With new political status quo, developers debate how to address affordable housing, community development

A new governor, mayor and city council is likely to change the relationship between developers and government officials. Exactly how that dynamic will change remains to be seen, but developers say they are willing to work with the new officials — if those officials are willing to work with developers.

At Marcus & Millichap’s multifamily housing forum Wednesday, a number of panels revolved around the progressive policy issues Chicago’s new leadership is likely to pursue, including more affordable housing, community development and rent control.

Developers and legislators will likely never see eye-to-eye on issues like rent control and real estate taxes. But there is some common ground to be found, experts said Wednesday.

“I think we’re in a social climate today where there is a need for the increased responsibility that we’re seeing in these (recent development) plans,” said David “Buzz” Ruttenberg, the just-retired chairman of Belgravia Group. “How do you find the balance to keep this city dynamic and affordable?”

With the contentious approval process for Lincoln Yards and The 78, the issue of affordable housing has moved more to the forefront in Chicago. Nationally, more than half of new multifamily development in recent years has been in the country’s 10 biggest markets, and 80 percent of that product has been high-end, said Hessam Nadji, CEO of Marcus & Millichap.

“This is a huge topic,” he said at the forum. “Unfortunately, we have a crisis in the shortage of workforce housing everywhere.”

Chicago’s solution for the problem — the affordable requirements ordinance — has been met with a mixed reception from developers. Jordan Karlik, principal at JK Equities, said it has not been the answer so far.

“As citizens, there’s responsibility to provide affordable housing,” Karlik said. “The current affordable housing ordinance is ineffective. It increases the barrier to entry and stops a lot of future housing from coming online. Hopefully the new administration will find a way to work with developers” on the issue.

Kevin Farrell, president of Fifield Realty Corporation, said the affordable housing rules could benefit both the city and developers, but the real estate community needs more incentives to make it work.

“If affordable housing has to be in a development, fine,” Farrell said. “Can we get an extra couple stories? Can we get an extra point in FAR (floor area ratio)? You can make it work, and we do.”

More onerous than the affordable requirement is the area’s property taxes, said John Abell, managing partner at Crayton Advisors. Issues of affordable units and community development can be solved through entrepreneurship, but that’s not true of taxes, which have driven out investors and developers.

“The ARO, I think, has solutions,” Abell said. “At the core of every developer is an entrepreneur. So we’re going to figure that out.”

The best solution to affordable housing is not through developer requirements, but through public-private partnership, Nadji said.

“The public sector needs to partner with us (and) create those incentives,” he said. “I don’t see any way around it. There is no magic solution”

Ruttenberg said developers ultimately will have to be more virtuous in their business decisions, if they are to not run afoul of political leaders and the community.

“A lot of this is going to have to be market-driven and morally driven,” he said. “We really need to establish that idea of social fabric as part of our commitment to making Chicago a better place to live.”