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The debate over how Chicago should build affordable housing, explained

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It’s a balancing act

A rendering showing a glass and metal tower with ground-floor retail on an urban streetscape.
A rendering of the development slated for 906 W. Randolph Street. The 300-unit skyscraper will include 20 percent affordable housing on-site.
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Chicago Mayor Lori Lightfoot is preparing to overhaul the city’s requirements for affordable housing in new developments. While advocates see it as an opportunity to address the nationwide shortage of affordable housing and spread investment to underserved neighborhoods, developers warn that raising the requirements could hinder investment and prevent projects from getting off the ground.

How does the city regulate and build affordable housing?

Chicago’s current Affordable Requirements Ordinance (ARO) mandates a minimum of 10 percent affordable housing in projects seeking a zoning change or financial assistance from the city. In certain areas of the Near North Side, Near West Side, and Milwaukee Avenue corridor, the percentage increased to 15 or 20 percent as part of a pilot program introduced by the city in 2017.

Instead of choosing to build affordable units on-site, developers frequently take advantage of an option to pay “in-lieu fees,” which goes to city initiatives like the Affordable Housing Opportunity Fund and the Chicago Low-Income Housing Trust Fund. Developers sometimes prefer to make these one-time payments because it is typically more profitable than charging lower rents over the lifetime of a building.

What’s wrong with the city’s affordable housing rules?

Despite Chicago’s booming downtown, the ARO has failed to produce adequate affordable housing. Between 2007 and 2017, the ordinance accounted for just 440 new affordable units in market-rate developments. During that same time, the developers of 88 projects paid fees to avoid building affordable units on-site. Had the developers not been given that option, the ordinance would have produced more than 1,200 affordable units, according to the Chicago Housing Initiative advocacy group.

A group of local aldermen and community activists have introduced legislation to overhaul the ARO in a proposal known as the Development for All Ordinance. The measure would eliminate the ability for developers to opt-out of building on-site affordable housing and would boost affordable requirements in affluent areas up to 30 percent.

What is the mayor’s plan?

In October, the mayor announced the creation of a task force that would evaluate potential revisions to the ARO. Mayor Lightfoot is considering a few ways to revamp affordable housing, including the Development for All proposal.

“The administration is committed to creating more affordable housing options citywide, and that begins with evaluating existing tools and resources, like the ARO which is instrumental in providing housing for those most in need,” said Marisa Novara, commissioner of the city’s Department of Housing, in a statement.

Lightfoot aims to pass the new ARO rules by mid-year, according to Crain’s. Any change will need to earn the support of the Chicago City Council to take effect.

Will the new proposed changes work?

Some developers say raising the ARO requirements would cut into profits enough to restrict new development. A tougher ARO would also come at a time when the industry faces other concerns like soaring construction costs, tighter lending from banks, and uncertainty around taxes.

Developers made similar dire predictions when the ARO was last modified in 2015 and in-lieu fees for high-income areas were increased. Those changes appear to have done little to deter downtown development over the past five years. Even in zones with higher affordable requirements of 15 to 20 percent, developers are still moving forward with new projects. The latest, a 300-unit rental tower at 906 W. Randolph Street, has 20 percent on-site affordable housing.

Finding that sweet spot—where the policy works as intended and creates more affordable housing units without deterring new investment—will be a balancing act.