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DOH Announces New ARO Task Force


Source: KIG Analytics

The constant torrent of local and national news is distracting. It is also probably the reason you may not have heard about the newly formed Affordable Requirements Ordinance (ARO) Task Force. This announcement was made on October 14th by the Chicago Department of Housing (DOH) under the auspices of newly elected Mayor Lori Lightfoot. The Task Force will be charged with revamping the current ARO which was first adopted in 2003 and was most recently changed in 2015.

Since its adoption in 2003, the ARO has gotten increasingly onerous for developers. The last round of Aldermanic elections brought a new group of Progressive Alderman to power. Chicago now has six, self-proclaimed Democratic Socialists, up from just one before the last election cycle. Some of these Aldermen were quick to call for even more onerous ARO requirements than those adopted in 2015.

It is perhaps because of these calls for more radical changes that Mayor Lightfoot announced the formation of a new ARO Task Force. While we cannot know what the Task Force will ultimately recommend, it does create a more orderly and rational forum for discussion of the ARO than the rash and ill-advised proposals put forward by certain far-left members of the Chicago City Council.

The ARO must be a tool that creates affordable housing without destroying the economic incentive builders have to create new housing in the first place.

So, be aware: the Task Force announcement may have passed you by, but ignore it at your own peril. This is just the latest directive from the City that could make our lives as builders and property owners more difficult and more expensive.

Mayor Lightfoot deserves credit for recognizing the importance of the ARO, and for wanting to insure than any changes to it are effective but also economically viable. The stated goal of the Task Force is to examine “the ordinance in its current form and recommend revisions that will improve this important tool for inclusion used in the creation and equitable distribution of affordable housing throughout the city of Chicago.”

Since its adoption in 2003, the ARO has gotten increasingly onerous for developers.

Implicit in this statement is that the ARO must be a tool that creates affordable housing without destroying the economic incentive builders have to create new housing in the first place. The voices advocating for an increase in the current 10% or 20% set-aside (depending on location) to 30% or higher, and that want to reduce the “affordability” measure from 60% of area median income (AMI) to as low as 30% of AMI, seem to overlook some very basic economic realities.

The Task Force announcement may have passed you by, but ignore it at your own peril.

The fact is, as you increase the required percentage of affordable units and restrict the amount of rent you can charge on those units, you also reduce (or eliminate) the economic viability of the development you want to see occur. In simple English – push too far, and building activity will sharply decline or shut down entirely. One could argue that this has already started to happen with the ARO revisions made in 2015. Go further, and the economics get even worse.

The announcement that the city will form this new Task Force should be greeted by RPBG members, and by developers and property owners more generally, with both concern and cautious optimism:

Mayor Lightfoot deserves credit for recognizing the importance of the ARO, and for wanting to insure than any changes to it are effective but also economically viable.

Concern because the Task Force could easily be hijacked by the anti-development forces that have been gaining strength in Chicago and in big cities across the country in recent years.

Cautious optimism because this is an initiative from Mayor Lightfoot who has repeatedly demonstrated a willingness to work with both Progressives and the business community. Cautious optimism also because of who will be heading the Task Force effort.

The Task Force will have three Aldermanic Co-Chairs, and three Co-Chairs with expertise in Housing. Let’s start with the bad news. Alderman Byron Sigcho-Lopez (25th Ward representing the Pilsen area) will be one of the three Aldermanic Co-Chairs. Alderman Sigcho-Lopez has been a leading force in the Democratic Socialist movement and has been consistently extreme in his views. He has been one of the loudest voices in the effort to dramatically increase the ARO set-aside for affordable units at lower rents. He is no friend to developers, property owners or the business community.

Stacie Young of CIC; Juan Sebastian Arias of the Metropolitan Planning Commission; and Tony Smith of PNC Bank… bring experience and a strong dose of realism to a Task Force that is going to need a lot of both.

By contrast, the two other Aldermanic Co-Chairs – Harry Osterman (48th Ward representing the Edgewater area) and Walter Burnett (27th Ward representing the booming Fulton Market district) – are much more centrist in their positions and have consistently worked in a cooperative manner with the business community.

Equally encouraging are the housing expert Co-Chairs: Stacie Young of CIC; Juan Sebastian Arias of the Metropolitan Planning Commission; and Tony Smith of PNC Bank. These three individuals bring experience and a strong dose of realism to a Task Force that is going to need a lot of both.

If the more moderate voices on the Task Force prevail, we could have a more workable ARO that leads to more affordable units without destroying the economic viability of apartment development.

What the Task Force ultimately recommends is uncertain. If the Sigcho-Lopez forces win the day, we can expect even harsher ARO requirements, further erosion of influence by the business community, and a further shifting of the cost and responsibility of providing affordable housing from the public sector to private developers.

But, if the more moderate voices on the Task Force prevail, we could have a more workable ARO that leads to more affordable units without destroying the economic viability of apartment development. RPBG will closely monitor the actions of the Task Force, and will try to make our views known to the Co-Chairs and committee. As RPBG members, we should all pay attention to what the Task Force does. It may not be headline news – but you can bet it will have a major impact on our business and our industry.

 

 

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