CHICAGO — City officials recently celebrated the opening of the Encuentro Square development at the Logan Square and Hermosa border, an 89-unit affordable housing complex aimed at families making less than the area median income.
This project, which cost $67.5 million to construct, is indicative of the soaring costs associated with affordable housing developments in the city, a reality that has garnered attention from developers and housing advocates alike.
Lincoln Stannard, co-executive director for LUCHA, the organization behind Encuentro, expressed concern over the perception of high costs in affordable housing. He explained that these elevated expenses can create significant challenges for developers, complicating the process and ultimately limiting the ability to provide more affordable options for residents.
As the city grapples with affordable housing needs, Mayor Brandon Johnson’s administration has highlighted ongoing efforts towards the construction and funding of such projects.
Despite these advancements, experts emphasize that soaring costs, a competitive funding landscape, and complex approval processes necessitate additional measures to bring down construction prices and effectively tackle the city’s housing crisis.
### Inflation and Regulatory Challenges
Recent data underscores the alarming increase in costs for city-funded affordable housing since the onset of the pandemic.
According to insights from the Department of Housing, the cost per unit for affordable housing has nearly doubled from around $400,000 to approximately $750,000 between 2019 and 2024. Richard Day, who previously worked on the Economic and Neighborhood Development team under the Lori Lightfoot administration, pointed out that even luxury high-rise construction has not experienced such drastic price increases.
This disparity is primarily attributed to the more arduous requirements faced by developers pursuing affordable housing projects, which often involve more regulations and a lengthy review process. According to Daniel Kay Hertz, director of housing for Impact for Equity, the inflation of construction costs nationwide, combined with the need to comply with rigorous standards for projects using public funds, contributes to these heightened expenses.
Hertz elaborated on the complex financing landscape that affordable housing developers must navigate, particularly emphasizing the reliance on low-income housing tax credits from the federal government. These credits cover only a portion of building costs, requiring developers to seek additional funding sources.
The costs can be further compounded by lesser-known expenses such as legal fees, consultant charges, and environmental compliance in line with high building standards.
In addition, the lengthy application process for low-income housing tax credits—an essential funding mechanism—can deter potential developers. Successful applicants must also sell these credits to investors, requiring additional brokerage expenses that can further inflate unit prices.
### Burdensome Local Approval Processes
Affordable housing developments that utilize city funding must navigate a cumbersome approval process involving various local bodies.
These include the Community Development Commission, City Council finance committee, and full City Council, which often necessitates community engagement to appease local alderpeople who have significant influence over project approvals.
An example of this complexity is LUCHA’s current project aimed at converting a church in Logan Square into affordable housing. Having pursued this redevelopment since 2020, the project has obtained multiple City Council approvals but has also faced extensive regulatory layers.
Stannard mentioned that the project encompasses 11 different funding sources and highlights how intricate the city’s affordable housing financing system has become. With a total estimated cost of nearly $20 million, including land acquisition and renovations, the cost per unit rests around $520,000, a figure that raises concerns among advocates.
Efforts to create affordable housing continue to face scrutiny. In January 2024, Another affordable housing development named Fifth City Commons opened its doors, featuring 43 units along with community amenities, at a staggering total project cost of $38 million. This translates to approximately $884,000 per unit, prompting reactions from advocates who feel the expense reflects systemic issues in funding.
In another instance, a West Side project known as The Ave, which offers 52 units along with retail space, exhibited similar trends with a per-unit cost of $850,000.
### Calls for Regulatory Reform
David Doig, president of Chicago Neighborhood Initiatives, voiced concerns over the prohibitive costs tied to regulatory burdens affecting affordable housing developments. He argued that reducing the regulatory framework would significantly help lower project expenses.
Doig suggested that increasing the overall housing supply in the city could ameliorate affordability challenges as new developments are often required to include a minimum percentage of affordable units. He noted that market dynamics indicate that greater supply generally corresponds with lower prices.
### City Initiatives to Accelerate Affordable Housing Development
Progress has been made in the pursuit of affordable housing within Chicago, though experts contend it remains insufficient in the context of the growing demand.
According to Johnson, the recent groundbreaking of over 300 apartments across multiple South and West side developments marks an essential step forward. One of the major initiatives under his administration is the Cut the Tape plan, which aims to reconfigure zoning regulations and improve the approval process by streamlining administrative decisions.
The Green Social Housing plan, implemented recently, adds a vital tool by creating a city-run nonprofit to partner with developers for constructing environmentally friendly housing, with a minimum of 30% of units preserved as affordable.
Additionally, it allows access to lower-rate construction financing, thus augmenting the city’s ability to finance more projects and preserve existing affordable housing.
Johnson’s administration also secured a five-year, $1.25 billion bond deal aimed at reducing some of the restrictions imposed by federal funding, subsequently enabling diverse housing development initiatives.
As housing shortages continue to grow, this bond allows for a more flexible financing approach, with the potential for multifamily developments that support densification in neighborhoods traditionally impacted by housing instability.
Meanwhile, the city’s efforts are also complemented by the Missing Middle Infill Housing Initiative, which promotes the redevelopment of vacant lots for affordable housing. Through this program, developers can purchase land for merely $1 and receive substantial city assistance, facilitating the construction of affordable units.
### The Persistent Need for Action
Despite strides made within affordable housing, a March 2024 report from Housing Action Illinois and the National Low Income Housing Coalition revealed a staggering shortfall of over 126,000 affordable rental homes for the lowest-income residents in the city.
The proportion of affordable and available rental homes stands heavily skewed, with only 32 units available for every 100 extremely low-income renter households.
Johnson recognizes that filling the housing gap and reviving urban neighborhoods account for critical components of his administration’s agenda. He recently emphasized the need for innovative solutions, framing the issue of affordability as a pressing human rights concern of the contemporary era.
While the progress remains a work in progress, collaborative efforts among city officials, housing advocates, and developers are pivotal to refining affordable housing strategies and attaining the ambitious city goals.
Doig remarked that there is no one-size-fits-all solution, emphasizing the importance of diverse approaches working in tandem to address the multifaceted nature of Chicago’s housing challenges. He concluded that increasing the housing supply in a comprehensive manner, especially within the affordable sector, is crucial for the city’s future.
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