The profit is too damn low: Chicago developers decry affordable housing requirements

As Mayor Lightfoot’s housing task force meets to boost affordable requirements on construction projects, developers say they may be forced to abandon construction

Mayor Lori Lightfoot (Credit: Getty Images)
Mayor Lori Lightfoot (Credit: Getty Images)

As it is, many developers in Chicago believe the city’s affordable housing requirements have squeezed much of the profits out of their businesses. But now officials are discussing measures to further boost the number of affordable apartments in a city whose housing costs keep ticking up. And developers are saying enough is enough.

Mayor Lori Lightfoot recently formed the Inclusionary Housing Task Force, which is comprised mostly of low-income housing advocacy or nonprofit agencies, and has the goal of introducing a revised Affordable Requirements Ordinance by around June.

Developers complain that in some cases, the ARO requirement pushes the expected return on a residential project below the minimum 6 percent needed to justify its construction, according to a report by Cushman & Wakefield and cited by Crain’s. That can cause the developer to decide against building the complex, according to the report.

The Affordable Requirements Ordinance was created in 2003 and last revised in 2015. It requires developers seeking a zoning change or other assistance from the city to charge below-market rents, or prices in at least 10 percent of the units in a residential project. Some neighborhoods, like Pilsen and Logan Square, are located in an ARO pilot zone, where the requirement jumps up to 20 percent. But developers are able to skirt the requirements if they instead pay into a city housing fund, or build some of the affordable units at a different location.

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Some officials like Alderman Byron Sigcho-Lopez — who serves as co-chair of the mayor’s task force — want to increase the affordable requirement to as much as 30 percent in some areas.

Developers say they already face myriad hurdles, like rising costs of construction and labor, and increasing property taxes. All of that makes it more difficult to raise money for new projects. They argue that by decreasing the rental revenue a building can generate, the city’s Affordable Requirements Ordinance further depresses profits, and can ultimately cause developers to walk away.

A review by The Real Deal of apartment project applications filed with the city in 2018 showed a steep drop in the neighborhoods located in ARO pilot zones, after they were established in October 2017.

Some developers are still finding ways to make the numbers work, like finding sites that already have zoning in place, and moving into lower-rent neighborhoods where the disparity between market rents and affordable rents is narrower, Crain’s reported. [Crain’s] — Brianna Kelly