How Rental Affordability Can Be Addressed in Chicago
As part of our ongoing coverage of housing affordability in Englewood, our City Bureau fellowship group takes a look at strategies used in Chicago and around the country.
Rental affordability is a critical issue in Chicago. For rent to be considered affordable, federal guidelines say it must cost tenants no more than 30 percent of their income, though some have questioned the validity of that metric when it comes to people on the low end of the income scale. Currently, more than half of renters in Chicago are spending more than 30 percent of their income on rent and are considered rent-burdened. The city of Chicago has approached the issue with a handful of strategies that either address the supply side of the shortage with production subsidies or the demand side of affordability with vouchers.
Affordable Requirements Ordinance
Through its Affordable Requirements Ordinance, the City of Chicago requires that any residential development project that receives financial assistance or is developed on city-owned land maintain at least 10 percent of its units at affordable prices. Affordable housing under this ordinance means that the rent must be affordable for households earning up to 60 percent of the Area Median Income (AMI), and affordability is specifically defined by rent limits for various incomes. The program lists 263 affordable rental housing developments that the city supports, amounting to 19,189 units.
Tax Credits and Block Grants
State-allocated tax credits and block grants make up the bulk of the efforts to expand affordable housing. The Home Investment Partnership Program (HOME) is a block grant that allocates funds to state and local governments to acquire, build and preserve affordable rental units. The Low-Income Housing Tax Credit (LIHTC) gives federal funds to the states to offer annual tax credits to offer to developers who build or upgrade housing that qualifies as low or moderate rent levels.
The Illinois Affordable Housing Tax Credit (IAHTC) is supported by the City of Chicago as one of its key strategies for producing a supply of affordable housing. The IAHTC offers a 50 percent state income tax credit for each dollar contributed to a qualifying affordable housing project.
The supply of existing affordable units is often diminished by issues like foreclosures, expiring federal subsidies and demolition. Rather than focusing on the production of new affordable units, preservation strategies prevent the degradation of existing housing.
The Cook County Preservation Compact was formed in 2005 as a coalition of public sector and private sector leaders working to stem the loss of affordable housing by finding preservation strategies tailored to the Chicago area’s unique problems. The Compact found two key factors made affordable rental housing difficult to maintain in Chicago: property taxes and utility costs. The coalition’s strategy for affordable housing hinged on having property taxes for multi-family homes assessed at the same rates as single-family homes and offering property owners technical assistance for making energy-efficiency improvements on their units to reduce utility prices.
Similarly, the Massachusetts Capital Improvement and Preservation Fund seeks to preserve affordable housing units by funding the rehabilitation of properties that are at risk of losing affordable units due to prepayment. Eligible units must be affordable for tenants at or below 80 percent of AMI.
Housing trust funds seek to address both preservation and production of affordable rental units and are usually financed by real estate transfer taxes, document recording fees, developer taxes and Tax Increment Financing (TIF).
The Massachusetts Affordable Housing Trust Fund offers flexible options for assistance, ranging from low to no-interest loans, to subsidies up to $50,000 per affordable unit. Similarly, the Washington State Housing Trust Fund offers grants and loans to local governments and nonprofits for developing, rehabilitating and preserving affordable rental housing.
Opportunity-Rich Affordable Rent
Hanging over Chicago’s past in affordable rent is a set of public housing policies that pigeonholed the city’s poor into segregated housing projects, most notably the Cabrini-Green homes. Newer strategies attempt to create mixed-income developments that support affordable rent in locations that are considered rich in opportunity. Chicago now offers incentives to developers who build more than half of their required affordable housing units in locations that are nearby public transit.
The Commercial Area Transit Housing Node Program (CATNHP) in Massachusetts has similar goals. CATNHP provides financial incentives to developers that create buildings with over half of their units affordable to families that earn 80 percent of AMI that are also within a quarter mile of a transit station.
On the demand side, the main strategy for making rent affordable is Housing Choice Voucher Program, also known as Section 8. Section 8 is a market-based solution that offers vouchers to low-income families, with the goal of preventing the concentration of low-income renters in poor and minority neighborhoods. A tenant occupying an eligible property pays a maximum of 30 percent of their income for rent, while Section 8 pays the difference.
Alternative strategies have been employed by communities that feel disenfranchised by the failure of the state to make rent affordable to low-income families.
Washington Inner-city Self Help (WISH) was a community organization based in D.C. that helped tenants to collectively purchase their buildings from their landlords. They formed limited-equity co-ops that were affordable to low-income families, with low rent that was sustainable due to restrictions on resale prices.
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