Upzoning might make neighborhoods less affordable in short term, study finds

Research suggests the city’s transit-oriented development rules didn’t boost construction right away

Yonah Freemark and 5050 North Broadway
Yonah Freemark and 5050 North Broadway

City policies that allowed developers to cluster more housing near transit stations made the land more expensive without boosting construction right away, potentially making neighborhoods less affordable while they wait for the new homes to be built.

The city’s 2013 transit-oriented development ordinance was responsible for across-the-board price jumps on properties that fell under the policy, according to Yonah Freemark, a doctoral candidate in urban policy at the Massachusetts Institute of Technology. But Freemark’s paper, titled, “Upzoning Chicago: Impacts of a Zoning Reform on Property Values and Housing Construction,” found no visible spike in residential building permit applications attributable to the rule change within five years of its implementation.

The ordinance, widely lauded by developers for bringing down the costs of construction, lowered parking requirements and raised height limits for apartment and condo buildings with a quarter-mile of train stations. Mayor Rahm Emanuel expanded the program in 2015 to cover land within a half-mile of stations, and this year the city broadened it again to follow some high-traffic bus routes.

The concrete skeletons rising along the North CTA Red Line and Blue Line corridors on the North Side have suggested that designers of the policy achieved their goal of getting more homes built near busy stations, but the numbers tell a different story, Freemark said.

“You see can all this new construction so clearly when you walk down Milwaukee [Avenue], and I was expecting my results to replicate that finding,” Freemark said. “But the results show that from the construction perspective, there wasn’t much of a difference in the areas that were up-zoned.”

Freemark collected land transaction records from the Illinois Department of Revenue to measure price growth, and he scoured building permit records to count home construction in both the areas rezoned in 2013 and in those affected by the 2015 ordinance.

He found that almost immediately after the zoning changes went into effect, developers and appraisers raised their bids on land based on how much they would be able to build there. But the relative dearth of new construction shows they were in no hurry to build in line with the speculation, Freemark said.

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“The development cycle is very long, and the people who push for upzoning often pass by that fact and hope that we don’t pay too much attention to it,” the researcher said. “Even if those units get built, and I suspect they will be, you’re going to have a gap of five years or more that’s going to be associated with increased costs.”

Developers and brokers often point to looser zoning restrictions as the only way to keep apartment rents and home prices from spiraling beyond what residents can afford, arguing that adding new units heats up competition among landlords and forces them to keep rents low to attract tenants. They say tougher affordability policies, like the city’s Affordability Requirements Ordinance and a movement to implement rent control statewide, will backfire on renters by squeezing off home construction.

While Freemark agrees construction helps flatten home prices on a citywide level, the results of his study show that the free market can’t be relied upon to prevent rents from skyrocketing in gentrifying neighborhoods, he said.

“I want to disabuse people of the idea that up-zoning is bad, but I think we have to be very careful about the effects it can have at the neighborhood level,” Freemark said. “When people say that up-zoning is making their neighborhood more expensive, we have reason to think they’re right about that.”

The study also found a strong connection between rising building values and lower parking requirements near Downtown, where the zoning ordinance accounted for a nearly 19 percent hike in property values. But the effects had “no significant impact” in outlying neighborhoods, suggesting new buildings with little or no parking are “most readily absorbed in neighborhoods able to easily accommodate people living without a car,” Freemark wrote.

With city’s mayoral election weeks away, multiple candidates have called for loosening zoning and building requirements to spur affordable development, and some have even proposed following Minneapolis in banning single-family zoning outright.

Candidates made their pitches last week during a forum hosted by the Chicago Association of Realtors, which is pushing an agenda to oppose rent control and accelerate home construction all over the city.