Chicago Tribune: Developers face bigger fees if they miss affordable housing quota

By Mary Ellen Podmolik, Housing Reporter

Developers of some of Chicago’s highest-priced apartments and condominiums will have to create affordable housing or write even bigger checks if City Hall pushes through an affordable housing ordinance expected to be introduced Wednesday.

Changes to the city’s 7-year-old Affordable Requirements Ordinance have some of the largest companies worried that their ability to build and build very profitably along the lakefront in highly coveted neighborhoods will be at risk.

For the past seven years, developers of new or rehabbed projects with 10 or more units that either needed a zoning increase or were on city land had to make 10 percent of their units affordable for middle-income families. The requirement was 20 percent if the city provided financial assistance or if the project was within a tax-increment financing district. Most, however, opted instead to pay an in-lieu fee of $100,000 per required unit into a city fund used to build affordable housing elsewhere in the city.

Since 2007, developers paid $19 million in fees while creating only 247 units of affordable housing.

Now, the city wants to break the city into three zones — downtown, high-income census tracts and low- to moderate-income census tracts — and treat each differently.

Among the key provisions, a developer in a highly sought part of the city would have to create affordable housing to cover 25 percent of its obligations under the ordinance. A rental project downtown and a rental or for-sale project in higher-income neighborhoods could meet that requirement by completing a building within a mile of the original site. For-sale projects downtown could also meet the requirements by building an affordable housing project anywhere in the city.

If a downtown condo developer chose not to create units to reach that 25 percent threshold, it would have to pay $225,000 per affordable unit required, instead of the current $100,000. In-lieu fees would be lower in high-income areas and in low- to moderate-income neighborhoods. Projects with the Chicago Housing Authority also would qualify for lower fees.

The proposal, which may still be tweaked before Wednesday, is certain to elicit howls from developers who worry that their projects no longer would be financially feasible.

“We decreased the fees in the low-income areas where we don’t want to stunt development but we increased it in the higher income areas,” said Ald. Walter Burnett, a member of the task force. “It’s a good balance, this is a fair step. Hopefully we can get more affordable housing in the neighborhoods.”

“(Developers) always cry wolf all the way to the bank.” Burnett added. “They’ve been crying wolf for years. The city is too hot.”

Discussions about potential changes to the ordinance have been going on for months, and late last month, some developers verbally were given a framework of the three-zone ordinance. At the same time, though, stakeholders were invited to meet individually with the mayor’s office.

Alan Lev, president and CEO of Belgravia Group, has built several condominium developments on the city’s Near West Side. Under the proposal, they would fall under the downtown requirements. The average selling price of the most recent project was $750,000,and selling those units for less than a third of that price would have killed the project, he said.

“What’s being built today, at least on the for-sale side, has been expensive product, not entry-level product,” Lev said. “The loss in value is enormous.”

Likewise, apartment construction downtown is booming, but most of the units in the tony, amenity-filled buildings have rents that start at $2,000 a unit.

The city estimates that, barring a housing downturn, the proposal would create 1,200 affordable units, half of those within or near market-rate housing, and more than $95 million in in-lieu fees by 2020.

Once introduced into Chicago City Council, the ordinance would be referred to the city’s Housing and Real Estate Committee.