Chicago is converting 25 Downtown office buildings to apartments this year — more such projects than the city has seen in the past 20 years combined, the Sun-Times reported in June.
This is welcome news, and we need more of it. Bloomberg and Axios have reported that Chicago rents are up more than 35% since before the pandemic, which outpaces other major cities over the same period.
Despite demand, these conversion projects struggle to launch in Chicago because developers face expensive affordability requirements, unnecessary building codes and excessive aldermanic power. Chicago leaders must remove these structural barriers that make Downtown conversions challenging in order to meaningfully add to the city’s housing supply.
Commercial-to-residential conversions can be completed faster than projects starting from the ground up. Vacant offices are often near transit, jobs and amenities that make them desirable locations and ideal for tenants. Turning commercial corridors into mixed-use districts can make Downtown feel like a community, not just a workplace.
When the COVID-19 pandemic began, Chicago’s Downtown office vacancy rate hovered around 13.8%, according to Crain’s Chicago Business. It reached 28% recently, a slight dip from the 28.6% record high it hit in the first quarter of 2026.
The 25 projects underway Downtown will replace around 4 million square feet of vacant office space with over 3,900 units of housing. It’s a good start. Researchers estimate the state needs to double its current production rates to keep up with demand.
Not worth the hassle
Commercial-to-residential conversions frequently don’t “pencil out,” David Lapidus, a mid-rise, mixed-use developer and housing advocate in Chicago, told me.
“Until recently, the economics just didn’t work,” he said. “Between all the death-by-a-thousand-cuts city requirements related to zoning or building code, it just wasn’t worth the hassle.”
One of the biggest challenges to housing development in Chicago has been the Affordable Requirements Ordinance, which mandates that a certain percentage of units in new multifamily housing developments be rent-capped for at least 30 years.
In an analysis I completed with a colleague at Illinois Policy, we estimated that restrictions created by the Affordable Requirements Ordinance and related regulations discouraged housing development and left Chicago with roughly 43,600 fewer potential market-rate housing units between 2016 and 2023 than it otherwise could have added.
Commercial-to-residential conversions frequently need zoning adjustments, which trigger the affordable requirements. By restricting the rent that can be collected on units in pricey neighborhoods, without adequate relief from other government programs for developers, the Affordable Requirements Ordinance reduces a project’s expected financial return.
“Developers are going to have more trouble raising equity or justifying the project on a risk-adjusted basis in general over many potential projects,” Lapidus said, noting the program’s effects run opposite its “noble equity” goals.
If Chicago wants more housing, solving the financial challenges for developers — such as by scaling back or eliminating the Affordable Requirements Ordinance — will be critical.
Complicated building codes
These financial challenges are amplified by Chicago’s complicated, expensive and frequently unnecessary building codes.
Lapidus said he worked on a five-story conversion to residential years ago in Chicago’s Loop that was tall enough to trigger elevator requirements but not large enough to easily absorb the added cost of the larger and overbuilt elevator systems required by city and state codes. In Europe, less onerous elevator code requirements are more common for mid-rise buildings.
Complications with Chicago and Illinois elevator codes “made that very challenging and added a lot of cost and lost a lot of potential usable residential square footage for the project,” while the inspection process added delays and requirements beyond what had been included in the original scope of work, with “unclear benefit for the public,” Lapidus said.
Changes to the building codes could remove complications and reduce costs on many fronts.
For example, developers aren’t allowed to use PVC pipe for drain, waste and vent in projects over 60 feet in Chicago. Until 2021, they weren’t permitted to use it at all, forcing them to turn to expensive copper or cast iron pipes that Lapidus said could add 5% to the project cost.
Chicago is considering building code reforms that would introduce more flexibility, but they’re mostly aimed at new developments. Code revisions that remove regulations affecting commercial conversions and large developments are important to appreciably increase housing.
Finally, Lapidus said, aldermanic preferences can still lead to projects not being allowed to proceed. Chicago has a long-standing tradition of “aldermanic prerogative,” meaning the local alderperson generally can nix any development plans in their ward.
“The alders are very, very powerful,” Lapidus said. “They can essentially have planning veto on most projects in their ward.” Alderpersons who don’t want commercial conversions in their ward find a way to prevent them based on “neighborhood character.”
By restricting those kinds of conversions with aldermanic prerogative, Chicago is undermining its own affordable-housing goals.
Between the ineffective affordability requirements, burdensome building codes and bureaucratic holdups, it is clear that the biggest obstacle to housing abundance in Chicago is the city itself.
LyLena D. Estabine is the senior policy analyst at the Illinois Policy Institute.