City of Chicago sued for affordable housing requirements

Hoyne Development and the Home Builders Association of Greater Chicago (HBAGC) association have filed a suit against Chicago over the city’s Affordable Requirements Ordinance (ARO). In its current iteration, this Ordinance requires developers that use government funding, purchase government land or seek a zoning change for buildings containing 10 or more units to include a proportion of affordable units or pay an in lieu fee.

Much Shelist, the law firm handling the plaintiff’s case, claims that Hoyne Development was unfairly targeted by the ARO and that, in general, the Ordinance is unconstitutional. In a statement about the case, plaintiff lead council Steven P. Blonder said, “The Fifth Amendment prohibits the taking of private property for public use without just compensation. The ARO Ordinance’s requirements are doing just that.”

Hoyne purchased land at Irving Park Road and Hoyne Avenue (a former Ford dealership, thus originally zoned for commercial use) in 2012, with the intention of changing the lot’s zoning from commercial to residential. The suit contends Hoyne petitioned for and obtained a permit from the City Council for construction of three separate buildings  two residential, and one residential and commercial. Each of the proposed buildings contain fewer than 10 units, thereby falling outside the jurisdiction of the ARO. By breaking his development into three buildings, Hoyne bypassed the Ordinance and avoided the requirement for affordable housing

In 2013, after issuing the original permits, the city determined that the three buildings constituted one development (probably because they were all financed by the same developer and were to be built on the same plot of land within a similar time-frame). Because the total number of units in all three buildings equals 14, the city required Hoyne to construct two affordable units or pay an in-lieu fee of $200,000 total to the affordable housing fund.

If this timeline is correct, Hoyne’s complaints are legitimate: the city is supposed to notify a developer of affordable housing requirements before a permit is issued. Further, when the number of required units is an uneven number, the rules of the ARO state the city will round to the nearest whole (up for anything above 0.5 and down for 0.4 and below). In the case of Hoyne, 1.4 units (calculated as the required 10 percent of total units) should be rounded down to one affordable unit, or a $100,000 fee.

The arguments against the ARO, however, are overblown.

Using the Fifth Amendment as the foundation of their argument, Much Shelist argues the ARO is a sort of excise tax and an undue burden. Hoyne (and any developer affected by the ARO) receives no monetary compensation for providing affordable housing. Developers lose money in the form of profit and (they allege) land in the form of non-market-rate units. All citizens are required to look after and support the public good in this country, but certain checks are in place (upheld by the Fifth Amendment) ensuring that individuals or certain parts of the population are not responsible for providing an unreasonable proportion of aid. By singling out developers, Shelist’s argument goes, the city is forcing an unreasonable proportion of the housing burden onto a small number of people.

The California Building Industry Association (CBIA) tried a similar argument in the California Supreme Court this spring. The suit challenged a 2010 ordinance in San Jose that required developers of owner-occupied homes to either dedicate 15 percent of units as affordable in developments that include 20 or more units or provide in-lieu fees for off-site housing. The CBIA said the ordinance violated their rights, and that there was no evidence that developments of 20 or more units had an adverse effect on local housing and, therefore, developers should not be compelled to construct affordable units. After a few rounds in lower courts, the case was presented in California’s Supreme Court. The judges examined a slew of precedents, local legislation and the area’s current housing needs. The majority opinion concluded the ordinance legal and not subject to scrutiny as unconstitutional. The ordinance is not an instance of government-taking, the opinion states, because there is a clear nexus between the act (developing housing) and the requirement (building affordable housing to mitigate local need). The proportionality of the requirement is also clear.

The concurrent opinion in the San Jose case upheld the majority with one caveat: that the required housing not be subsidized. Because there is a provision in the San Jose ordinance allowing developers to make design changes between the market rate and affordable units, there is room for developers to make profit, even in the less expensive units. This, he says, is key to maintaining the provision’s legality and constitutionality. 

Chicago’s current ordinance is very bare bones, and does not outline responsibilities of the city or developers past the monetary or development requirements. The new ARO (which goes into effect October 13, 2015) is more detailed. 

The language in this upcoming version of the ARO is similar to San Jose’s in that developers can choose whether to pay into a fund or to build on or even off-site housing; and the the city provides opportunity to win density bonuses, reduced parking requirements and increased building height. These extra incentives create flexibility and clear compensation for constructing affordable housing. Chicago also allows for design differences between units, as long as the materials used in affordable units are clean, new, and of comparable durability with market-rate units. By taking advantage of these concessions to style, developers can still reap a profit from the rent-controlled property; they do not have to rely on high rents in other units or properties to subsidize the potential lack of profit from affordable units. 

Further, as in the Supreme-Court-upheld San Jose case, Chicago developers only trigger the ARO if they want something from the city (such as new zoning, city funds or city-owned land), providing clear compensation.

The ARO is an effective way to create more affordable housing, a resource that is greatly needed by Chicago’s lower-income earners. It is not unconstitutional and any claims to the contrary will not be substantiated in court. 

 

 

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