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  2. Forum ideas: Housing
July 25, 2019 01:30 PM

Motivate builders with tax incentive for affordable housing

The proposed "80/20" bill in Springfield offers builders a tax abatement if they set aside 20 percent of their units for lower-earning households.

CURT BAILEY
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    Curt Bailey

    For years, Chicago's official policy has set mixed-income housing as a component of its affordable housing strategy. Research shows that when children from low-income families live in diverse, mixed-income neighborhoods, those children have better financial outcomes as adults. Mixed-income neighborhoods also provide economic and cultural diversity that is healthy for everyone who lives there.

    But the current strategy to achieve the vision isn't working.

    A 2018 report from DePaul University's Institute for Housing Studies showed that in many parts of the city, rents keep rising while supply keeps dropping. The Affordable Requirements Ordinance, or ARO, meant to help solve the crisis, has failed to meet expectations. While projected to generate 1,200 units between 2015 and 2020, it had generated only 334 as of July 2018.

    It's time for a fresh approach, and we don't have to look far to find a strategy that works.

    In Boston, New York and Washington, D.C.—where the cost of living is comparable to or more expensive than Chicago—the 80/20 model brings a level of equity that the free market would never achieve. The concept is simple: In new-construction multifamily housing, 20 percent of units must be rented to households making 50 percent or less of area median income. That's it. Developers don't build off-site housing or pay a fee in lieu of meeting a minimum as they do under ARO; 80/20 ensures that they construct true mixed-income developments that stand a better shot of achieving the generational change that affordable housing policy aspires to.

    Chicago has the resources it needs to make this model work, except for one: the right incentives. With a long-term tax abatement, private developers would have the motivation to adopt the 80/20 model.

    To understand the potential impact, consider that in 2018, at least 3,500 rental units were built in the downtown area. If developers had incentive to set aside 20 percent of those—or 700 units—as affordable, in just one year, Chicago would have produced more affordable units than ARO has produced in 10 years.

    With an 80/20 approach, Related Cos. has built more than 30 rental developments across the country, providing thousands of quality, modern homes to low-income residents. Related is one of the largest owners of affordable homes in the region and has preserved more than 10,000 affordable units. The company has never converted a single one to market rate. This isn't just about economics; it's about responsibility.

    We need more developers to get on board if we're to have any hope of keeping Chicago a city where people can achieve the American Dream.

    The Illinois Legislature is considering a tax abatement measure that would encourage developers to adopt 80/20, and we urge our leaders to support it. This policy could forever change the lives of thousands of Chicagoans—and create a culture where socially responsible development is the norm, not the exception.

    Curt Bailey is president of Related Midwest, a real estate development company with a multibillion-dollar portfolio of residential, mixed-use and adaptive reuse properties.

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