally was crafted. The deal admittedly had some aspects of a shotgun marriage, but business groups pulled enough concessions out of Mayor Lori Lightfoot that they ended up signing off on the new law.

Now, a much bigger test of business’s relationship with the new mayor has begun. At stake literally is the health of the city’s entire residential market, both rental and homeowner-occupied.

My reference is to a series of pending proposals to expand the city’s stock of affordable housing—or at least to prevent it from shrinking amid a central-area economic boom that’s sparking a gentrification wave. Get it right and lower-income people will get new options to stay in town without having to starve their kids. Get it wrong and both new and renovated residential construction will dry up.

The central proposal now on the table comes from aldermen headed by Near Southwest Side freshman Byron Sigcho-Lopez, 25th. Their plan would sharply ramp up the amount of affordable housing legally required in neighborhoods including downtown, mandating that as many as 30 percent of units in some structures be offered at well below market rates.

Sigcho-Lopez makes a compelling case that the city’s current Affordable Requirements Ordinance has been a bust, generating only 441 new units in the past decade and only 22 of them of the three-bedroom size. “We have a huge shortage of affordable housing,” he says. “We’re way behind what every other major city is doing.”

Sigcho-Lopez’s solution is to bump up from the current 10 percent to as much as 30 percent the share of a new building’s units that would have to be rented or sold at rates affordable to those who earn 30 to 80 percent of the Chicago-area median income. Also, half of those units would have to be built on-site, with the others within a half mile; current law says 25 percent on-site with the remainder within 2 miles.

Those numbers may be doable—under certain conditions. Related Midwest President Curt Bailey, who’s developing the huge 78 project in the South Loop, tells me that, in New York City, his firm operates a building that is able to charge the same rents as other nearby high-end structures even though 20 percent of its units are leased at affordable rates. That’s important, because it indicates that well-off folks and their poorer neighbors actually can live together in relative harmony.

Of course, Bailey’s company gets a nice property tax rebate in New York under that state’s 80/20 program. Sigcho-Lopez says he’s willing to talk about offering incentives, but his ordinance does not now do so.

The alderman also says he’s willing to talk about other, potentially even more controversial sections of his bill. Like extending the 30 percent set-aside requirement to condominium towers in the central area. Or including rehab of existing rental buildings if they have at least 10 units and at least $10,000 in work is occurring in each unit. By extending the new ARO rules to rehabs and new projects that need even routine zoning changes, the proposal is getting awfully close to being an across-the-board mandate—something that could be a market killer.

Lightfoot so far has been pretty quiet on where she’ll draw the line. During the campaign, she outlined proposals that are a milder version of Sigcho-Lopez’s and urged a big hike in the city’s real estate transfer tax to incentivize new affordable units.

The trick here is to find the right balance, says Geoff Smith, executive director of the housing institute at DePaul University. But by and large, all of the new, distinct high-end construction in the central area in recent years has been good for the city, he says. At the same time, he adds, most of the city’s current affordable units are in two- to four-flats that are not easily regulated.

Balance. Easy to say, but hard to achieve. I’ll be watching this issue with great interest.

Source: chicagobusiness