Crain's Forum: Chicago's Housing jam - Crain's Chicago Business

Chicago's housing
jam


Crain's illustration using Getty Images

Chicago's housing
jam


Chicago's housing jam

Whether crumbling two-flats in Woodlawn or rocketing rents in Logan Square, formidable challenges face Chicago and its new mayor in providing and preserving viable, affordable housing. Homeowners and families are being squeezed, if not squeezed out.

 

The greystone in West Woodlawn was in bad shape when Kendrick Durer got his first look at it in 2016.

With its boarded-up windows and copper piping ripped out by scavengers, the property on South St. Lawrence Avenue needed a major rehab. Some of the distressed buildings nearby didn't look much better, remnants of a housing crisis that swept the South Side nearly a decade earlier.

But Durer saw an opportunity to buy an inexpensive two-flat in a neighborhood poised to rebound—and to move back into the city from suburban Villa Park. So he took a chance, buying it through Renew Woodlawn, a homeownership initiative that provides subsidies and low-cost financing for property acquisitions in the neighborhood.

"I'm glad I made this move because I've seen nothing but good things in this area," he says.

John R. Boehm

Kendrick Durer saw an investment opportunity and moved back to the city from suburban Villa Park.

Durer's story is encouraging for Chicago, but it underscores one of the many challenges facing new Mayor Lori Lightfoot and the need for creative solutions as she tries to craft an affordable housing policy that works in poor communities like West Woodlawn as well as gentrifying neighborhoods like Logan Square.

The two scenarios represent two extremes of Chicago's many-faceted housing problem: West Woodlawn's housing stock suffers from too little investment, with many decaying buildings in danger of being lost absent the intervention of programs like Renew Woodlawn. Places like Logan Square, meanwhile, suffer from too much investment, with landlords fixing up properties, jacking up rents and pushing out working-class tenants.

Both trends have contributed to a major affordable housing gap, squeezing many low- to middle-income families still struggling despite a booming economy. The deterioration of the housing stock is both symptom and cause of a broader problem afflicting the city: population loss, especially among African American residents on the South and West sides.

Is it a "crisis"? Not when you compare Chicago to places like the San Francisco Bay Area, where Google has pledged to spend $1 billion to ease a severe housing crunch. But it's crisis enough for families being forced out of their longtime homes in hot neighborhoods because they can no longer afford the rent, or for families trying to maintain viable and safe streets in the city's poorer neighborhoods, or for planners and employers worried about the longer-term effects on maintaining a stable workforce.


Not the worst, still bad

Among major metropolitan areas, Chicago ranked seventh in its percentage of households (34 percent) that were “cost-burdened” in 2017, or that spent more than 30 percent of their income on housing. More than 15 percent were “severely cost-burdened,” which means they spent more than 50 percent.

2017 cost-burdened percentage

Created with Highcharts 3.0.7BurdenedSeverely burdenedLos AngelesMiamiNew YorkSan Francisco, OaklandBostonPhiladelphiaChicagoSeattleUnited StatesPhoenixWashington, D.C.Houston0%5%10%15%20%25%30%35%40%45%50%

Sources: JCHS tabulations of US Census Bureau, 2017 American Community Survey 1-Year Estimates and Missouri Census Data Center data.


Over the border, some of Chicago's suburbs face their own housing pressures as homeowners suffer the double-whammy of collapsed property values and rocketing property taxes.

Lightfoot moved into City Hall with an ambitious housing agenda, including proposals to increase funding to combat homelessness, change the city's zoning and permitting processes and promote homeownership. It is seen as a pivot, at least in emphasis, from the Rahm Emanuel years, when the priority clearly was putting a shine on downtown.

Signaling her desire to address racial inequities through housing policy, Lightfoot hired Marisa Novara of the Metropolitan Planning Council—where she spearheaded a major report, "The Cost of Segregation"—to run Chicago's recently reborn Department of Housing. In his final months as mayor, Emanuel resurrected the department, which was eliminated in a 2008 cost-cutting by then-Mayor Richard M. Daley.

"The opportunity really is that we haven't had a housing commissioner for 10 years," Novara says. "So there's, I would say, probably some deferred maintenance on how we adjust and prioritize the issues of affordable housing."

John R. Boehm

Preserving the city's current housing stock is one way to maintain affordable units. Homes on South St. Lawrence Avenue show the deterioration and disinvestment that contributes to housing loss on the South Side.

Lightfoot's election lifted the hopes of many in the affordable housing world, encouraged by campaign rhetoric that conveyed a sense of urgency.

Affordable housing also played a big role in the bitter debate this year over proposed subsidies for the massive Lincoln Yards development on the Near North Side, which will include 600 affordable units—a victory for housing advocates. And a more liberal political climate in the City Council—highlighted by a vocal socialist caucus that has made housing a priority—could provide new solutions and more money to address the problem.

On the national level, President Donald Trump and some Democrats vying to challenge him in 2020 also have highlighted the issue. In June, the president formed a commission to recommend ways to cut regulations that make it harder to build housing, an idea that some housing advocates support. Democratic presidential candidates have endorsed tax credits and other incentives.

"This issue has come to the fore in a way that it hasn't in the past," says Stacie Young, director of the Preservation Compact, a Chicago nonprofit dedicated to affordable housing.

By the numbers? Demand for affordable housing in Cook County exceeded supply by 180,385 units in 2017, slightly higher than its average over the prior five years, according to the Institute for Housing Studies at DePaul University.


Hot neighborhoods now…

Housing experts at DePaul University mapped parts of the city that are currently feeling pressured by gentrification and displacement. Click to see where they are.

Census tracts with intensifying displacement pressure, 2016 to 2017

Sources: Institute for Housing Studies at DePaul University


Yet the housing issue is about much more than supply and demand. It’s a big part of Chicago’s baggage, reflecting and reinforcing the city’s broader racial and socioeconomic divisions—which were exacerbated over the decades by government-endorsed “redlining” and notorious public housing projects like Cabrini-Green, disparaged as “warehouses of the poor.” It’s a key lever of social policy: Just as the housing issue was used to segregate the city decades ago, many politicians and nonprofit leaders believe it should be used to promote socioeconomic diversity today—to prevent wealthy white neighborhoods from becoming even whiter.

Lightfoot, for instance, has said she wants to tighten the city’s Affordable Requirements Ordinance, or ARO, so that more developers include affordable units in high-end residential projects. She also quickly took steps to rein in “aldermanic privilege,” which she and other critics blame for allowing some City Council members to keep affordable housing, and therefore certain types of people, out of their wards.


…and hot neighborhoods next

The displacement pressures are expected to expand and grow to new parts of the city.

Census tracts with emerging displacement pressure, 2016 to 2017

Sources: Institute for Housing Studies at DePaul University


"We have a chance to address some of the wrongs of our past and build diverse, inclusive communities," says Kristin Faust, president of Neighborhood Housing Services, a Chicago nonprofit and partner in Renew Woodlawn.

Housing also can play a big role in rebuilding entire communities, like West Woodlawn, attracting people and eventually the businesses that drive a neighborhood's comeback.

"Investing in housing can be the lead investment to incite and encourage related investments," says Kevin Jackson, executive director of the Chicago Rehab Network, a nonprofit. It "provides a stability that can be built off of."

The government, assisted by an army of nonprofits, already has myriad tools to boost affordability, whether it's through the ARO, low-income housing tax credits, housing vouchers or low-cost financing for homeowners. Simply putting more money into existing solutions could go a long way toward narrowing the affordability gap, some advocates say. They welcomed a recently approved state capital bill, which included $200 million to fund affordable housing through the Illinois Housing Development Authority.

But new ideas also are gaining currency. Some advocates contend that reducing single-family zoning in cities would increase the supply of affordable housing by opening up more urban land to multifamily development. In December, the Minneapolis City Council voted to eliminate single-family zoning.

Lightfoot, meanwhile, wants to loosen city regulations to allow basement apartments, coach houses and "granny flats," a change that could bring more low-cost housing to high-cost neighborhoods. In Springfield, proposed property tax breaks for residential landlords could encourage more investment in affordable housing. And in the private sector, Skender, a Chicago contractor, recently opened a factory in South Lawndale where it's building modular housing, an attempt to bring down construction costs for affordable developers.

Support for rent control also is growing in Illinois and other states; some have already passed measures to limit rent hikes. Landlords, who argue rent control would distort the market and limit the creation of affordable housing, managed to stymie a bill to lift Illinois' rent-control ban in the spring legislative session, but the bill's backers haven't given up.


Trending better?

Because incomes are rising again, the percentage of cost-burdened households in Chicago has fallen since its peak after the recession. Other data show that the number of affordable apartments in Cook County dropped 15 percent between 2012 and 2017.

Percentage who are cost-burdened, by metro area

Created with Highcharts 3.0.7Los AngelesMiamiNew YorkSan Francisco, OaklandBostonPhiladelphiaChicagoSeattlePhoenixWashington, D.C.Houston20062007200820092010201120122013201420152016201725%30%35%40%45%50%55%

Sources: JCHS tabulations of US Census Bureau, 2017 American Community Survey 1-Year Estimates and Missouri Census Data Center data.


When it comes to housing costs, Chicago is better off than several of its big-city peers. Of the nearly 3.5 million households in the metropolitan area, 34.2 percent were cost-burdened in 2017, or spent more than 30 percent of their income on housing, according to a recent report from the Joint Center for Housing Studies at Harvard University. Six of the 15 biggest U.S. metro areas had higher cost burdens, including Los Angeles, Miami, New York and San Francisco.

Indeed, the Chicago area's lower cost of living gives the city a competitive edge when it comes to attracting companies looking for places to grow. Tech firms like Salesforce and Google, which are both expanding here, need alternatives to high-cost markets like the Bay Area to recruit talent.

Chicago and the nation as a whole have also been trending in the right direction. Housing affordability was an even bigger problem after the recession, when incomes fell. With incomes rising again, the percentage of cost-burdened households in the Chicago area has fallen from a recent peak of 42.6 percent in 2010, according to the Harvard study. The figure covers both rental and for-sale markets.

Other data suggests the affordability problem here is getting worse. While demand for affordable apartments in Chicago declined 8.9 percent from 2012 to 2017, the supply dropped 15 percent over the same period, according to the DePaul housing institute. One potential reason: Cook County lost more than 29,000, or 9.8 percent, of its apartments in two- to four-unit buildings, a key part of the affordable housing stock.

Definitions of affordability vary, but DePaul defines an affordable apartment as one that rents for about $940 per month. That figure represents what a family earning 150 percent of the poverty level, or $37,641 annually, would pay if it spent 30 percent of its income on rent.

While many people assume that affordable housing is subsidized by the government, a vast majority of it in Chicago, about 75 percent, is considered "naturally occurring." It exists on its own without government assistance, and landlords set their rents based on what the market will allow them to charge.

So it's not surprising that much of the discussion about affordability revolves around protecting the low-cost housing the city already has—keeping the problem from getting worse. In places like West Woodlawn, that means keeping apartment buildings and homes from falling into disrepair.

Because new housing costs so much to build, "it's a lot more efficient to fix what we have," says the Preservation Compact's Young.

That's the big idea behind Renew Woodlawn. Launched three years ago by Preservation of Affordable Housing, Neighborhood Housing Services and the Community Investment Corp., the initiative aims to reclaim vacant, foreclosed single-family homes and two-flats in Woodlawn. It has saved 43 so far, most in West Woodlawn, which is bounded roughly by Cottage Grove Avenue, Martin Luther King Drive and 60th and 67th streets.

 

Durer's two-flat was ripe for rescue. Not only was the building saddled with $47,000 in back taxes, but it needed a rehab that would cost about $125,000. In a complicated transaction in 2017, he was able to finance the entire $231,300 cost of the acquisition and renovation through NHS, including a $50,000 grant. Durer, 45, lives on the building's first floor, while his mother lives upstairs.

Walloped by the foreclosure crisis and recession, the South Side housing market is rebounding now, at least in some places. In Woodlawn, some residents are already worried about gentrification resulting from the planned Obama Presidential Center. That prospect doesn't bother Durer—it's one reason he bought there.

But distress remains a threat to the South Side's housing stock. After two fires, the three-flat next door to Durer's property is vacant and dilapidated, including a caved-in roof, he says.

"It's not livable," he says. "It's going to take at least $250,000 to fix it."

Developers are more than happy to spend that much to fix up buildings in places like Pilsen, Logan Square, Lincoln Square, Avondale and Albany Park. The problem is that they then raise rents beyond the reach of low- to middle-income renters. Some developers seek out two-flats they can convert into expensive single-family homes, while others just tear them down and build anew.

John R. Boehm

Logan Square is among the hottest neighborhoods in the city. Landlords are raising rents and working-class tenants are being pushed out, leading activists to demand an end to a state ban on rent control policies.

In Albany Park, "every two-flat that goes up for sale is at risk," says Diane Limas, president of Communities United, a nonprofit that works on affordable housing and other issues.

Limas, who owns a two-flat on Whipple Street in Albany Park, says a developer bought a two-unit building across from hers and turned it into a single-family home. She also recently received an unsolicited letter from a broker representing a "cash buyer" interested in her property who could close quickly on a commission-free transaction.

In Albany Park and Irving Park, the share of affordable apartments dropped from 45.2 percent of all units in 2012-14 to 34.3 percent in 2015-17, according to the Institute of Housing Studies at DePaul. In Logan Square and Avondale, the affordable share fell from 40.4 percent to 28.4 percent.

The city and nonprofits are trying to preserve affordable housing in hot neighborhoods through initiatives that provide attractive financing to landlords. In return, the property owners agree to set aside some of their apartments for affordable housing. Lightfoot, for instance, wants to expand the Preservation of Existing Affordable Rental program, or PEAR, a pilot launched last year by Emanuel.

John R. Boehm

Diane Limas says a developer bought a two-unit building across the street from her two-flat in Albany Park and converted it into a single-family home. Others are making cash offers in unsolicited letters.

The city needs to encourage the construction of more affordable housing as well. The Chicago Housing Authority is backing multiple projects with affordable housing, including a 900-unit development on the South Loop site of the former Harold L. Ickes Homes.

While the CHA has replaced its infamous high-rises with 25,000 units of mixed-income housing, its so-called Plan for Transformation has delivered mixed results, with some critics arguing that the CHA should be doing more.

Then there's the ARO, which requires developers to include affordable housing in apartment or condominium projects if they seek a zoning change or financial assistance from the city.

But the ordinance, which was introduced in 2007 and amended in 2015, allows developers to leave most of the units out of their buildings if they pay a fee or build them elsewhere. So far, developers have built fewer than 400 units under the ARO.

Lightfoot wants to strengthen the regulations to make it harder for developers to opt out. Developers contend a tougher ARO will just drive up their costs and discourage construction.

Away from the city's prosperous downtown and North Side, city officials need to promote affordable housing without losing sight of the bigger picture, says David Doig, president of Chicago Neighborhood Initiatives, a nonprofit community developer based in Pullman.

"What's more important is that we're rebuilding neighborhoods and repopulating neighborhoods," he says.

If Lightfoot can do that, advocates hope, a lot more people like Kendrick Durer will be coming back to Chicago.

 

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