The Middle Ground: The Next Great Opportunity for Chicago Multifamily
Like other metros, Chicago is in the midst of an apartment boom where the hum of multifamily construction has become commonplace. In fact, approximately 8,000 new rental units are slated to deliver by the end of next year, according to Appraisal Research Counselors. Nearly 4,000 units are expected to deliver in 2019.
The majority of this multifamily construction is concentrated on Class A rental high-rises. SixForty (640 N. Wells St.) by JDL Development and 8 E. Huron by CA Ventures — both of which The Habitat Co. will be managing — aim to meet the demand of those looking to be closer to the influx of new businesses moving downtown, as well as an urban lifestyle with robust dining and entertainment options.
Like its metro counterparts, Chicago has become a city of renters. According to Harvard University’s Joint Center for Housing Studies, the U.S. homeownership rate hovered at just 64 percent at the start of 2017, following 12 years of decline, while the number of renters continued its upswing.
In the past five years, an average of 1 million new renter households were formed every year, per the National Multifamily Housing Council.
Indeed, these have been good years for those in the luxury apartment industry. But something will be missing from Chicago’s new expanded skyline when the dust settles after this wave of new construction — affordable options to help the majority of renters. Findings from the Joint Center for Housing Studies note that more than half of renters nationwide are paying more than 30 percent of their income on housing costs — the threshold where costs become a burden to families.
All these market factors have set the stage for the next great multifamily opportunity in Chicago: affordable housing for a wider range of income levels. What’s happened in this economic cycle is that the upper end is well supplied (some have even suggested oversupplied), yet the middle of the pack is underserved.
On a statistical metric, people who are at 60 percent area median income (AMI) and below, or even up to 80 percent AMI ($50,600 for a two-
person household in the Chicago area), are eligible for some type of relief on their housing costs — either through a voucher or reduced rents created through federal tax credit equity.
But once people are above 80 percent AMI, you’d be hard-pressed to find a single person or a family that can afford to live in a new downtown Chicago apartment built within the last decade. Even rental towers less than 10 years old are being renovated to command higher rents.
Other metros like New York and San Francisco have been leaders in the workforce housing space, so perhaps we should look at their playbooks.
The San Francisco Housing Accelerator Fund is a public-private partnership of the city, local grantmaking foundations, private lenders and corporations that can accept and distribute private capital for affordable housing. Meanwhile, on the East Coast, the newly named Affordable New York Housing Program is expected to create 2,500 units of affordable housing for poor, working-class and middle-class New Yorkers each year.
In Chicago, there’s no formal housing assistance program to support the families that have truly been priced out of the market. Why not move forward to emulate some of the initiatives set forth by San Francisco and New York in coming up with collaborative solutions to address the middle of the market?
Finding the solution
As the largest property manager for the Chicago Housing Authority (CHA), and one of the largest multifamily developers, owners and managers in the country that works with housing for all income levels, Habitat is in a position to help contribute to the solution.
We’ve already started to bring partners to the table to begin the conversation and work toward solutions with the city of Chicago, the Illinois Housing Development Authority and the CHA.
Our initial discussions have centered around trying to model a program based on other cities’ workforce housing programs in a cooperative effort to try to address, even in a small way, that 80 percent up to at least 120 percent AMI (or $75,840 for a two-person household) segment of the population.
An affordable path to housing is truly missing in Chicago for these hard-working families, whether they be police officers, firefighters, teachers or other professions. These are the people who help make Chicago a great place to live, yet they are too often renting beyond their means — spending more than one-third of their income on housing.
To help Chicago address this void, we will need buy-in from all of our partners on the local and federal level. When successfully executed, multifamily development is beneficial to all parties, including the local economy.
Beyond the construction and operational jobs created, the money invested in these new developments and then generated by residents recycles through the economy many times over. It has a positive ripple effect that can be felt years after a project’s completion.
So, let’s start working on a solution. Who’s with us?
— By Matt Fiascone, President, The Habitat Co. This article first appeared in the September 2017 issue of Heartland Real Estate Business magazine.