Link to full article on Block Club Chicago
CHICAGO — City officials gathered in February at the border of Logan Square and Hermosa, where they celebrated the opening of an affordable housing development they said would help keep families in the gentrifying area.
The 89-unit Encuentro Square complex provides housing for families making less than the area median income, providing homes for people who have been priced out of many areas of the city, particularly on the Northwest Side.
Encuentro Square cost $67.5 million to build — more than $750,000 per apartment — an exorbitant cost that hampers the ability to build more needed affordable housing, developers and experts said.
“There’s this perception that when an affordable housing development is really expensive, somebody’s getting away with something,” said Lincoln Stannard, co-executive director for LUCHA, the affordable development company behind Encuentro with Evergreen Real Estate GRoup. “The reality is, high costs for projects create challenges for anyone and keep us from doing what we want to do. When projects are high cost, they are more complex, take a lot longer and they limit our mission to create as much affordability as possible.”
Mayor Brandon Johnson’s office has touted progress in the building and funding of affordable housing during his tenure, including efforts to streamline development approval and the creation of a city-run nonprofit to finance affordable housing construction.
But with soaring building costs, a competitive funding process and many hoops for developers to jump through, more efforts are needed to bring down affordable housing construction costs and address the city’s housing crisis, experts said.
Increased Costs, Onerous Regulations
The cost for new city-funded affordable housing has exploded since the pandemic, according to data from the Department of Housing and several housing experts.
Prices jumped from about $400,000 per unit to nearly $750,000 between 2019 and 2024, Richard Day — who worked on the Economic and Neighborhood Development team in the Mayor’s Office for the Lori Lightfoot administration — wrote in his policy newsletter, A City That Works. Not even luxury high-rise construction costs have risen as much.
That’s because those developing market-rate apartment projects have fewer hoops to jump through and reviews to exercise, housing experts said.
High construction inflation nationwide, a lengthy city review process, fees and design standards a project using public funds must adhere to are reasons for the high costs, said Daniel Kay Hertz, director of housing for Impact for Equity and the former director of Policy, Research and Legislative Affairs at the city’s housing department.
“The way America funds affordable housing is like a super complicated jigsaw puzzle,” Hertz said. “The backbone of all of these projects is low-income housing tax credits, which come from the federal government. That’s money flowing into Chicago; it’s not taxes we pay to the city. But the [tax credit] only covers a third to two-thirds of the cost of building, so it has to be joined with other sources.”
Lesser-known development costs — legal fees, tax credit consultants, design and lawyer fees and environmental costs for high building standards — add to the unit price. In some cases, land acquisition and higher pay for construction workers are also part of the unit cost, developers and Hertz said.
For example, a developer wanting to build affordable housing often seeks funding through low-income housing tax credits, which are administered by the city and state. Applications for such financing are rigorous and competitive, adding another layer to the development project.
To receive city funding for affordable housing projects, developers have to fill out an economic disclosure statement that asks, among other questions, if any project participant ever profited from slavery — a question that can require hundreds of hours to determine, experts told the Tribune.
If those tax credits are awarded, developers then sell those credits to investors, who use them to offset their federal tax liability. A broker is often hired to sell those credits, another expense developers must absorb to get their projects off the ground, Day wrote in his newsletter.
“When a market-rate developer chooses to build, they’re not necessarily bundling in those other things,” he wrote. “So we’re buying more than just the housing with those dollars, we’re also buying the bundle of policies” in order to build affordable housing.
On a local level, projects that use city funding also need to go through an approval process that includes a vote from local bodies like the Community Development Commission, the City Council’s finance committee and the full City Council. Many of the projects also face a community vetting process intended to win the favor of alderpeople, who have de facto approval power on projects requiring a rezoning in their ward.
Take, for example, a project from LUCHA: It is working to redevelop a Logan Square church into affordable apartments, a plan that’s been in the works since 2020 and points to the complexities of the city’s affordable housing funding system.
With 11 funding sources, the church plan has gotten various City Council approvalssince 2022, most recently receiving $10 million from the Department of Housing last year.
The estimated total costs for the project is nearly $20 million, which includes the land purchase, building rehab, development fees and a maintenance fund. The actual construction of each unit costs about $520,000, Stannard said. Because the project is a renovation instead of new construction, prices are lower, though it’s still causing alarm for affordable housing advocates who think the price tag is too high for developers and investors to build.
“We, the city, the affordable housing community, are at the table to work on real solutions for how we get more done with the limited resources,” Stannard said. “In the meantime, we’re still living in the system we have now, so when an incredible, community-responsive opportunity like the redevelopment of the church comes along, my job is to figure out — within the system that exists now — how do we get this done and make the case that projects like this are worthy of the investment?”
The January opening of an affordable housing development in East Garfield Park caused a similar stir among housing advocates. Fifth City Commons, 3155 W. Fifth Ave., offers 43 apartments plus two community rooms, a terrace, fitness room and three laundry rooms. It also has charging stations for electric vehicles and on-site composting.
The project cost was $38 million, according to developer Preservation Of Affordable Housing, making the per-unit cost about $884,000.
“This is crazy,” David Doig, president of mission-based development group Chicago Neighborhood Initiatives, tweeted in response to an article on the development. “It may be affordable for the tenants, but it’s not affordable for the taxpayer.”
Another recently approved West Side development — a 52-unit project with retail space known as The Ave — has a per-unit cost of $850,000. As much as half of that cost is tied to regulatory burdens, Doig wrote in a guest column in Crain’s.
Reducing the regulatory requirements of affordable housing projects would go a long way to reducing project costs, Doig wrote in the column.
Spurring housing development of all kinds will also help increase the amount of affordable housing in the city, as most new developments requiring city approval need to include at least 20 percent of the units as affordable, Doig told Block Club in an interview.
“When you increase supply, things get more affordable,” said Doig, who spent years working to further affordable housing within the Richard M. Daley administration during stints at the city’s housing and development departments.
‘Working Together To Get These Costs Down’
The city is trying — albeit not fast enough — to build more affordable housing, critics say. In May, the city broke ground on over 300 affordable apartments with four South and West side developments, Johnson said during a June press briefing.
One of Johnson’s major efforts to boost housing construction is the Cut the Tape initiative. The plan includes reforms to zoning regulations that can stifle development, the streamlining of approval processes by empowering departments to make administrative decisions and consolidating review processes to move along development. Hertz said it’s a step in the right direction.
The Green Social Housing plan, passed in May, has also added a tool to the city’s attempts to boost affordable housing.
The plan creates a city-run nonprofit that can fund projects and partner with developers to build environmentally friendly housing with at least 30 percent affordable units. It allows developers to acquire construction financing at lower borrowing rates. The nonprofit would also be empowered to acquire buildings in an effort to preserve existing affordable housing. It is funded through a housing and economic bond deal passed last year.
“The Green Social Housing is a way to recycle a one-time allocation of money over and over again, and I think that’s a really big deal,” said Hertz, whose organization supported the measure. “Finding ways to leverage dollars that can generate private lending so the entire project cost doesn’t have to come from the city are two things the Green Social Housing does.”
The mayor’s five-year, $1.25 billion bond deal that passed last year, which will finance affordable housing and economic developments, is also a step in the right direction and points to a more flexible funding model, Hertz said. Hertz helped pass the deal when he was still at the city and sees it as an important tool to fund affordable housing with fewer restrictions than federal funding.
“You think about North Lawndale. You think about some of our areas on the South Side — we can now work with developers to create multi-family homes, to create single-family homes that build density, create different income stratas that repopulate these community areas, as well as support our commercial corridor development investments,” Kenya Merritt, deputy mayor of of Business and Neighborhood Development, said about the deal.
Last year, the city also launched a program aimed at redeveloping vacant land. The Missing Middle Infill Housing Initiative seeks to increase the stock of affordable housing units across the city through large subsidies. Vacant lots are sold to developers for $1, then the city subsidizes development of for-sale housing on those lots, with up to $150,000 per unit in city assistance being offered.
Missing Middle started as a pilot program focused in North Lawndale and expanded in April to include Morgan Park, Chatham and South Chicago.
But there’s still room for improvement, experts say.
A March 2024 report by the Housing Action Illinois and the National Low Income Housing Coalition found Chicago has a shortage of 126,165 affordable rental homes for those with the lowest incomes and only 32 affordable and available rental homes for every 100 extremely low-income renter households.
As Johnson and the City Council continue to try and increase affordability and break down construction barriers, filling the housing gap and bringing people back to Chicago is one of the mayor’s top priorities. At a March panel hosted by Axios about the state of affordable housing, Johnson touted his administration’s economic and housing accomplishments and the need to think more creatively to solve the housing shortage.
“I’m moving with some expediency,” Johnson said. “Affordability in this city, and across this country, as we have this challenge with not enough units, that really is the human rights issue of today.”
Progress is inching forward, but as conversations around affordability feel even more dire, city officials, housing advocates and developers say further efforts to refine the affordable housing approval and financing systems will help reach the city’s lofty goals.
“There is not a magic bullet to fix it,” Doig said. “This is going to take a lot of different pieces working together to get these costs down. Chicago needs to dramatically increase its supply of housing more generally, including affordable” housing.