Chicago Developers Shell Out Millions Rather Than Build Affordable Housing

Chicago developers shell out millions rather than build affordable housing
The developer of a new apartment complex at Chestnut and Orleans paid $3.1 million to the city’s Affordable Housing Opportunity Fund. WBEZ/Natalie Moore
Chicago developers shell out millions rather than build affordable housing
The developer of a new apartment complex at Chestnut and Orleans paid $3.1 million to the city’s Affordable Housing Opportunity Fund. WBEZ/Natalie Moore

Chicago Developers Shell Out Millions Rather Than Build Affordable Housing

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The roar of construction blares at the intersection of Chestnut and Orleans, not far from the former Cabrini-Green public housing development. A sleek glass apartment building with 310 units is set for an area now home to tech businesses and diverse retail.

The luxury high-rise will be equipped with a yoga studio, private balconies, cabanas by the pool and a coffee bar. But one thing it won’t have is affordable housing.

Instead, the developer wrote a hefty $3.1 million check to the city of Chicago’s affordable housing opportunity fund.

This is a common arrangement, and not just on the Near North Side.

Map of developments that opted to pay instead of build affordable housing

When residential developers want to build on city-owned land or receive financial help, Chicago asks for something in return. The city requires them to provide 10 percent of units at affordable prices or have them to pay into a fund. For homeowners, the term affordable means a family of four earning $76,000 a year. For rentals, a family of four earning $45,000.

WBEZ obtained a list of payments to the city’s Affordable Housing Opportunity Fund. We found that from 2005-2015, developers have shelled out $77 million dollars to not include affordable housing in their buildings. The fees collected by the city were used, in the form of rent subsidies, to help underwrite affordable apartment units elsewhere.

The vast majority of properties that opted out are in trendy, expensive neighborhoods that are mostly white and have a dearth of affordable housing: River North, downtown, Wrigleyville.

That gave 27th Ward Alderman Walter Burnett pause.

“It made me think that, man, I’ve been allowing these guys to opt out into support other affordable developments on the West Side and other areas in the ward but not here,” Burnett said.

By “here” he means the pricey West Loop, a former seedy area that now hosts the restaurant glitterati and luxury condos. Burnett’s ward is a peculiar mix. It ranges from the gentrifying area that used to be Cabrini-Green, to parts of the West Side that are vacant and low income.

Burnett has negotiated with developers to pitch in money for other affordable housing in his ward. But those units end up getting built in the high poverty areas. 

“I allowed this to happen. I allowed for one type of group of people with a certain amount of money in the neighborhood, and it needs to be mixed. So I said from here on out people are going to have to do some affordable over here. I can’t let them opt out anymore,” Burnett said.

He pushed the city to create changes in its affordable housing ordinance that took effect this week. A developer who wants to build now at the very minimum has to provide one fourth of the 10 percent requirement for affordable units at the actual site. Or he could build those units off site within two miles — or pay even more if it’s outside of that radius.

In all of these scenarios, the developers would still pay a fee if they didn’t meet the 10 percent goal. The new ordinance increases some of those fees from $100,000 to $225,000 thousand dollars per each unit not built.

“We’re pushing in the right direction,” Burnett said.

WBEZ called many many local developers to find out why they write six- and seven-figure checks instead of including some affordable housing units. Either they didn’t call back or refused to talk on the record.

But one developer group has turned the city’s rule into a legal matter. In August, the Home Builders Association of Greater Chicago filed a complaint in Cook County Circuit Court.

“[The city] still thinks that they have to punish people to get what they want instead of offering an incentive that gets results,” said Paul Colgan, of the association.

Colgan said developers would lose money on rentals and for-sale units if they included 10 percent affordable housing. He says a better way to get developers to comply would be to provide tax abatements or help them reduce building costs.

There is one change in the affordable requirements ordinance that Cogan said pleases developers. The chance to build off-site instead of at the development they are getting city assistance from.

“But the new ordinance, even though it has new incentives built into it, it’s still has the same fundamental problem as the original ordinance had and that was it’s taking under the law,” Colgan said.

Taking property, Colgan argues, is unconstitutional. And his group is continuing the lawsuit.

Pouring millions of dollars into the city’s coffers rather than deliver affordable housing units helps perpetuate racial and economic segregation in the city

A separate WBEZ analysis found that was also true for apartment complexes funded by federal low income housing tax credits. LIHTC developments are clustered on the South and West Sides — where it’s cheaper, and there’s less resistance.

But Marisa Novara of the Metropolitan Planning Council said this doesn’t give families access to better neighborhoods — otherwise known as ‘opportunity areas.’

“What if some portion of those buyout fees were set aside specifically for low income housing tax credit developments in low-poverty areas to bridge the financing gap that only grows larger when the property is higher valued,” Novara said.

She said there’s precedent for this. In Boston, a minimum of half of the developers’ opt-out fees must be spent in areas with less affordable housing than the city’s average.

“It’s one small example but you could look at really harnessing the market-rate activity that we have in high-value neighborhoods to do affordable development in the same type of neighborhoods,” Novara said.

Because right now, at least under the old rules, that’s not what Chicago is doing.

In the last two years, the city put money from the developer fund toward nine affordable housing developments.

Only one would probably be considered in an opportunity area — and it was for window replacement.

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is WBEZ’s South Side Bureau reporter. Follow Natalie on Google+,  Twitter