This is great. I worry the challenge is even steeper than you suggest, though. Specifically, the cross-subsidy part. Those market rents you assume to make this deal pencil are crazy. There is no way GSH will produce market-rate units that successfully command $5,700 for a 3BR, $4,600 for a 2BR, and so on. It's hard to believe that anyone in Chicago can charge those rents (even private luxury developments). (Someone who can afford $4,600 rent could afford to buy a home in the $800-$900k range even with today's high interest rates.) It's even harder to believe that GSH developments could compete with those private developments. And even if GSH can produce incredibly high-quality high-rent units, people are going to find it hard to stomach a city enterprise focused on affordable housing charging such high rents. And on top of all that, if GSH (and other reforms like cut the tape) succeed at boosting supply of new units, that will have the most direct effect on the new/high-end of the market; it will make it harder for GSH and private competition to charge rents so high.
We're in desperate need of more affordable housing, so I'm very supportive of this. One of the many challenges CHA has with its mixed-income developments (1/3 of housing at or below 30% of AMI, 1/3 at 40% -80 % of AMI, and 1/3 at market-rate) is its difficulty finding market-rate renters. That same challenge will need to be addressed for GSH.
When I was a Franciscan friar many lifetimes ago, one of my favorite philosophers in theology was John Stuart Mill, who once said, "He who only knows his side of the case knows very little of that." This board would benefit from members who have a greater understanding of "the other side of the case."
Again, very well done, Bo. And it corroborates some of my concerns with the limits of cross subsidy. You choose quite high-end market units (1 BR rent = $3,400, e.g.) and 80% AMI BMR units (vs lower incomes), and still find things quite challenging. It also runs to some concerns expressed publicly that such projects may only work in the highest-rent neighborhoods (I am not taking a position as to whether that is bad or good from a social/policy perspective.)
Back to my concern about the pressing need for deep affordability (which you aren't claiming to achieve in your model), 80% AMI for a 1-person household in Chicago is $67,000/year. While providing more affordable units in a quite high-end buildings might have some benefits, the more pressing needs in a mid-cost market city like Chicago is deep affordability. If these units can be matched with vouchers (tenant or project-based), that would be ideal. Or with other deeper subsidy. I still question the use of substantial local or state subsidies on 80% AMI in this type of market, especially if federal rental assistance gets cut at all (or doesn't grow).
This is great. I worry the challenge is even steeper than you suggest, though. Specifically, the cross-subsidy part. Those market rents you assume to make this deal pencil are crazy. There is no way GSH will produce market-rate units that successfully command $5,700 for a 3BR, $4,600 for a 2BR, and so on. It's hard to believe that anyone in Chicago can charge those rents (even private luxury developments). (Someone who can afford $4,600 rent could afford to buy a home in the $800-$900k range even with today's high interest rates.) It's even harder to believe that GSH developments could compete with those private developments. And even if GSH can produce incredibly high-quality high-rent units, people are going to find it hard to stomach a city enterprise focused on affordable housing charging such high rents. And on top of all that, if GSH (and other reforms like cut the tape) succeed at boosting supply of new units, that will have the most direct effect on the new/high-end of the market; it will make it harder for GSH and private competition to charge rents so high.
We're in desperate need of more affordable housing, so I'm very supportive of this. One of the many challenges CHA has with its mixed-income developments (1/3 of housing at or below 30% of AMI, 1/3 at 40% -80 % of AMI, and 1/3 at market-rate) is its difficulty finding market-rate renters. That same challenge will need to be addressed for GSH.
When I was a Franciscan friar many lifetimes ago, one of my favorite philosophers in theology was John Stuart Mill, who once said, "He who only knows his side of the case knows very little of that." This board would benefit from members who have a greater understanding of "the other side of the case."
Again, very well done, Bo. And it corroborates some of my concerns with the limits of cross subsidy. You choose quite high-end market units (1 BR rent = $3,400, e.g.) and 80% AMI BMR units (vs lower incomes), and still find things quite challenging. It also runs to some concerns expressed publicly that such projects may only work in the highest-rent neighborhoods (I am not taking a position as to whether that is bad or good from a social/policy perspective.)
Back to my concern about the pressing need for deep affordability (which you aren't claiming to achieve in your model), 80% AMI for a 1-person household in Chicago is $67,000/year. While providing more affordable units in a quite high-end buildings might have some benefits, the more pressing needs in a mid-cost market city like Chicago is deep affordability. If these units can be matched with vouchers (tenant or project-based), that would be ideal. Or with other deeper subsidy. I still question the use of substantial local or state subsidies on 80% AMI in this type of market, especially if federal rental assistance gets cut at all (or doesn't grow).
Again, good stuff.
Would love to see what the pro forma of the same building but as a “vanilla” ARO development (20% affordable, at 60% AMI) looks like in comparison.
(To be clear I know that in many cases due to high costs, many zoning-entitled deals don’t pencil now!)
Great content, excited to read the rest of the series!