Nearly two years after Mayor Lori Lightfoot overhauled a city policy designed to blunt gentrification and chip away at Chicago’s decades-old legacy of segregation, results have been slow to materialize.
City approvals for marquee apartment projects have been smaller and less frequent since the City Council passed Lightfoot’s 2021 revamp of the city’s Affordable Requirements Ordinance, an Illinois Answers Project analysis shows. Some builders point to the trend as vindication for their opposition to the ordinance, which cranked up requirements for developers to include some affordable units in any large project they propose in wealthy or gentrifying neighborhoods. They say the rules were so harsh that they choked off development, ultimately leading to less new housing — including fewer new affordable units.
But the main architect of Lightfoot’s policy revamp points to other data showing that the Affordable Requirements Ordinance is just starting to produce consistent results after being stuck in neutral for most of its previous life. He and other city officials argue the slowdown in mega-projects obscures a host of other subtle ways the new policy is helping policymakers widen affordable options and slowly loosen segregation’s grip on the city.
‘We need more housing’
Developed in 2007 under Mayor Richard M. Daley as a way to make downtown developers help pay for affordable housing, the Affordable Requirements Ordinance (ARO) has long faced criticism for letting builders off easy. Even after Mayor Rahm Emanuel pushed through a revamp in 2015 that required developers seeking zoning changes or city funding to include some affordable units in their own developments, builders routinely took advantage of a loophole that let them buy their way out of the obligation.
By the time Lightfoot took office in 2019, the ordinance had pushed developers to create fewer than 400 affordable apartments in its 12 years of existence.
“Meanwhile, the problem of housing affordability remains acute,” members of Lightfoot’s transition team wrote in their May 2019 report. “The Lightfoot administration should amend the ARO so that it is an effective and flexible incentive to create more housing that is affordable.”
After convening a 20-member “task force” of real estate professionals, researchers and community organizers, Lightfoot’s Department of Housing unveiled a plan in spring 2021 designed to close loopholes and try to push developers to include more affordable units in flashy new projects.
The new rules, approved overwhelmingly by the City Council, upped affordability requirements for residential developers who sought zoning changes or other city benefits for projects in wealthy or gentrifying neighborhoods. The updated policy required builders in many neighborhoods to pay for at least 20% of new units to be charged below-market rents — but it also opened new ways for developers to meet the goal, including by preserving the option to shrink their obligation by paying a fee.
Some developers supported the change, but many others howled, saying market-rate builders would simply pick up their tools and move to cities with friendlier regulatory environments. Among them was Paul Colgan, a lobbyist with the Home Builders Association of Greater Chicago.
“Ratcheting up these requirements simply makes it difficult to build housing that people need in Chicago,” Colgan said. “Any program like this that does not produce more housing, be it affordable or market rate, is bad. Because we’re losing the tax revenue. . . all the economic impact of that construction is going away.”
Colgan said he has heard anecdotally of many builders pulling back after the new rules went into effect, and at least one big metric bolsters his argument.
The Chicago Plan Commission, which is responsible for approving large or complex development proposals before they come to the City Council, approved just under 6,900 units of housing between October 2021, when Lightfoot’s revamp of the Affordable Requirements Ordinance took effect, and January 2023. They included about 900 units of non-subsidized affordable homes.
During the 16 months before the new rules went into effect, the commission approved projects totaling more than 14,000 new homes, including nearly 1,800 units designed to charge below-market rents without subsidy.
Plan commission approvals are not a sure sign of construction. Proposals are often scrapped or re-thought in the months between City Council approval and groundbreaking.
Still, Colgan took the trend as vindication for his opposition to the tougher rules.
“We need more housing,” he said. “And these policies that keep us from building sound good in the elevator, but the reality is, when they hit the ground, they just don’t work.”
‘What does affordability mean?’
The sharp drop-off in mega-projects shouldn’t be taken as a sign that the new policy is failing, according to Daniel Hertz, director of policy for the Chicago Department of Housing. He pointed to a range of other factors that could explain the data, including a surge of buzzer-beating approvals right before the new rules took effect in late 2021. Developers similarly swarmed the plan commission in the months before city leaders cranked up affordability rules in some fast-growing neighborhoods in 2017, leading to a relative drop-off after the new rules took effect.
“There was not a lot going through in mid-2020, and you saw a rush of projects coming in as vaccines were rolling out and the economy began to recover in 2021,” Hertz said. “As interest rates have risen and construction costs have risen, you can go outside of Chicago, [to cities] where the ARO does not apply, and find significant slowdowns in new construction projects moving through as a result.”
He added that the new rule wasn’t just designed to create more affordable units, which are already produced by the hundreds each year through federally backed subsidies. Its central aim was to break down lines of economic and racial segregation that cleave the city. And measuring desegregation requires looking at the depth of affordability provided in new buildings, not just the breadth, Hertz argues.
Multiple builders have taken advantage of a provision in the 2021 ARO that lets them pull back on the number of affordable units they provide if the units are held for renters who earn less than 60% of area median income — about $43,800 for an individual or $63,000 for a family of four.
“The new ARO is doing a better job of reaching more of the people who most need help with their rent,” Hertz said. “It’s a really dramatic change in this question of, ‘What does affordability mean?’ That was one of the biggest questions we heard during the revision process.”
Ward-level officials have taken advantage of the policy to compel the construction of more deeply affordable units in the city’s wealthiest neighborhoods, including with projects too small to trigger an audience with the Chicago Plan Commission.
Josh Mark, director of development for Ald. Matt Martin (47th), pointed to a 68-unit development full of family-sized apartments at the intersection of Lincoln and Damen avenues that received zoning approval last February. The developer originally planned to meet ARO requirements by targeting rents in 14 units to people earning 60% of area median income. But at Martin’s urging, the builder instead set aside seven of the apartments to renters earning 30% of median income, or just over $28,000 for a family of three.
“Now we’re talking about this [building] becoming available to a family of three or four people, with the breadwinner making minimum wage,” Mark said. “That’s a game-changer for us, and we think it’s 100% worth it.”
A half-mile down the road at Addison and Ravenswood, another developer broke ground last year on a 52-unit apartment building they had originally envisioned to include 11 affordable studio and one-bedroom apartments. But thanks to a provision in the 2021 ARO that softens inclusion requirements if larger units are included in the affordable mix, the builder instead included just eight affordable units — including seven two-bedroom apartments.
“There is much more value in having larger affordable units than there is in having slightly more, smaller units,” Mark said, noting that the building can now accept lower-income children instead of catering to young professionals.
Hertz said he expects the new policy to keep producing affordability wins, even if they aren’t necessarily headline-grabbing mega-developments.
He was also skeptical of the notion that residential development in Chicago has ground to a halt. He noted that the ARO triggered the construction of more than 600 unsubsidized affordable units in 2022 — far more than in any previous year. Most of those projects that broke ground last year received zoning approval before the 2021 rules kicked in.
“Even if we’re talking about a decline of the pipeline coming in, it should be put in the context that we are in the midst of a historically large pipeline of ARO projects coming through,” Hertz said.
Reporting on equity issues by the BGA is supported by Joel M. Friedman, president of the Alvin H. Baum Family Fund.