The former public-housing high-rise Cabrini Greens stands as a backdrop to mixed-income townhouses in Chicago. (photo taken in 2003) REUTERS

Lawsuits threaten the city’s new inclusionary zoning laws just two months before they take effect.

As Chicago prepares to enter a new era of ramped-up affordable-housing development, a key question is whether private developers will go along with the city’s new guidances. A lawsuit filed, in part, by the Home Builders Association of Greater Chicago last Thursday shows signs of possible peril for the city’s low-income housing agenda. At the heart of the lawsuit is the Affordable Requirements Ordinance (ARO), which is part of Chicago’s five-year “Bouncing Back” plan for increasing affordable housing. Mayor Rahm Emanuel believes it will help produce as many as 1,200 affordable units over that span of years.

Developers involved in the lawsuit say the ordinance is unlawful and that it will actually depress low-income housing construction.

Under the ARO, any developer building a new housing project of 10 or more units on land that has been rezoned for residential use must designate as much as 20 percent of the new units to below-market rates. Developers who don’t want to include the affordable units can choose instead to donate a fee currently set at $100,000 “per averted affordable unit” to the city’s Affordable Housing Opportunity Fund (AHOF), which non-profit developers can use for building affordable housing. The ARO was created in 2003, updated in 2007, and again this past March.

For Hoyne, its plan to redevelop a former car dealership into a three-building, 14-unit housing complex was forced under the ordinance to include two affordable housing units—or else pay the fees. Hoyne disputes that it should not qualify under the ordinance, because it counts each of those buildings as a separate project, with fewer than 10 housing units in each. But it’s not just suing the city to have its project reclassified—it’s saying that the entire ordinance violates the Constitution by allowing government to, as they perceive it, claim private properties for its own use.

The Home Builder’s Association got involved in the lawsuit because it also opposes the ARO, and has for a while. Its government affairs consultant Paul Colgan told the press, “We have said consistently throughout this process that this ordinance, as written, will not produce the affordable housing that Chicago needs and that we—the builders—are ready to provide. There are better ways to create quality affordable housing options without violating the Constitution.”

The lawsuit was filed in a Cook County court, but if heard, the outcome could shake up similar inclusionary-zoning plans adopted in other major cities like New York and Los Angeles. An evolving case out of California, based on the state’s allowing cities to force developers to build affordable housing, could potentially reach the U.S. Supreme Court.  The high court recently ruled in favor of polices that allow better integration of low-income housing among market-rate-dominated communities, but that case focused on housing built with federal subsidies.

The Chicago and California cases, however, ask whether cities can force private developers to integrate low-income housing into their projects, especially those working without subsidies. The grand majority of Chicago’s rental stock is in single-family homes or in small apartment buildings with just one to six units, which the city acknowledges in its Building Blocks plan. The homebuilders association also pivots from this point in two documents it released explaining its opposition to the ARO.

In its May 2014 report  “Creating More Affordable Housing in Chicago” it shared its beliefs that, “Private-sector developers are willing and able to produce affordable housing at lower costs than other subsidized development organizations if given access to low-cost land, financial incentives, and other available subsidies.”

In a follow-up memo sent to the city’s ARO advisory panel in August 2014, the builder’s association offered seven recommendations for how the city can inspire private developers to build more affordable housing:

  1. Allow developers more flexibility to build affordable housing units “off-site” from their primary projects;
  2. Provide bonuses to developers building in high-density neighborhoods, even if all units built here are market rate;
  3. “Fast track” the approval process for developers who will build units off the project site or in high-density zones;
  4. Provide more incentives for Transit-Oriented Developments, or housing built near public transit;
  5. Allow more “work force” renters and buyers into the affordable market, as opposed to those of very low income;
  6. Offer property tax relief to developers who build affordable units;
  7. And most of all, don’t increase those Affordable Housing Opportunity Fund fees developers would pay for opting out of building affordable units.

It was that last one that the homebuilders association was most adamant about. A raise in the fees, the association argued:

could make many of these developments no longer economically viable, possibly forcing the cancellation of up to $900 million in planned new construction. The resulting loss of jobs, new tax revenues and new market development could be devastating to the City of Chicago budget and economy. Further, the resulting substantial loss of “fee-in-lieu” revenue to the Affordable Housing Opportunity Fund could also negatively impact the very low–income people the fund was created to help.

Well, the city raised the fees. But not everywhere. Developers only have to pay fees that exceed the previous $100,000 threshold if building in low-poverty neighborhoods. If building in high-poverty neighborhoods, developers will only have to pay $50,000 per affordable unit it decides not to produce (within the inclusionary quota)—a move that could help lessen the concentration of poverty in a neighborhood, but could also trigger the pricing out of some of the working class already living there. The new ARO fees kick in October 13.

Still, Hoyne and the homebuilders association believe imposing any kind of fee or quota constitutes a government “taking,” and is hence unconstitutional. While courts sort those legal questions out, the practical question in Chicago and other major cities trying out inclusionary zoning is whether developers feel it is too much stick and not enough carrot for building below market rate.  

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