Solving Chicago's Affordable Housing Conundrum

Chicago is currently caught in a perplexing paradox. The city wants to experience population growth because it is good for the economy and quality of life. Despite motive and opportunity, however, the city is not growing — at least not at a significant rate.

According to the Census, the Chicago metropolitan area grew by just 0.22 percent per year from 2010 to 2013. Between 2014 and 2015, its population actually decreased by 0.1 percent.

What’s going on here?

Part of the story is that some of Chicago’s “hot commodity” neighborhoods are actually losing people. Affluent Lincoln Park on the North Side is a prime example. Not only does it have an excellent building stock, high-performing schools, and easy access to Lake Michigan, it has great bus and rail service that provides residents with quick commutes to downtown Chicago’s hundreds of thousands of jobs. Yet, the neighborhood lost 40 percent of its population since its peak in 1950.

As it turns out, the very features that make Lincoln Park and similar Chicago neighborhoods appealing are contributing to their population decline. How so?

Zoning mandates have limited the construction of new housing units citywide. Although 1,056 housing units were built in Lincoln Park over the last decade, the neighborhood lost more than that number of renter-occupied units as demand to live in the neighborhood increased.

With limited available housing in a desirable area, wealthier tenants end up outbidding other potential residents, driving up prices and often displacing current lower-income residents.

The people who can afford to live in Lincoln Park have shifted the area's demographic makeup and housing market because wealthier families tend to be smaller and expect larger homes. An example of this phenomenon, especially common in increasingly wealthy areas, is the teardown of a three-flat building — once home to three households — and replacement with one large single-family home.

This does not have to remain the status quo.

Counterintuitively, building more market-rate housing in desirable areas has been shown to increase access to affordable housing on a regional scale. Increasing the housing supply by adding new units preserves some existing affordable housing for current residents who rely on it.

The reality is that demand to live in transit-served places like Lincoln Park will continue to grow whether or not we allow new construction. Without adding new housing units, existing residents will continue to experience rising rents as wealthier households are able to spend more to live there. New construction can absorb some of that demand, thereby reducing rent inflation and helping to keep low- and middle-income families in their homes.

This finding is especially important as it becomes increasingly obvious that other attempts at affordable housing — while vital — are not enough by themselves.

Chicago’s Affordable Requirements Ordinance, which mandates that many new development projects designate 10 percent of their units as affordable, with at least a quarter of those on site, is a crucial step in the right direction. However, even if aldermen mandate the full 10 percent or more of affordable units on site, the impact still would not be enough to meet the demand for affordable homes.

For example, even if the Affordable Requirements Ordinance mandated 50 percent on-site affordable units for new developments in Chicago's Logan Square neighborhood, more than 90 percent of total housing in that neighborhood would still be priced by the market.

The truth is that the majority of low-income households receive no rental assistance and spend well over 30 percent of their income on housing. To increase access to affordable housing, we need to use every tool we have — but we also need to understand the tools' limits.

Chicago and other cities may also need to be more proactive, for example by expanding the use of data to forecast which communities will face dramatic changes and need preemptive intervention to prevent displacement.

Another idea: In areas where rapid land-value appreciation is occurring, could Chicago set aside a certain portion of its Low-Income Housing Tax Credits, Chicago Low-Income Housing Trust Fund, Affordable Requirements Ordinance in-lieu fees, and Chicago Housing Authority partnerships to proactively encourage affordable development?

There has been much talk about Chicago’s need to grow while addressing inequity. For those parts of the city that are in demand and growing, it is imperative that we shape that demand and growth to lead to the best outcomes for all.

About the Authors

Marisa Novara is director and Yonah Freemark is manager of the Metropolitan Planning Council (MPC). Since 1934, the MPC has served the Chicago region by developing, promoting and implementing solutions for sound regional growth.

Top image: L train wends its way through high-priced neighborhoods on Chicago's North Side. Photo by Flickr user John Iwanski CC BY-NC 2.0).

June 27, 2016

By Marisa Novara, Yonah Freemark