Abundant Housing Illinois

Link to full article in The Chicago Sun Times

In 2023, Chicago spent $747,000 per unit to build new, city-supported affordable housing. That’s much higher than market-rate developments and more than double the cost of new affordable units in Houston, the country’s next largest city ($328,000). Because federal funding is tied to population rather than costs, as expenses rise the city mechanically builds fewer units than it otherwise would. If we managed to build at Houston’s cost, Chicago could have housed 540 more low-income families in 2023 alone.

This eye-watering cost has spurred interest in new approaches. Last month, the city rolled out a green social housing proposal that would have the Chicago Department of Housing provide direct financing and take majority stakes in mixed-income projects. That would reduce the cost of capital for developers and eliminate expensive financing costs associated with federal tax credits.

This idea has a lot going for it. But to succeed, it will have to do more than lower the cost of capital. Remember, we’re spending more than twice as much per unit as Houston, which also relies on private market financing and federal tax credits. Something else is causing costs to spiral. Without addressing the problem head on, those same costs will kneecap efforts to build social housing as well.

So what makes city-funded affordable housing so expensive? Three key factors stand out:

First, overall construction costs in Chicago are far higher than peer cities. RSMeans, the industry standard, estimates that Chicago’s costs are 20% higher than the national average and 38% higher than Houston’s. You can chalk a lot of that up to long design reviews and block-by-block aldermanic control over new zoning approvals. The Urban Institute’s Yonah Freemark finds that 58% of new units permitted in Chicago are in planned developments, which require city and aldermanic approval.

Opinion

As projects wait years for approval, high interest rates and rising material and labor costs take their toll. Crucially, this hamstrings market-rate and affordable developments alike, making our housing crisis worse at every level. Recent proposals from principled City Council members to proactively upzone major commercial corridors on Western Avenue and 35th Street (both approved) and Broadway (in progress) are signs of progress, but much more needs to be done to lower barriers to new construction.