Some of the best things that happen to Chicago don't come from city hall. Instead, it comes from Springfield.
Advocates will get a lot more juice for the squeeze at the capitol. Zoning is the prime way that alderpeople wield power. They don't want to give up discretionary power. It will need to be taken away.
Urban planning should be done at the local level. Those people know the community the most. There is no one size fits all to zoning.
There is literally no evidence that adding more housing lowers housing costs. The most dense cities in America have the highest housing costs. Just like building more roads does not reduce traffic, merely adding housing units does not lower housing costs.
This was an informative and exciting read! Fantastic news to hear that the Governor's Office filed witness slips in support as well. I really like Michael's comment that some of these zoning powers have to be taken away instead of given up.
In that vein, I am curious if you have any thoughts around these bills and running into home rule issues in Illinois? I am not a lawyer, but as someone who has worked with many a suburban city manager office, I can see municipalities of all stripes coming out of the woodwork objecting to these bills on the ground of preemption and even taking this to court home rule if the bills are signed into law.
Hey thanks! Not a lawyer either, but my understanding is that because Home Rule Authority derives from the state, it can also be pre-empted pretty broadly. The Illinois Municipal League (which is lobbying against these bills) has a pretty good explanation: https://www.iml.org/file.cfm?key=23845
Great article! I really enjoyed learning more about these exciting developments. I was curious about the commentary on affordable housing requirements? While I see the disclaimer in the 4th footnote, is there evidence for the statement "...Requiring that 25% (or more) of the newly permitted units be rented at below market rates is a recipe for ensuring no new housing gets built at all"?
Just looking at the number of developments under Chicago's new ARO, it certainly seems that building significant amounts of mixed income housing can still be properly incentivized. This isn't at all an argument against your point concerning these missing middle housing properties, but just calling out what might be perceived as a value judgement on affordable housing writ large rather than a real world evidence based observation.
Hey thanks for reading and for the question. For the record, I absolutely support building and preserving as many affordable units as we can - both of the legally restricted and 'naturally occurring' market rate kinds. The question is how we can do so as effectively and efficiently as possible.
He's a slightly longer articulation of the evidence for that statement:
-In the UCLA study/simulation, once unfunded affordability requirements rise past 20% in LA, no net new affordable units are created. At a higher affordability threshold, a much smaller total number of new buildings are constructed (albeit with a higher % of affordable units in them). So at a 25% required affordability threshold, LA gets no more affordable units than it would at a 20% affordability threshold, but we get a lot fewer market rate units (a *very* bad outcome).
-LA is a much more expensive housing market than Chicago. That means there's less upside to getting to build a marginal market rate unit here, than there is there. So all things equal, you should expect a bigger decrease in total market rate construction with higher affordability thresholds in Chicago (because there's less of a windfall from the market rate units that can help subsidize the construction cost of below-market affordable units).
-Affordability thresholds are almost *never* imposed for very small buildings (the City of Chicago's ARO only kicks in a 10 units). The economics of small builders and developments are generally much more sensitive to a required affordable unit, and harder to manage (easier to do income verification and annual follow-up paperwork at scale, than have an individual landlord do so for an individual unit).
-Because we're only talking about allowing 2-4 unit buildings, the most generous interpretation of any affordability threshold would hit at 25% instead of 20%.
-Put that all together, and I think the picture is pretty clear: an above-20% threshold in LA doesn't produce net new affordable units. This policy would have a higher affordability threshold, higher costs to manage, and lower economic upside from the market rate units. It seems pretty reasonable to conclude that we'd end up with no incremental affordable units, and potentially no net units at all.
Finally it is true that we're seeing towers being built in Chicago, with 20% of units subject to the ARO. But there are two important things to keep in mind: 1) there are now tax benefits, which offset the cost of the below-market rate units (essentially making it a funded inclusionary zoning strategy, which is good), and 2) Chicago is still building *far* less housing per resident than any of our peer metropolitan regions, including LA. The fact that *some* developments are going up is consistent with the UCLA submissions -- the fact is we're seeing less development than we otherwise might.
Cool, thanks for the thoughtful response! So I guess if I'm understanding correctly in summary: affordable requirements are kind of a moot point for missing middle housing because it's rarely ever implemented with such a small number of units. However, an unfunded requirement of 20% or beyond is ill-advised as it would likely result in even less housing.
Some of the best things that happen to Chicago don't come from city hall. Instead, it comes from Springfield.
Advocates will get a lot more juice for the squeeze at the capitol. Zoning is the prime way that alderpeople wield power. They don't want to give up discretionary power. It will need to be taken away.
Urban planning should be done at the local level. Those people know the community the most. There is no one size fits all to zoning.
There is literally no evidence that adding more housing lowers housing costs. The most dense cities in America have the highest housing costs. Just like building more roads does not reduce traffic, merely adding housing units does not lower housing costs.
This was an informative and exciting read! Fantastic news to hear that the Governor's Office filed witness slips in support as well. I really like Michael's comment that some of these zoning powers have to be taken away instead of given up.
In that vein, I am curious if you have any thoughts around these bills and running into home rule issues in Illinois? I am not a lawyer, but as someone who has worked with many a suburban city manager office, I can see municipalities of all stripes coming out of the woodwork objecting to these bills on the ground of preemption and even taking this to court home rule if the bills are signed into law.
Thanks for an interesting read as always!
Hey thanks! Not a lawyer either, but my understanding is that because Home Rule Authority derives from the state, it can also be pre-empted pretty broadly. The Illinois Municipal League (which is lobbying against these bills) has a pretty good explanation: https://www.iml.org/file.cfm?key=23845
Great article! I really enjoyed learning more about these exciting developments. I was curious about the commentary on affordable housing requirements? While I see the disclaimer in the 4th footnote, is there evidence for the statement "...Requiring that 25% (or more) of the newly permitted units be rented at below market rates is a recipe for ensuring no new housing gets built at all"?
Just looking at the number of developments under Chicago's new ARO, it certainly seems that building significant amounts of mixed income housing can still be properly incentivized. This isn't at all an argument against your point concerning these missing middle housing properties, but just calling out what might be perceived as a value judgement on affordable housing writ large rather than a real world evidence based observation.
Hey thanks for reading and for the question. For the record, I absolutely support building and preserving as many affordable units as we can - both of the legally restricted and 'naturally occurring' market rate kinds. The question is how we can do so as effectively and efficiently as possible.
He's a slightly longer articulation of the evidence for that statement:
-In the UCLA study/simulation, once unfunded affordability requirements rise past 20% in LA, no net new affordable units are created. At a higher affordability threshold, a much smaller total number of new buildings are constructed (albeit with a higher % of affordable units in them). So at a 25% required affordability threshold, LA gets no more affordable units than it would at a 20% affordability threshold, but we get a lot fewer market rate units (a *very* bad outcome).
-LA is a much more expensive housing market than Chicago. That means there's less upside to getting to build a marginal market rate unit here, than there is there. So all things equal, you should expect a bigger decrease in total market rate construction with higher affordability thresholds in Chicago (because there's less of a windfall from the market rate units that can help subsidize the construction cost of below-market affordable units).
-Affordability thresholds are almost *never* imposed for very small buildings (the City of Chicago's ARO only kicks in a 10 units). The economics of small builders and developments are generally much more sensitive to a required affordable unit, and harder to manage (easier to do income verification and annual follow-up paperwork at scale, than have an individual landlord do so for an individual unit).
-Because we're only talking about allowing 2-4 unit buildings, the most generous interpretation of any affordability threshold would hit at 25% instead of 20%.
-Put that all together, and I think the picture is pretty clear: an above-20% threshold in LA doesn't produce net new affordable units. This policy would have a higher affordability threshold, higher costs to manage, and lower economic upside from the market rate units. It seems pretty reasonable to conclude that we'd end up with no incremental affordable units, and potentially no net units at all.
Finally it is true that we're seeing towers being built in Chicago, with 20% of units subject to the ARO. But there are two important things to keep in mind: 1) there are now tax benefits, which offset the cost of the below-market rate units (essentially making it a funded inclusionary zoning strategy, which is good), and 2) Chicago is still building *far* less housing per resident than any of our peer metropolitan regions, including LA. The fact that *some* developments are going up is consistent with the UCLA submissions -- the fact is we're seeing less development than we otherwise might.
Cool, thanks for the thoughtful response! So I guess if I'm understanding correctly in summary: affordable requirements are kind of a moot point for missing middle housing because it's rarely ever implemented with such a small number of units. However, an unfunded requirement of 20% or beyond is ill-advised as it would likely result in even less housing.
Yep! Exactly