Bisnow Special Report: What Chicago's Latest Affordable Ordinance Really Means for Developers

Recent changes to the City’s Affordable Requirements Ordinance have some developers concerned about their future developments. Luxury Living Chicago managing broker Aaron Galvin tells Bisnow this could promote a rush in development over the next two to three years.

There's no argument the city needs more affordable housing, says Aaron, but how to produce those projects without slowing the pace of development is the question. The new ARO changes require developers to pay higher in-lieu fees and meet the ordinance's 10% affordability requirement by allocating 25% of those units either on-site or offsite within two miles of the building project, if it is within downtown or a high-income area. Aaron tells us developers will rush to complete projects in the next few years before the ARO changes kick in. Still, unknown variables such as job growth and property taxes could slow future construction, even make developers look outside the city.

Developers argued the changes to the ARO would curb the growth of development. Mayor Rahm Emanuel says the ARO will create 1,200 new affordable housing units and generate $90M to build more affordable housing over the next five years. And the need is there: the Chicago Housing Authority has 282,000 people on its wait list for openings.

Urban Innovations founder and chairman Howard Conant is taking a wait-and-see approach to the changes and their impact. He understands why market-rate developers are disappointed but he tells us the current market is strong enough to absorb the changes without developers incurring significant added costs. 

First Western Properties founder Paul Tsakiris agrees that the market is strong enough to handle the changes, but questions if it will be effective. Paul predicts higher land costs, materials and permitting, and wants to see a cohesive strategy where the liabilities are known moving forward. He also predicts that developers will circumvent the ARO with Class-B and Class-C gut rehabs replacing ground-up development projects.

Essex Realty principal Jim Darrow (snapped here with his daughter in Sayulita, Mexico) tells us the buyers and sellers he represents are already determining what they can afford and how they can scale back their projects. “Developers are always looking long term—18-24 months ahead. These projects will cost more and developers can’t pass the costs to the renters,” he says.