Inclusionary zoning can’t save Logan Square

Yesterday, We Are/Somos Logan Square, a mostly housing-related advocacy group in my neighborhood, held a rally outside the local alderman’s office. As far as a vision for the neighborhood goes, I’ll be forward enough to say—and I hope they would agree—that we’re not so far apart. We Are/Somos and I both want Logan Square to be a neighborhood where people of all economic, social, and ethnic backgrounds feel comfortable, welcome, and able to be a part of the communities they value. We are particularly invested in allowing the people who already feel a part of the community to remain. And we both believe that affordable housing is perhaps the greatest challenge to achieving that vision.

But—and I say this with a great amount of respect for people who are doing something they believe will make their neighborhood better—I am somewhat depressed by their demands.

We Are/Somos’ demands center on getting local aldermen to require developers to provide low-rent units alongside their regular, market-priced units. In general, this sort of policy is called “inclusionary zoning”; in Chicago, inclusionary zoning is regulated by the Affordable Requirements Ordinance, or ARO. The terms are a bit complicated, but essentially any developer of a property with more than 10 units that gets a zoning change has to make at least 2.5% of their units “affordable” (more on exactly what that means later); they can then choose whether to pay a fee equivalent to another 7.5% of their units, or just create another 7.5% worth of affordable units in their building to get to 10% in all.

The local Alderman, Joe Moreno, has already required developers in his ward to build the full 10% of units on site, rather than paying the fee. We Are/Somos’ demands, then, go something like this:

  • the number of affordable units should be greater than 10%;
  • the affordable units should be targeted to people with lower incomes;
  • the affordable units should be targeted to families and have more bedrooms.¹

On their face, these are all things I support. And we need people like We Are/Somos, and others, doing good work to keep up the pressure for housing policies that promote affordability. But there is a problem.

The problem is that there is an enormous gap between even a total victory on the part of We Are/Somos and the kind of neighborhood they, and I, want to build. You don’t need to have any special expertise to see this—you just need a pencil and a napkin.

There are currently about 700 units proposed or under construction in Logan Square that trigger the ARO requirements. (Of course, We Are/Somos has said, at both of the meetings where I’ve seen them speak, that this is far too many.² So perhaps a “total victory” on their part would involve far fewer units. But let’s leave that for a moment.) Based on the alderman’s interpretation of the ARO, that would translate to 70 affordable units. I’m not sure exactly what percentage We Are/Somos are looking for, but I’ve heard 25% and 50% thrown around. That would translate to 175 and 350 units, respectively.

Many of the projects that add up to 700 total units have been in the works for the better part of a year already; many will take over a year to be completed. So let’s say that these 700 units are two years’ worth of development for Logan Square. It seems very unlikely that we could keep that pace up for ten years—at some point there will be a recession, and development will dry up—but let’s just say we did. By 2025, Logan Square would have an additional 175*5, or 875; or 350*5, or 1,750 affordable units.

Logan Square has about 33,000 housing units. By 2025, if it builds 700 units every two years, it will have 36,500. Of those, either 875 (if we get 25% inclusionary zoning) or 1,750 (if we get 50%) will be new affordable units from the ARO. According to the Rehab Network, there are already about 800 subsidized units in Logan Square, so the total would come to either about 1,700 or 2,550.

That means that in 2025, either 95% or 93% of all housing in Logan Square will be priced by the market—under the best possible scenario for We Are/Somos. The fact that the difference between 25% inclusionary zoning and 50% inclusionary zoning over ten years is just 2% of all units in the neighborhood is also pretty striking: it means that if somehow We Are/Somos were able to get every single new unit to be affordable, market-rate housing would still be 89% of the neighborhood.

Which means that without a strategy for keeping market prices down, the neighborhood will be 89% unaffordable. Which isn’t compatible with We Are/Somos’ vision for Logan Square or mine.

Of course, we should take a moment to reflect on just how unrealistically optimistic even this depressing scenario is. We Are/Somos points out, correctly, that developers have every reason to lie about how much affordable housing they’re capable of providing; but the fact that they lie about where that threshold is doesn’t mean that they’re lying about the fact that there is some threshold beyond which the project just doesn’t pencil out.³

I’m not in a position to know exactly where that threshold is. But I can note that in New York, Mayor Bill de Blasio’s new affordable housing plan calls for 25% of new units to be affordable. That’s probably an upper ceiling for Chicago for a few reasons: first, inclusionary zoning works by essentially taking developer profit to subsidize affordable units, and there is almost certainly much more developer profit to work with in New York than Chicago. Second, de Blasio’s plan targets people who make 60% of the region’s average income. That’s the same as Chicago’s ARO—and significantly higher than what We Are/Somos wants. Their demands have been about 30-40% of the region’s average income, which would require significantly more subsidy for each unit, reducing the total number of units that could be subsidized.

In any case, the bottom line is that there is no inclusionary zoning percentage that will keep Logan Square affordable for everyone. By making Logan Square’s affordable housing debate revolve around that figure—10% or 25% or 50% or 100%—we are keeping debate stuck on number that can never be enough. If we don’t bring focus to the bigger picture, we’ve lost before we started.

That doesn’t mean inclusionary zoning isn’t important. It’s unlikely that market prices will ever be low enough for people at, say, 30-40% of the region’s average income in Logan Square, and inclusionary zoning, along with other kinds of subsidized housing, can be absolutely essential for keeping a place for them in the neighborhood.

But that has to be just one part of getting from where we are to where we want to be. In part, we should be looking for more ways to create non-market units. Some people have floated the idea of bringing in units that the Chicago Housing Authority is committed to build or pay for as part of the Plan for Transformation. This project in Cabrini-Green, for example, will have 10% ARO units and 10% units paid for with CHA vouchers, for 20% total. That should absolutely be a model that’s copied all over the city, especially near transit stations.

But none of this changes the fact that the vast majority of housing units in Logan Square will be priced by the market for the foreseeable future, whether we like it or not. We need a plan for keeping the growth of market prices in check.


 

1 Actually, another demand is something along the lines of: “Stop approving so many big new developments at all.” This is because We Are/Somos believes that these developments, whether they contain affordable units or not, drive up prices in the surrounding neighborhood. That is, they believe that their main mechanism for creating more affordable units also diminishes affordability in other units. To be clear, although I don’t believe that’s true, it’s not at all logically inconsistent—but it does put We Are/Somos in a rhetorically uncomfortable place, I think. if every step forward is a step back, then what’s the point of any of it?

2 One of the weird things about development politics in Logan Square is that it has (at least partially) united groups like We Are/Somos with homeowners’ organizations that oppose new development sometimes explicitly on the grounds that it will reduce their property values—that is, make housing more affordable. So you have a coalition of people who not only have directly opposing ideas about what the effects of new construction are, but who have directly opposing ideas about whether housing should be more or less expensive.

3 And note that what happens when you cross that threshold—when the developer can no longer make enough money for the project to be worth it for them—is not that everything stays the same, an outcome that might seem acceptable. What happens is a) you lose all the potential affordable units, and b) some developer builds whatever is already allowed by the existing zoning. In many cases, that means single-family homes that will sell for the better part of a million dollars. Because every residential zoning category allows those kind of homes, there is no public meeting necessary, no affordable units, and no zoning change you can use as a shield against it: they can just do it. That’s not everyone going back to square one; that’s a huge loss.

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11 thoughts on “Inclusionary zoning can’t save Logan Square

  1. We have similar questions in our community, and long-term residents of limited means subscribe to an almost-identical list of tenets as that you suggest for ‘We Are/’. (They also sometimes align with local anti-development factions). However, I find your analysis too pessimistic, and have to push back against statements like “the neighborhood will be 89% unaffordable”. ‘Market-rate’ =/= ‘unaffordable’. Without having a specific analysis to hand, I would suggest that most low-income Americans are housed in market-rate housing. I bet that is true in Logan Square too, otherwise residents of limited means would not be concerned about increasing land values (aka ‘gentrification’).

    The question then becomes one of how contemporary planning choices will affect the pool of market-rate housing. I would argue that constructing new units has a stabilizing effect on local home prices. Put another way, constructing new units *is* the necessary ‘strategy for keeping market prices down’. (There is a counter-argument predicated on ‘induced demand’ / ‘positive feedback’, usually articulated as ‘all these new buildings push up the price of existing houses’. The famed Zillow chart of housing costs vs housing starts tends to disprove this- albeit only at the metro-area level.)

    Finally, when you say ‘IZ can’t save Logan Square’, the implication is that the neighborhood is going to be obliterated or something; it’s really hyperbolic. ‘We Are/’ seem to be on the right track, it’s a question of what is the best response to increasing land values. I’d say ‘lots more units, with a robust IZ component’. Our IZ affordable units are built at a minimum of 20% but there is talk of requiring higher percentages. We also have not-for-profit developments built at 50% and even 100% affordable.

  2. I think the commenter above gets to an important point. The most pressing, important, unmet need in urban planning today is a granular understanding of how additional supply affects market prices for existing property. Building a model that accurately predicts price changes based on existing community make-up and type of development is the string theory of urban planning. It boggles my mind that this isn’t discussed and pursued more, and that the conversation about additional supply occurs on a purely theoretical level that doesn’t ever get much deeper than “supply and demand.”

    That rant aside, I am even more pessimistic on SOMOS as a positive and strategic organization than you are.

    I find the discussion of what is “profitable” for developers to be bizarre and illustrative of how far away from reality groups like SOMOS are. What is technically profitable and not profitable is irrelevant. The relevance of that calculation is based on the false assumption that the alternative scenario to building the project under discussion is doing nothing. The developer’s decision to pursue the project is based not on a binary profit/no profit basis, but is based on the opportunity cost. A developer will never move ahead with a marginally profitable project, so long as there is access to more profitable opportunities for the use of the capital. In this case, successful higher-IZ rates necessitate a city- and likely region-wide requirement in order to restrict alternative development opportunities. Even in the situation of city-wide mandate I would be skeptical, as developer capital is relatively mobile nationally. In the NY example, NY’s threshold is a city-wide req, and only applies to up-zonings over 10 stories. That limits the proposal to developments with PSQF that are often 3-20x higher than what we’re discussing in Chicago. My back of the napkin estimate is that anything over 15% IZ in Chicago turns San Fransisco-level counterproductive pretty quickly. Yes, while developments in river north could easily support 15% or maybe even 20%, there is an invisible toll of frozen development that would occur (and probably is occurring) in mid-density middle class neighborhoods.

    I agree with their goals 100%, but there are essentially zero scenarios in which a group like SOMOS has a positive impact on neighborhoods with their current platform. Their recent shift away from “no new developments” is a positive change, and perhaps indicates an emerging shift towards more productive and reality-based advocacy.

  3. Good post Daniel. What groups like Somos don’t/can’t address is changing Demand. We’re in the midst of a generational shift back toward the city away from the suburbs (among the highly educated/Yuppie and post-Yuppie classes in particular).

    Land near CTA stations is in dramatically higher demand than in the past, and that’s a nut you just can’t crack.

    Ironically policies that should’ve protected low income people from being displaced (subsidies for home ownership and property tax relief) left millions of people worse off in the last recession.

    You have to sort it out some how and there are two prevailing camps (“First come first serve” and “to the highest bidder”), or somewhere in between. Ask the question both ways:

    Why should low income residents get to hang on to the neighborhood when the rich are willing to pay more for it, just because they were there first?

    Why should long term low income residents be displaced by rich people, just because they can pay more for it?

    No “right” answer. Democracy = Compromise.

    1. Can you elucidate this statement? Asking non-sarcastically as an interested reader.
      “Ironically policies that should’ve protected low income people from being displaced (subsidies for home ownership and property tax relief) left millions of people worse off in the last recession.”

      1. It’s a lot tougher to displace home owners vs renters (although owners can ultimately be displaced by rising property taxes). So in theory promoting home ownership would help low income households buy and anchor themselves in their neighborhoods (or at least profit from selling out).

        During the W. Bush housing boom era, promotion of homeownership played a role in the loosening of lending standards and the regulatory environment.

        As Daniel has documented here, the wealth effects during the corresponding collapse were disproportionately negative for the middle class and low income households as well as in minority neighborhoods.

  4. I’ve lived in Logan since 82 yet I’m now considered a gentrified??? Neighborhoods evolve and change for good or bad. Look at Paris,London. They have gone through the process as we are. I loved the old Logan, although I was mugged at knifepoint, burglarized several times and been heckled by drug dealers working the crack houses on either side of me. There was energy and a rough hewn experience living here. But now I love the youthful energy and good bars and restaurants. I’ve seen groups try to slow change in neighborhood after neighborhood and I don’t think any have been successful in my 35 years in the city.

    1. I mean, two broad approaches: 1) allowing more homes to be built, and 2) some form of rent control. There are tradeoffs for both approaches, but possibly some combination?

      1. Rent control would be great, but not possible anytime soon as it’s currently illegal. (Illinois state law) We’re talking about ultra-prime real estate (Logan Square) and for that i’d say, demand the world of developers (in terms of set-asides) and if they walk, fine. when the bubble next bursts, non-profit developers of affordable housing can do high-density TOD. at the very least, we can try to prevent the construction of very expensive, luxury units, whether ownership or rental. ultimately, it’ll only be thru socialism that we can affordability and transit oriented density. (btw, why doesn’t TOD stand for Transit Oriented Density?)

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