April 12, 2021
BY LIZ BUTLER
The City of Chicago’s Affordable Requirements Ordinance, in its current form, has been in effect since 2015 (“2015 ARO”). On March 24, 2021, the Lightfoot administration introduced Ordinance 2021-1226 (“2021 ARO”), a proposal that would materially amend the 2015 ARO and significantly change the rules for developers of market rate housing in the City. The 2021 ARO is scheduled to go before the City Council Committee on Housing and Real Estate for a hearing on April 15, 2021, at 1 pm. If recommended for approval by the Committee, the 2021 ARO could be approved by the full City Council as soon as April 21, 2021.
Under the 2015 ARO, residential projects with 10 or more units that receive either a zoning change, City land or financial assistance, or are within a downtown planned development generally must provide 10 percent of units at affordable rates or pay a fee in lieu of building the required affordable units.
In 2017 and 2018, the City implemented the ARO Pilot program, establishing “ARO Pilot Areas” in three Chicago neighborhoods. The Pilots imposed enhanced affordable requirements in the Milwaukee Corridor, Near North/Near West, and Pilsen/Little Village in an effort to mitigate gentrification and displacement pressures.
In 2019, the Lightfoot administration formed the Inclusionary Housing Task Force to make recommendations for improvements to the ARO. The Task Force includes affordable housing advocates, neighborhood organizations, affordable housing builders, market-rate developers, elected officials, and other stakeholders. In September 2020, the Department of Housing (“DOH”) issued the Inclusionary Housing Task Force Staff Report, synthesizing the findings and recommendations of the Task Force. The Task Force Report foreshadowed significant revisions to the 2015 ARO.
The 2021 ARO, as introduced, incorporates many of the Task Force recommendations. The following are among the changes proposed by the 2021 ARO:
Expanded ARO Applicability Triggers
The 2021 ARO adds new triggers for applicability, making a wider range of residential projects subject to the ARO. New ARO triggers include:
- Certain administrative adjustments and variations
- Amendments or minor changes to planned developments, including to planned development subareas, that include transfers of floor area or residential density
- Planned development approval in any zoning district (even if the base zoning district does not change)
- A zoning change from a zoning district that does not allow residential uses on the ground floor of a building by right to a zoning district that allows residential uses on the ground floor as a special use
Enhanced Affordable Requirements
For those new developments that trigger the new requirements, the 2021 ARO will set the required percentage of affordable units based on the category of the residential project (rental or owner-occupied/condo), the location of the project, and the “target affordability level.”
The ARO Pilots increased the affordability requirement for covered residential projects from 10 percent to either 15 percent or 20 percent, depending on the project location and other factors. The 2021 ARO extends this enhancement by increasing the affordability requirement from 10 percent to 20 percent in downtown districts, in neighborhoods that are experiencing high levels of displacement of low-income residents, and in high-cost neighborhoods with low levels of affordable housing. In “low-moderate income areas” the 10 percent affordable requirement will remain the same.
The 2021 ARO also increases the percentage of units that must be built (from 25 percent to 50 percent) and reduces the quantity of units that may be waived by paying a fee in-lieu of providing the affordable units.
New Compliance Approaches
The 2021 ARO allows new flexibility for developers in designing an affordable requirements compliance strategy by allowing for “income averaging.” A developer may provide affordable units at multiple income levels, and may average the income levels to meet the “target affordability level.” Instead of providing 20 percent of units that are affordable to households earning 60 percent of the area median income (AMI), developers of rental projects may provide units at 50 percent of AMI or 40 percent of AMI, so long as the weighted average of all income levels meets the target affordability level. For example, the 20 percent affordable requirement could be reduced to 10 percent by providing units that are affordable to those earning 30 percent of AMI.
Developers may also reduce the required number of affordable units by providing affordable units with more bedrooms, subject to approval by the DOH Commissioner.
The 2021 ARO changes requirements for off-site units. Developers may still satisfy an affordable requirement by building required units off-site, however:
- Off-site units must be located in a downtown district, in neighborhoods that are experiencing high levels of displacement of low-income residents, and in high-cost neighborhoods with low levels of affordable housing
- Off-site units must include at least two bedrooms
- Off-site units must be located in a transit-served location if the triggering project is located in a transit-served location
2021 ARO Approval Process and Ordinance Effective Date
The 2021 ARO was introduced to City Council in March and has been referred to the Committee on Housing and Real Estate, chaired by Alderman Harry Osterman. The ordinance is currently scheduled to be presented at a committee hearing on April 15, 2021, at 1 pm. Written public comment on the ordinance will be accepted by the City through Wednesday April 14, 2021 at 1 pm. If the proposed ordinance receives a favorable recommendation at the committee hearing, it would then be forwarded for approval by the full City Council the following week.
Residential projects approved before October 1, 2021 will not be impacted by the 2021 ARO, provided that a building permit is applied for prior to October 1, 2025. Covered residential projects approved after October 1, 2021 will be subject to the new 2021 ARO rules. The ordinance, if approved, will go into effect October 1, 2021.
The full ordinance is available here for review.
Contact Liz Butler or any Elrod Friedman LLP attorney with questions on how the 2021 ARO update might impact your residential development.