A Bill to Cut the Cost of Building Affordable Housing

Ald. Matt Martin is getting serious about construction costs

Fifth City Commons, a new affordable housing development in Garfield Park, created 43 units of affordable housing at an average cost of $898,837 per unit. Source: Reinventing Cities.

We’ve spent a fair bit of time over the last few months covering Chicago’s out-of-control construction costs for new affordable housing. Unfortunately, the City’s Department of Housing (DOH) has been slow to act on reforms that would make it cheaper to build.

But last week Alderman Matt Martin (47^th) introduced an ordinance that would eliminate some of the worst requirements that drive up the cost of affordable projects. That could make it possible to house far more Chicagoans with the resources we have today. I’m thrilled to see this ordinance introduced, and grateful that Martin is taking a characteristically thoughtful approach to this important issue.

I’ll get to the details of the ordinance – and how you can help support it - in a minute. But if you’re new to this issue, or just trying to catch up with the changes under consideration, I think it’s helpful to start with some context on how we got here, and what needs to happen to build more affordable housing.

Three drivers of Chicago’s sky-high affordable housing costs

Rising construction costs and complicated rules around the Low-Income Housing Tax Credit (LIHTC) make affordable units more expensive to construct than market-rate housing almost everywhere. But the City of Chicago’s affordable projects are 100% more expensive to build per unit than projects in Houston and 15% more expensive than similar projects in Chicago backed by the Illinois Housing Development Authority. Here are three reasons why:

1. The city’s qualified allocation plan (QAP), which outlines the process for awarding tax credits, barely mentions costs and doesn’t have standardized scoring criteria. As a result, developers find themselves in an “arms race” to throw in other add-ons that they think will appeal to the Housing Department. These add-ons drive up costs.¹

2. The city requires all LIHTC projects to meet the requirements of the Architectural Technical Standards Manual (ATSM), which functions as a second building code for affordable projects, specifying minutiae like onsite storage volumes and cabinet sizes.² That raises costs directly, and makes it harder to adjust when material or labor costs rise.

3. DOH’s oversight process is both intrusive and slow moving. Instead of relying on a competitive process to encourage cost control, the Department tries to get there by regulatory fiat. It applies strict oversight to change orders, requires developers to provide third party cost estimates,³ and prohibits developers from selecting general contractors prior to contract award. The required rounds of approval can add additional cost, especially if DOH isn’t quick to process updated paperwork.

Why does this all matter? Well, Chicago gets a fixed amount of federal tax credits to award every year. When project costs rise, we don’t spend more – we just build fewer units with the dollars we have. The real loser in the current process isn’t developers or taxpayers – it’s the low-income families who miss out on homes we never build in the first place.

Input from an actual expert

Over the weekend Daniel Kay Hertz weighed in with some more helpful details.⁴ I’m not going to summarize the full piece (you should read it), but I’d emphatically agree with the major themes. Construction costs are a serious problem, some of this is a function of national trends, and (often well-intentioned) city requirements absolutely play a role in driving up costs.

Hertz also identifies a couple of other causes that make a great deal of sense, and I’d love to dig into further:

• Affordable developers often don’t have the scale of market rate teams, which can drive up costs. This makes some intuitive sense, but it’s worth digging into the data to validate. Two of the most expensive Chicago LIHTC projects in 2023 were built by large affordable developers with national scale.⁵

• Once a project is announced, political realities make it hard to cancel, which can be a recipe for rising costs over time.

• The city is generally a bad customer – with onerous disclosure forms and slow payment timelines. Those headaches get priced into city contracts in the form of higher upfront bids for housing and for everything else.⁶

There are also two points in his piece that I’d take some issue with. First, he notes that the City’s costs have escalated dramatically in the last 2 years, so this is a relatively new issue to address. I don’t think that’s quite right. It’s certainly true that Chicago’s costs have nearly doubled between 2019-2023, but even back then we were spending roughly $150,000 more per unit for new LIHTC funded new construction than Houston, or 50% more per unit.

That’s not good enough. There’s no reason we should be so much worse at turning dollars into housing than our closest big city peer. If anything, if caring for low-income and unhoused residents is a more urgent political priority in blue Illinois than it is in red Texas, we should be better at putting dollars to work to house people.⁷

If that sounds like an unfair standard, we’ve been settling for less for too long – and we shouldn’t be surprised when Houston passes Chicago to become the third largest city in the country. There are certainly costs in Chicago that may not apply in Houston, such as higher standards for union labor, or greater site remediation costs. But if we really care about getting people housed, we should be more flexible on everything else to help make up some or all of the difference. Could we ever get to Houston’s costs? Maybe not. But we shouldn’t accept a 50% markup as the cost of housing people.

Daniel also doesn’t mention the lack of clear scoring in the QAP. This is something Texas does pretty ruthlessly, and I think that’s an important part of the puzzle for three reasons. First, certainty matters – especially for smaller developers who aren’t doing a lot of projects. Without a clear understanding of what gets rewarded (and consistency from year to year), it’s harder to deliver projects that reflect the tradeoffs the city is willing to make.

Second, the lack of clear scoring and cost weighting makes it harder to surface good ideas for cost control. There are likely a bunch of good ideas embedded in the knowledge and supply chains of developers, architects, and contractors. DOH can’t see any of that right now – many of the participants in the current system can’t either. But if it was clear that smart cost tradeoffs would be rewarded, I think we’d see a lot more creativity on the part of developers and their partners. This is how cost innovation works in the private sector. If we’re going award LIHTC competitively, we should be using that competition to encourage cost-saving innovations.

Finally, transparent scoring criteria would also require DOH (and the Mayor’s Office) to deal with its own set of preferences and tradeoffs. A points-based system would force the city to reckon upfront with the number of units forgone for passive house construction, or extensive site remediation.⁸ That might be uncomfortable, but it’d be a much better approach than sweeping those tradeoffs under the rug and then bemoaning high costs at the end of the process.⁹

The Mayor’s Office is (slowly) trying to fix this

Daniel also points out that the Mayor’s Office and Housing Department are aware of this problem, and they are trying to make some changes. There are three related pieces to that effort:

• General paperwork fixes: The Cut the Tape initiative includes a wide range of steps to reduce the number of required approvals for both market rate and affordable projects.

• Changes to the QAP: The draft 2025 Qualified Allocation Plan that DOH released does make more references to controlling project costs than the 2023 version. It eliminates some of the hoops that developers have to jump through today. In particular, the draft plan gets rid of the third-party cost estimation requirement and allows developers to select general contractors earlier in the process, which may make it easier for developers to avoid design choices that would drive higher construction costs in the future.

• Changes to the ATSM: DOH has also released a memo outlining potential changes to the ATSM, that would loosen some of the much-maligned design requirements.

These are good ideas, and I’m glad that the Mayor’s Office and DOH are working through them. But I think they’re also not moving with enough ambition or urgency to really fix the problem. As the Tribune noted in a well-reported story two weeks ago, while the city has made progress on eliminating some duplicative approvals, many of the most ambitious parts of Cut the Tape have yet to be implemented. The draft QAP still doesn’t include a transparent scoring system for projects.¹⁰ And while changes to the ATSM would be welcome, it’s still not clear how ambitious they will be – and DOH will still be holding affordable developments to a higher standard than market rate ones.

Finally, even as DOH is promising to lower paperwork requirements in one area, it’s adding to them in another. The memo outlining proposed changes to the ATSM also floats a new requirement that projects break out their subcontracts into smaller dollar amounts. The goal is to support more small-scale and emerging vendors – but it will also result in more contracting paperwork and may force developers to partner with subcontractors who aren’t up to the task of a major project.

Legislation that could make a difference

But while DOH’s actions have been underwhelming so far, the City Council may be starting to push for more drastic change. The ordinance Alderman Martin introduced last week would prohibit DOH from holding affordable units to a higher standard than market rate units permitted under the city building code. That would effectively eliminate the ATSM. The bill would also put DOH on a 10-day shot clock to approve or deny change order requests during construction, speeding up projects and reducing costly delays.

Of course, it’s also only a partial solution to the City’s cost challenge. In particular, (repeat after me) as long as the QAP remains a rubric-less black box that prioritizes costly add-ons over efficient housing production, applicants will continue to submit proposals that are long on everything-bagel requirements. That will be true even if some of those items are no longer explicitly required by the ATSM:

Scott Farbman is an architect who works on decarbonization and building code development. Source.

There is no one weird trick that will solve Chicago’s affordable housing construction cost problem. And many of the policies that drive up costs today are a product of good intentions that have taken on a life of their own. Fixing this problem will require sustained attention and force us to confront uncomfortable tradeoffs between political priorities like affordability and sustainability.

It’s terrific to see Alderman Martin get us started on that path with what will hopefully be the first of many reforms to the LIHTC process.¹¹ We’d be better off if more Alders followed Martin’s lead and applied a similar level of attention and care to citywide problems. I’d encourage you to ask your Alder to co-sponsor his ordinance. If you don’t know who your Alder is, you can use the city’s tool here.¹²

More broadly, it’s great to see this issue start to get more traction with policymakers. We didn’t get to this point on the basis of one bad decision, and we’re not going to fix the problem without concerted effort and sustained attention. Let’s hope this bill can kick that process off.

1. I try to make a point to link to Judith Crown’s original Crain’s story every time I write about these issues, but I think it bears repeating here – her reporting first started to raise attention around this issue back in January 2024. I’m really grateful that she did such a clear job laying out some of the relevant issues back then.

2. The logic behind the ATSM is that since low-income households don’t have comparable options, it’s necessary for the city to enforce some kind of quality bar. That’s fair – but it’s not clear to me why that quality bar isn’t the city’s building code, plus a qualified allocation plan that awarded points for better design.

3. If a project that costs almost $900,000 per unit can secure approval from a third party cost estimator, it’s hard to imagine what that requirement is preventing.

4. Daniel used to be the Director of Policy and Research at DOH. If you’re going to spend the time to read me on this topic, you should absolutely make the time to read an actual expert.

5. Those projects were Fifth City Commons, developed by POAH, and 4715 N. Western developed by The Community Builders

6. If you could wave a wand and fix one structural problem in city government (here and almost anywhere), it’d be the hiring process. But if you had a second wave, I think procurement would the next candidate. Procurement reforms are on a long wish-list of City That Works topics. If you or someone you know has been a victim of the city’s heavy-on-compliance-light-on-results approach to buying stuff, I’d love to hear from you.

7. I will note that one item I haven’t looked at yet is average cost per square foot between Houston and Chicago. It’s possible that these deltas are overstated if we’re building larger units (or that they’re understated if we’re building smaller units). There are a couple of different layers to that calculation, and I’ll save it for another piece. But researchers who have gotten their hands on per square foot data also find that Texas is still significantly cheaper than other blue states like California and Colorado.

8. This gets even more important when you think about the interactions between different preferences. A 40-unit project on the site of a vacant corner lot that used to be a gas station might sound like a great project. But the site remediation costs are going to be high, and a subscale project makes it impossible to spread that cost over enough units to keep things affordable.

9. A clear, structured scoring process may also have benefits beyond direct cost control. DOH staff may be able to evaluate deals more quickly – easing the load on an overburdened department and helping to close deals faster. The combination of high costs and black box process also naturally invites questions about corruption and backroom deals. I haven’t seen any evidence of that, but a transparent, outcomes-based award process would help put those questions to bed as well.

10. That doesn’t mean the final scoring rubric should tie DOH’s hands completely – you’d still likely want to have 20% or so of the possible points held at the discretion of the Department, because life is messy and staff will have a valuable perspective on factors that can’t be captured (or anticipated) on a scorecard. But the point is that there should be a rubric to work off of, rather than a blank canvas.

11. On a personal level, it’s also nice to know that I’m not just shouting into the void over here.

12. If you call or email, I’d suggest some version of the following: “Hi my name is [XX] and I live at the intersection of [Cross Streets]. I’m calling because we’ve made it too expensive to build new affordable housing in Chicago. Alderman Matt Martin just introduced a bill that get rid of unnecessary rules that drive up costs, and allow us to build more housing for families who need it with the money we have. I hope that will sign on to co-sponsor his ordinance, which is number 0017573. Thank you.”