Chicago to test ADUs: coach houses, attic and basement apartments

With housing issues in the city and region, Chicago is testing out several ways property owners can convert parts of their property into residences:

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Coach houses – stand-alone housing structures sometimes built above garages and sometimes referred to as “granny flats” – were once prevalent in Chicago, but changes in zoning and parking requirements caused their construction to be banned in 1957. In December, the Chicago City Council re-legalized coach houses and apartment units in basements and attics, passing the Affordable Dwelling Units Ordinance. The ordinance took effect May 1, and the city is now accepting applications.

The five pilot areas cover much of the city, with zones in the north, northwest, west, south, and southeast areas of Chicago. After a three-year evaluation period in these pilot zones, the city will decide whether to make the ordinance citywide policy…

For properties planning to construct two or more additional dwelling units, every other unit must be affordable housing.

This opens up new opportunities both for property owners and those searching for housing. For landlords, they can gain more income, house family members, or create new space on their property that people could live in later. For those needing housing, these are likely smaller spaces that could provide dwellings in residential neighborhoods and possibly help keep such housing more affordable with more units available.

But, how many of these units will be created? Property owners might not like the idea of someone living so close to them. It takes money to create these units. The density of residential neighborhoods is important to many single-family home owners; they often want more space. Does this create more demand for parking and vehicles? Could this lead to tension on a block if some want to add units and neighbors are not as bullish on the prospects?

Furthermore, do these efforts continue to concentrate wealth and opportunities in the hands of particular land owners who can afford to create and rent units? Will this truly lead to more cheap housing or will certain neighborhoods have more of these units at higher prices?

Will those who won COVID-19 housing bidding wars want to ease the path for others?

Henry Grabar puts forth an interesting idea: the many bidding wars of housing during COVID-19 might help many push for more housing so that others do not have to go through such a process.

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Sadly, those who win these all-out bidding wars will probably, suddenly feel that there is enough housing, and yes, we need affordable housing, but really affordable housing, you know? (And not here!)

But for every winner there will be many losers, and maybe the process can radicalize these would-be buyers, and their friends, and their parents, and the people they talk to. There really aren’t enough places to live. Those people can channel their frustration with bidding wars into political activism aimed at housing suppressants like parking requirements, restrictive zoning, and density limits. If appeals to neither historical wrongs nor economic growth get the job done, a strong dose of self-interest can’t hurt.

Here are three reasons why I would not hold my breath waiting for the successful homeowners to advocate for cheaper housing:

  1. Americans often subscribe to the idea that their individual successes are due to their actions, not necessarily due to systems. The winners of individual bidding wars can talk about the particular factors that led to their success. Those who did not win can adjust their individual strategies. It is a leap for many to think that their individual choices matter less than the conditions that empower or constrain their choices. (Site note: this sounds like explaining the basics of sociology in an individualistic society.)
  2. Suburbanites for decades moved into subdivisions and communities and then limited similar opportunities for others. The postwar suburban boom did not provide opportunities for all in a variety of ways. This could come out this way: people might yearn for and then move into a new development but subsequently complain about similar developments proposed right around them as a potential threat to their way of life. Can suburbs be frozen in time at the point at which people first moved in? Or, are suburbs and all communities in some sort of constant flux? Combine this with #1 and I could imagine some saying, “We bid successfully, we do not necessarily want a lot more of people like us being successful because this would change the community we bought into, and now we will resist future efforts.”
  3. Regarding putting pressure on politicians and others: how many homeowners were in this position and how would they join together in a movement? Housing is very difficult to address at a national level because of local particularities and politics. At the local level, proposals often run into issues with #1 and #2 above. People may be in support of the abstract notion of more housing or cheaper housing but they often prefer it somewhere else. Significant social and/or political change often requires tipping points or catalysts whereby interests come together and action is possible. COVID-19 could be one of those situations for housing but it would require much sustain effort.

Considering whether a $300,000 home is affordable or attainable, Naperville edition

The approval of a new development in Naperville touches on a broader topic in the suburb in recent months: affordable housing. Who would be able to purchase a residence in the 200+ units?

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Councilman Patrick Kelly, the lone dissenting vote, objected to the lack of affordable housing in the 227-unit development, a “missed opportunity” that could have helped efforts to diversify the city’s housing stock.

State law requires 10% of a town’s housing supply to qualify as affordable. Naperville falls shorts at an estimated 7.5%…

The townhouses will be priced from the $300,000s. While the project doesn’t provide, by definition, affordable housing, Councilwoman Judith Brodhead said it “does fit the category of attainable housing.”

“Certainly, there’s not new construction, anything that you can find in north Naperville, in that kind of price range,” Whitaker said.

Much of the opposition to the proposal for an empty piece of land has centered on the possible environmental impacts. The property in question backs up to a Forest Preserve and there are bird and animal habitats nearby.

But, the affordable housing question is an interesting one. In wealthier suburbs, affordable housing does not necessarily mean housing for poorer residents. Such communities could not like affordable reasons for a number of reasons including who might live there and how smaller and/or cheaper homes might affect other homes in the community.

And there are ways to push off affordable housing. For example, zoning in particular ways can limit the number of residences that are cheaper. Another way is to recast what affordable housing is. Remarks, like the one above in the quoted section, are not unknown in Naperville. See this example from last July. Naperville is a desirable community: it is wealthy, has good schools, has an exciting suburban downtown, has lots of parks. Even as a large suburb, it has a lofty status. According to 2019 Census estimates, the median home value is over $416,000.

With all of this, a townhouse at $300,000 is a lower price. Units on this kind of land in a community like Naperville could go for a lot more. Yet, is $300,000 attainable for all the people who want to live in Naperville? Or, the people who work in Naperville? It is cheaper – but is it affordable?

There are limited ways to force suburbs like Naperville to construct housing that is affordable. President Biden wants to offer more carrots in this area. Public pressure from residents and organizations could push Naperville leaders to address this more fully. Naperville has served as a center of suburban protests before. But, there will always be questions of how such units would fit with the character of the existing community, what it means for existing units and residents, and who might live in such housing.

Developers not willing to build a particular Chicago project because of affordable housing requirements?

Chicago, like many American cities, asks developers of particular projects to include a portion of the space for affordable housing. But, developers argue this may make an entire project not worth their while. Here is a recent example from proposed developments on Chicago’s North Side:

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But those fees and the sites’ location within a pilot area where there are higher affordable-housing requirements – 20%, all on-site – have made some projects difficult to finance. The 700 W. Chicago project also has been made more difficult by the COVID-19 pandemic, which leaves a record level of vacant office space in downtown Chicago…

Omni Group appears to have been able to overcome financing challenges in part because it negotiated a lower purchase price for the site – $38 million, down from an initial $50 million deal with Greyhound – in response to the affordable-unit requirements

The firm is also known for keeping apartment buildings it develops, rather than selling them after they’re built and filled with renters. The decades-long investment strategy may help offset the 500-plus affordable units, which typically lose money for developers because of high construction costs.

The affordable housing requirements are not the only factor at work here but they are a regular part of proposals in many locations. The goal is to have some of the benefits of a new development in a desirable urban location – a valuable asset – address the important issue of affordable housing. If developers have no or little interest in constructing affordable housing on its own, the construction of desirable projects can still help lead to affordable housing.

What would be very interesting to know is how exactly the money, including financing, costs, and profits, works out with the requirements for affordable housing. Can the developers here not make any money or does it reduce their profits below acceptable levels? It is one thing if money will be lost but another if the affordable housing requirements limit the profit. How much return do they expect on a large project like this? Is the goodwill of participating in providing affordable housing worth anything (status, money down the road, favorable approaches to future projects, etc.)? While this is likely firm-specific proprietary information, I imagine some money still could be made.

Fighting zoning restrictions with “carrot, no stick” approach

The Biden administration has plans to encourage more housing by offering infrastructure money for loosening zoning regulations:

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The Biden proposal would set up a $5 billion fund for local governments to compete for grants to pay for new schools, roads or bridges if they agreed to loosen zoning rules.

“This is a new approach that is purely carrot, no stick,” said a White House official on condition of anonymity…

Trump himself explicitly campaigned against the idea last year, warning “suburban housewives” that crime would spike and home values drop if zoning rules were relaxed.

Housing experts praised Biden’s proposal, but said it may do little to influence affluent communities that have the tightest zoning laws, which have little need for federal assistance.

It will be interesting to see which communities would accept the carrot and loosen zoning. My guess: suburban communities that are already in the midst of demographic and community change and looking for funds that could help point the community in a particular direction.

Asking in San Francisco why a McMansion is allowed but a fourplex is not

McMansions may not just be undesirable on their own. If a McMansion is built, another kind of dwelling is not. One proposal in San Francisco aims to address this:

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He will introduce an ordinance making it much harder to build giant homes — the ones increasingly dotting the hillsides above Glen Park that many San Franciscans deride as monster homes or McMansions, but which are perfectly legal to build.

He will also ask the city attorney to draft legislation making it legal for any corner lot in the city that’s currently slated for one home to allow up to four units. And, most significantly, the legislation will allow any parcel within a half mile of a major transit stop like the Glen Park BART Station to be converted into a fourplex — corner property or not. The extra units could be rented or sold.

Yes, in large swaths of San Francisco — this supposedly progressive bastion — it’s currently legal to build an enormous, over-the-top house for one family, but illegal to build a small apartment building of the same size for four families.

This question plagues many desirable neighborhoods in big cities and suburbs: should anything that disturbs the existing character and/or property values be allowed? If this is the driving question, a McMansion might be a threat because it is a different kind of home – derided by critics as too big, architecturally incoherent – compared to what is already there. At the same time, the McMansion is still a single-family home. If that single-family home was replaced by a multi-family unit, residents then express concerns about increasing densities. They might also have concerns about renters moving into what was a neighborhood of homeowners as many Americans assume renters are less committed to their community.

And, as the article notes, making changes like this often means neighborhood by neighborhood conversations to consider the implications. Will a change have different impacts in different communities? What might be some of the unintended consequences? What will neighborhoods look like in a few decades with changes?

San Francisco may have a particular need for solutions but so do many other locations. The answers might come slowly on a case-by-case basis.

Finding housing in former strip malls and big box stores in California

In a state with a need for cheaper housing, some in California are looking to commercial properties along main roads:

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Joe DiStefano sees boulevards like El Camino Real as more than just spots for takeout or an oil change. He sees a “perfect storm of opportunity.” Cofounder and CEO of UrbanFootprint, a software company that builds urban planning tools, DiStefano has done numerous studies on the housing potential hiding in California’s commercial strips. According to UrbanFootprint’s analysis of El Camino Real, this lone corridor could theoretically accommodate more than 300,000 new units if the road was upzoned to allow residential development and its parking lots and big-box stores became low-rise apartment complexes…

Converting underutilized retail and office space into apartments is not a novel idea, but it’s gaining fresh attention from California lawmakers, especially as pandemic-fueled e-commerce and remote work trends continue to empty brick-and-mortar stores and business parks across the state. In December, California State Senator Anna Caballero, who represents the Central and Salinas valleys and cities such as Merced, helped introduce Senate Bill 6, which would fast-track the creation of walkable infill development and make it easier to turn land zoned for commercial uses into housing. Another member of the state’s legislature, Assemblymember Richard Bloom, has a similar proposal to encourage commercial-to-residential conversions, Assembly Bill 115. (California has a bicameral legislature.) And Senator Anthony Portantino introduced AB15, which would incentivize turning vacant big box sites into workforce housing…

But more than 40% of commercial zones in California’s 50 largest metros prohibit residential development, according to a recent report from the Terner Center for Housing Innovation at Berkeley. “Residential Redevelopment of Commercially Zoned Land in California” highlights the growing potential of such rezoning proposals. “It’s a perfect infill option,” says David Garcia, a co-author and policy director at the Terner Center. While legislation like these proposed bills hasn’t been passed in other states, he believes they address a universal problem. “You’re really plugging in gaps left by shifts in the commercial marketplace, by Covid and the shift to e-commerce.”

There are three main types of projects ripe for this kind of reuse, Garcia says: commercial strips in more urban areas, often along existing transit lines; former big box retailers in more suburban areas; and vacant land in the exurban landscape that’s been reserved for future development. Researchers found there was actually more acreage of available commercial space per person in more suburban/outlier areas, an opportunity that, if paired with increased investment in transit, could quickly bring more density and valuable walkable development to fast-growing and diversifying suburban centers, some of which have already done a relatively good job of building new housing. “Instead of thinking about a bill like this as another state mandate cities need to adhere to, it should be looked at as a tool for doing the good planning they need to do anyways,” Garcia says. 

This might be hard sell before COVID-19 but the severe issues for retailers and businesses may make a lot of properties available.

Even with these issues, I wonder how many communities would quickly give up commercial properties to be rezoned for residential use. Many communities rely on commercial properties along major roads for sales tax revenue. If commercial property disappears from the local zoning map, how would a community make up those revenues?

Of course, providing possibly cheaper housing could be desirable to residents, even if it comes at the expense of commercial properties. And new residential units might even revive some local commercial activity.

If this is enabled at the state level, it would be interesting to see how quickly communities and developers would move. Vacant property is not desirable for any municipality. Would this move more quickly in certain kinds of communities compared to others?

Rent prices down in Chicago during 2020

Several sources suggest rent dropped in Chicago during this past year:

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And she’s not alone; in Chicago, rents dropped by almost 12% in December compared to December 2019, according to a new report from Apartment List, a website for apartment rentals. Average rent was $1,355 in Chicago a year ago; it fell to $1,193 in December.

Zillow data, too, marked the starkest plunge in year-over-year rental prices in the Chicago metropolitan area since it began analyzing national rents in 2014, with a decline starting in July and continuing through the latter half of the year.

Zillow reported a 2.2% decline in Chicago-area rents in November compared to a year earlier. When including the suburbs, Apartment List’s figures — which the service claims is more closely aligned to U.S. Census Bureau data — showed a similar decline of 6%, suggesting the suburban markets have not been as hard hit as the city.

Chicago was among the most severely impacted cities when it came to falling rents, said Rob Warnock, who co-authored the Apartment List study. Due to the pandemic, more expensive cities with competitive job markets saw rent decline — many for the first time in a decade.

It is good to see more data on the effects of COVID-19 on housing. As the article suggests, even a small drop in rents could be helpful for people in more uncertain economic times. This is not a big drop percentage-wise in Chicago, particularly compared to larger drops in Manhattan or San Francisco, but the Chicago market as not as overheated as some locations.

At the same time, it would be fascinating to see more detailed data addressing:

  1. Within cities and metropolitan regions, where have rents dropped, stayed about the same, or risen? And how does this line up with other social patterns?
  2. How much longer can renters and landlords continue on this path? How might this matter by location, different kinds of housing, and different landlords?
  3. Does this do anything to help address long-standing affordable housing issues in Chicago or is it a slight blip?

Some of these will take time to resolve as will the question of whether rents will go back at some point. In the meantime, many people in many communities are affected by these changes.

The billions owed in back rent in the United States because of COVID-19

Estimates for how much Americans owe in rent because of COVID-19 are in the tens of billions:

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Estimates for the nation’s total rent shortfall on Jan. 1 range in the tens of billions of dollars, potentially exceeding the amount of emergency rental assistance that Congress may or may not deliver over the next few weeks. If lawmakers fail to act, the New Year could trigger a long-feared disaster — an avalanche of evictions during the dead of winter, as the pandemic rages.

Back rent owed by struggling U.S. households — about 11.4 million renters in all — averages about $6,000 per household, or around three-and-a-half months’ rent, according to Mark Zandi, chief economist for Moody’s Analytics. Most of it has accrued since the expanded unemployment benefits under the CARES Act expired over the summer.

“These are low-income households,” he says. “They’ve probably already borrowed as much as they can from family or friends. They have no resources left.”…

The National Council of State Housing Agencies commissioned its own report on the nation’s overdue rent, arriving at a figure of $34 billion back in September. Stout, the global advisory firm that produced the report, has since issued a biweekly report on households facing eviction, drawing on data from the Census Bureau’s American Community Survey and its weekly Household Pulse Survey. Stout’s tracker currently estimates that 7–14 million households will face eviction for nonpayment in January, with rental arrears totaling between $13–24 billion.

Even if COVID-19 ended tomorrow or the vaccine is quickly distributed, administered, and effective, this is a lingering effect that will take a long time to work through. It will affect renters, landlords, other actors in the real estate market (including lenders and investors) as well as communities if there are unpaid bills and/or people left without housing.

Even as the media coverage of this issue might focus on certain housing markets, the effects could stretch across many markets. Imagine the priciest markets: with high rents to start, how can people make up the money if they do not have jobs or the same income or how could they easily find housing? But, the cheaper markets may run into similar problems: if you cannot afford to pay back rent, how many cheaper housing options or replacement housing options could people find? Given the possibility of regional differences, this might mean more local units of government – states, municipalities – could provide different options that better address local circumstances.

More broadly, this hints at ongoing housing issues that seem to get little attention. Housing is a foundational, daily issue for many and COVID-19 just exacerbates existing issues. Relief money from the federal government may provide temporary help but housing costs and quality need attention in many places.

Do not forget the thousands of public housing units lost

With comments from a variety of experts addressing housing issues connected to COVID-19 and other social factors, I noticed the last expert cited provided a reminder about lost public housing units:

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“There’s a lot of talk about a universal voucher program in housing and entitlements, which would be a game changer for family homelessness, but you still have the problem of there not being enough places for people to rent,” Popkin said. “So we need to push both on the supply side and on the increased assistance side.

”Funding could go toward replacing tens of thousands of public housing residences lost between the ’80s and now, whether it be with new construction or renovating older buildings, she said.

“I’d like to see them built in a thoughtful way that doesn’t repeat the mistakes of the past,” she said.

The demolition of public housing high-rises in Chicago and numerous other big American cities had multiple effects. One of the stated goals was to help deconcentrate poverty. By moving public housing residents into other neighborhoods, it was hoped this would help their life chances.

But, this has not worked as well as might have been hoped. If the goal was simply to remove an eyesore in the city and push problems with housing and poverty out of the public eye, mission accomplished. The stigma of such projects disappeared with their demolition. Some of the land, when it was in desirable locations, was redeveloped. If the goal was to help people find good housing and attain more opportunities, this would involve a more robust approach to building and making available good housing. In Chicago, there were promises to provide for better lives and build more units…and it did not happen.

Just because the public housing high-rises are not visible in many locations does mean there is not need for cheaper yet quality housing. Americans do not have much stomach for public housing but the need is there to be addressed.