Condemned to Repeat? Chicago’s New Five Year Housing Plan: 2019-2023

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This is part two of our analysis of Chicago’s new five year housing plan covering 2019 through 2023. You should probably start with part one, which ran last week. We’ve already assessed how well the city achieved its goals over the past five years. Now we’re going to use what we learned to analyze the new plan. As with our prior article we will be focusing on the plan for the rental market only, ignoring initiatives that support only single family homes.

The new plan for housing has already been approved by the city council. Funding has been allocated, bottle has been smashed, ship has sailed. In predicting its success we are handicapped by several factors. Firstly it was spearheaded by an outgoing mayor and city council that will not be in office to see it come into effect. All 50 seats on the council are up for re-election in March. We know that this is Rahm’s swan song. It is entirely possible that none of the politicians who championed this plan will still be in office by the time it is four months old.

It’s also crucial to bear in mind the affairs of the Illinois General Assembly and the new Governor, particularly with regards to the rent control debate. Should the rent control ban be lifted, much of the strategy outlined in the new plan will be thrown into turmoil and potentially forced to take a backseat. If current proposed legislation is approved by ILGA there will be an new elected council governing rent rates for those landlords that elect to participate in rent control programs.

Thirdly, responsibility for implementing the new plan is dependent on the creation of a new city Department of Housing. Previous plans have been administered by the Department of Planning and Development. Now the responsibility will be split between two departments. DPD will handle the first year and then slowly transition to the new DOH. Every time the staff in charge of a program is changed there is the potential for priorities to become muddied or lost. We’re headed into a potential three way schism in power with new faces across the board. This will prove to be an interesting five years for the Chicago housing market.

We must also bear in mind that the settlement of the fifty year long Gautreaux v. CHA case. CHA is no longer under court-ordered supervision. The effect of this freedom on the city’s many section 8 renters, public housing residents and properties cannot be predicted without a crystal ball, although we can probably make some guesses as to what’s ahead on that front.

Where Are We Now?

Chicago’s rental housing landscape in 2019 has substantially changed from where it was in 2014 and not entirely in ways that the DPD of 2013 could have anticipated. The downtown rental market exploded with new construction, but in the past year prices stagnated in that area due to the glut of new units at the top end of the price range.

Attempts to preserve two-to-four unit buildings throughout the city were largely unsuccessful as deconversions flourished.

The Affordable Requirements Ordinance (ARO) was overhauled twice and its implementation late into the five year plan was met with landlords exploiting every possible loophole to avoid the construction of affordable rentals.

The rise of the NIMBY contingent and the intervention of the zoning board to prevent senior housing developments on the northwest side presented an unforeseen hurdle.

A trend in deconverting failed condominium projects to market-rate apartments popped up in the middle of our last five-year cycle thwarting municipal initiatives to convert these properties to affordable housing. (I predicted this trend in 2006, but hey, what do I know, right?)

It has become apparent that existing advertising policies on private apartment listing portals, building codes and zoning codes are preventing the full use of “accessory dwelling units” (ADUs), which include non-traditional living spaces such as coach houses, in-law units, attics and basements.

The five year plan of 2014-2018 was conceived with a goal of helping us to recover from the housing crash of 2008. While the city did take some steps towards recovery, we are still being spotlighted by industry pundits as the slowest urban real estate market in the country, a city that is still not fully recovered, with more underwater homes than any other U.S. city. The North side has pretty much bounced back, but the South and West sides have not. Huge swaths of land remain vacant following teardowns of foreclosed or vacant homes. Drop a pin on Google street view in parts of the south side and it looks like farmland.

Rents have stagnated or fallen off even in the posh downtown areas, but still, applicants for public housing can anticipate a wait of anywhere from 3 to 25 years before they even move from the waitlist to the interview phase. Wait times for project based vouchers are a little shorter but still hovering around the 5 year mark. The last time the CHA opened the public housing waitlist in 2014 they had 260,000 applicants in a month and accepted only 20%. They finally reopened it again in December 2018 although the housing choice voucher (section 8) waitlist remains closed.

So, we’ve come back a little, but only in areas where the private market has deigned to throw some money around. Municipal efforts to boost the overall housing market back to stability did what they could, but it wasn’t enough.

The Plan

Here’s the new plan in PDF format if you want to follow along. It’s 60 pages long.

Chicago Housing Plan 2019-2023

 

The budget for the old plan was $1.32 billion. We wound up spending $1.37 billion, which is pretty darn close to the mark. Just a little $50 million overrun. Not bad in a city with an annual GMP of $679 billion.

This time around the full budget is $1.35 billion. While we might not be fully recovered from the 2008 crash, we’re definitely on our way back up and our population is a lot lower than it once was. I think this is a reasonable number. However, the division of that money between different projects does raise some questions.

Most of the initiatives from last year are returning, along with some new programs. Most of the new initiatives are descended from the ARO, or at least use very similar language. I’ve created another spreadsheet comparing the funding of each initiative in the old plan compared with the new plan.

New Programs

Of the 5+ unit building initiatives from the old plan, two have been axed. The Affordable Requirements Ordinance is now pretty much a done deal and was removed from the funding list. The Neighborhood Stabilization Program was funded by a one time grant that’s been fully spent. Three new programs are now receiving funding in their absence.

Preservation of Existing Affordable Rental (PEAR). Provides reduced rate refinancing of private mortgages on larger multifamily properties provided that at least 20% of the units remain affordable for the next 30 years. This program is funded for $10 million.

Flexible Housing Subsidy Pool. This sort of program is already in use in other cities such as Los Angeles. It creates a centralized fund to cover housing costs and case management of the homeless. Funded for $2.5 million.

Opportunity Investment Fund. This fund sources low-interest loans for landlords who wish to buy multi-family buildings in specific areas of the city provided that they keep at least 20% of the units affordable for the next 15 years. Funded for $5 million.

On the small property (1-4 unit) front, every initiative from the old plan is back in the new plan with adjusted budgets. There is one new program of note for these properties.

AHOF Home Improvement Program. This is a particularly interesting one, as it’s the first time that the Affordable Housing Opportunity Fund is being tapped. This is the fund into which developers who wish to opt out of the ARO are required to pay their in-lieu fees. The program provides forgivable grants to owners of 1-4 unit properties in gentrifying neighborhoods for home improvement projects. Funded for $3.5 million.

Returning Programs

Please check out last week’s article for descriptions of these programs.

Multifamily Rehab and New Construction. Last year despite their $265k budget overrun they did serve 104% of their quota, and got a B Grade from us. This year they’re getting an additional $147 million for a total of $1.036 billion over five years.

Rental Assistance This very popular program served 92% of their quota under the old plan with a comparatively minimal overrun of $509k. Unfortunately this year they are getting $14 million less despite higher housing costs. Funded for $66.7 million.

Heat Receivership We were lukewarm on how this program was handled last time. They had a budget surplus but served only 54% of their target housing units. This time around they’re getting an extra $1.1 million for a total of $6 million. Considering that the eyesore of a building across the alley from RentConfident HQ is currently participating in this program, I sort of have to support its continuation. However, as that building has been in the program for the past 4 years now I have my doubts as to its effectiveness.

Troubled Buildings Initiative: Multifamily. Last time they has a surplus of $3.6 million and met 86% of their quota. We gave them a D grade. This time their funding is right in line with what they actually spent in the previous term, so I’m fine with that. Here’s hoping they’re more vigorous this time around.

TIF Purchase + Rehab: Multifamily. Sigh. This is back? Why is this back?! Hardly anyone used it last time. They only spent $1 million out of their allocated $35 million budget and served only 4.5% of their quota. They were the only program to get an F grade from us. While their new allocation of $7 million is a mere fraction of their previous budget, that’s still $6 million more than they used in the last go around. In my opinion this failed program should have been dropped altogether.

Emergency Heating Repair. Last time this very popular program used only $3.8 million of its allocated $25 million but hit 153% of its quota. It’s back with a more reasonable budget of $4.5 million, which is fantastic.

Neighborhood Lending Program. Last time this initiative spent 70% of its allocated funds across all five of its sub-programs, ending with a surplus of about $21 million. They’re getting $27.6 million less in the new plan for a total of $20.6 million. Considering that their demand was far lower than anticipated last time I think this is a fair adjustment.

Roof and Porch Repairs. Another very popular repair program, these guys used 85% of their funding in the last term and hit 102% of their quota. They’re back with an extra million over last time, funded for $26 million.

TIF Purchase + Rehab: Single Family. Why are you doing this to us, Chicago? Last time they used only 25% of their budget and reached only 37% of their quota. There is so little public demand for this program. But they are getting $5.5 million more than they used last year, for a total of $6 million. I’m fully aware that TIF districts for commercial improvement can’t get resident approval without separate line items for residential use, but seriously. Nobody is using the funds. The city needs to leverage its data when working with sulky residents on TIF matters so it can put that TIF money where it’s actually needed. Either that or whoever is handling the marketing for this program needs a swift boot to the rear. Or both.

Troubled Buildings Initiative: Single Family. Last time around they hit 132% of their quota with 62% of their funding. Good, productive program providing a clearly necessary service. They’re getting $2.8 million more than they spent last time, funded for $9.075 million all told.

Troubled Buildings Initiative: Condos. This program was completely superseded by condo deconversions last time, and implementation cost far more than anticipated. They blew 58% of their budget serving only 17% of their quota. Sort of scary to think how far they’d have gone over budget if they’d have actually met their full quota. I do think that at some point over the next 5 years that the current trend of deconversions will peter out before it reaches the south and west sides. This fund may become necessary again, meaning that the extra $500k they’re getting this time around is a reasonable pad. Funded for $3 million.

My Thoughts

In last week’s article I made some suggestions as to what the city should focus on based on my own analysis. Now we can see what the city is actually planning to do.

I said that they should focus more on the lowest income demographic for promoting their rental initiatives. Nearly every program they created saw far higher participation from the lowest income demographic than anticipated. But instead of shifting the weight to the bottom the city has removed 3000 units from the target quota for the lowest income demographic (those earning 0-15% of the median). They’ve also removed about 500 units from the 31-50% group. They’ve added 1200 units to the highest income demographic (101+% of the median) and 1000 to the 61-80% demographic.

This is troubling to me. It means that instead of focusing more heavily on the housing needs of the poorest residents like I would have preferred, they’re focusing more on the wealthy. I’m sure they’ve got data on the income levels in the most troubled sections of the south and west sides that I haven’t seen. Perhaps they’re hedging their bets in anticipation of rent control. Even so, the whole new distribution of target quotas bothers me, especially in view of the actual breakdown of users from the past five years.

I also suggested that they build in some agility so that they can respond to the effect of private market trends on the city’s housing stock. They’ve done this to some extent. Some of the questionable extra funding to the failed initiatives of the last cycle that I mentioned in the previous section may be a safety net in case we wind up relapsing into another crash instead of continuing down the road to recovery. The creation of a Department of Housing is certainly a step in the right direction even if the first couple of years are a chaotic disaster at city hall.

It is good, I suppose, that our biggest speed bump of the next five years is already in view. The folks drafting the new plan knew that rent control might be coming and have done what they could to prepare for it. What worries me are the additional speed bumps that are still beyond the horizon.

I wanted the city to stop lumping two-to-four units together with single family homes in an effort to preserve the ones we have left. They haven’t done so, which places their spoken commitment to the endeavor in the narrative section of the five year plan in no small amount of doubt. We lost 20,000 units in 2-4 unit buildings to deconversion between 2010 and 2016 even though they did a lot of talking in the old plan about how they wanted to save them. Once again the talk about saving the endangered two-flat is back, but there’s no specific funding for it. While many preservation strategies need to be implemented at the ordinance level rather than through funded initiatives, there still needs to be a public-facing aspect to them. A moratorium on deconversion permits would help, but what would help more is an incentive program for home buyers that rewards them for keeping multi-unit buildings intact.

I see very little mention in the plan about education. In fact, the words “educate” or “education” appear only seven times in the entire new plan within the context of housing strategies. There is some funding for education of low-income tenants and home buyers, and that’s it. No education of real estate agents or leasing agents. No education of lenders. No training on how to maintain a multifamily property or how to follow Chicago’s very complicated and intimidating CRLTO. I suppose they’re relying on large brokerages to have their own people focused on training their agents and employees. Newsflash: they don’t. Many of the brokerages are one or two person operations, especially the ones that actually bother to serve the south and west sides.

The talk about ADUs is intriguing to me. The creation of coach houses in Chicago has been illegal since 2004, but they’ve become a talking point in the current Mayoral election. But coach houses are not the only ADUs. There’s “in law” units in existing homes that may require renters to walk through someone else’s home to enter. For years now the term “in law apartment” has been prohibited by the MLS as a term that violates fair housing laws. This means that real estate agents can’t mention them in listings. In fact, a huge number of in-law units are considered to be illegal and therefore can’t even be marketed by real estate agents. Even owners have to step very lightly when it comes to renting them out.

Basements and attics are also fair game as ADUs. Many apartments in basements and attics are currently illegal for a very good reason. They’re unhealthy, unsafe or provide insufficient privacy. But they’re still home to hundreds of Chicagoans, many of them immigrants, most of them poor. Chicago could certainly benefit from the return of many of these ADUs from the shadows, but defining exactly which ADUs are “safe” will be a complex puzzle. If the ADU debate can survive to completion without becoming impossibly tangled in the immigration debate it will be a miracle. Can we carve out 20,000 ADUs to make up for what we lost from 2-4 unit buildings over the past few years? I doubt it, and they certainly wouldn’t be a one-for-one replacement in terms of quality of life. You cannot say that an apartment in a two-flat is of comparable value to a room above someone’s backyard garage. It’s on par with realizing too late that a species of ocean fish has gone extinct and trying to replace them in the food chain with hamsters.

Plans are good. I like having a plan, even if I don’t wind up fully seeing it through to completion. It’s a good thing for Chicago to have a plan for housing and to periodically take stock of how we’re doing in terms of keeping roofs over everyone’s heads. I’m sure that it was a huge amount of work to get all of the participating non-profits, city departments and community leaders to collaborate on this 60 page document.

But this new plan seems like a microwaved version of the old one, which wasn’t very effective and wildly misjudged the public response. Sure there’s some interesting ideas expressed in its narrative, but the allocation of funds money doesn’t match the talk. There’s too little attention paid to the logistics of how these initiatives are going to get from point of origin to public acceptance. The phrase “rent control” doesn’t appear once in the entire plan even though we all know that it’s hanging like the sword of Damocles over the entire project. The new Department of Housing may wind up streamlining the city’s housing initiatives, or it may wind up being just another layer of red tape added to the housing morass.

Will the plan hurt us? Probably not. The private market will see to that. Will it help us? I think there’s too many variables to know for sure right now, but my gut says no. There may be a few pockets on the south and west sides that have a better time of it because of this plan. But until we solve the segregation problem and figure out a way to stop the black exodus and high unemployment rates for POCs any housing initiatives are moot.

The old plan had the title of “Bouncing Back.” We didn’t. The new plan is titled “One Chicago.” We aren’t. Will it succeed? Anyone’s guess. But if its rapid approval by the city council concerns you as much as it concerns me, please do me a favor. Bookmark this article and the two that came before it. Come back to them in a month or so, just before you go and vote for the new mayor and aldermen. That will make the effort I’ve put into these three research heavy monster articles worth it.

Thanks for reading.

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Kay Cleaves

Founder and owner of RentConfident. She's the primary developer of the website and research engine code. She's spent over 10 years working in the Chicago rental industry and has assisted with over 1200 leases.