In 2023, Chicago spent $747,000 per unit to build new, city-supported affordable housing. That’s much higher than market rate developments and more than double the cost of new affordable units in Houston, the country’s next largest city ($328,000). Because federal funding is tied to population rather than costs, as expenses rise the city mechanically builds fewer units than it otherwise would. If we managed to build at Houston’s cost, Chicago could have housed 540 more low-income families in 2023 alone.
This eye-watering cost has spurred interest in new approaches. Last month, the city rolled out a green social housing proposal that would have the Chicago Department of Housing provide direct financing and take majority stakes in mixed-income projects. That would reduce the cost of capital for developers and eliminate expensive financing costs associated with federal tax credits.
This idea has a lot going for it. But to succeed, it will have to do more than lower the cost of capital. Remember, we’re spending more than twice as much per unit as Houston, which also relies on private market financing and federal tax credits. Something else is causing costs to spiral. Without addressing the problem head on, those same costs will kneecap efforts to build social housing as well.
So what makes city-funded affordable housing so expensive? Three key factors stand out:
First, overall construction costs in Chicago are far higher than peer cities. RSMeans, the industry standard, estimates that Chicago’s costs are 20% higher than the national average and 38% higher than Houston. You can chalk a lot of that up to long design reviews and block-by-block aldermanic control over new zoning approvals. The Urban Institute’s Yonah Freemark finds that 58% of new units permitted in Chicago are in planned developments, which require bespoke city and aldermanic approval.
As projects wait years for approval, high interest rates and rising material and labor costs take their toll. Crucially, this hamstrings market-rate and affordable developments alike, making our housing crisis worse at every level. Recent proposals from principled City Council members to proactively upzone major commercial corridors on Western Avenue and 35th Street (both approved) and Broadway (in progress) are signs of progress, but much more needs to be done to lower barriers to new construction.
Second, when the Housing Department awards funds for affordable developments, it does so without standardized scoring criteria and with almost no reference to costs. Once awards are made, it can take years to get through underwriting and subsequent city approvals — all while costs continue to rise. Chicago should learn from other agencies, including Texas and the Illinois Housing Development Authority, and award funding based on a standardized scorecard. A large chunk of the potential points on that scorecard should be tied to costs per unit.
Finally, in addition to a Byzantine funding process, the city adds a long list of requirements and preferences to affordable projects. Some of these are well-intentioned, like prioritizing projects that exceed existing environmental and Americans with Disabilities Act standards. Others are just bizarre, like specifying the number of lineal kitchen cabinet feet (upper and lower) for each apartment.
Individually, these conditions might be reasonable. But collectively, they are a recipe for highly specialized designs with eye-watering costs, paid for in the form of fewer units. And while a new net-zero apartment might be better for the climate than a new unit built to Chicago’s existing building code, that’s not the alternative on offer for low-income families.
The median home in Chicago is 72 years old. Chicagoans who qualify for affordable units are likely living in housing that’s older still. When we build fewer affordable units, we are making the choice to leave more seniors struggling up three flights of stairs, more families toughing out winters in poorly insulated homes and more toddlers chewing on window sills with chipping lead paint.
Instead of prioritizing triple-paned windows and on-site renewable energy generation and storage, the city should add scoring bonuses for projects that incorporate above-code sustainability or accessibility benefits at minimal additional cost. That, coupled with land use and building code reforms to accelerate the development of new housing in every ward, would make it less expensive to build new units — whether they are funded via tax credits, a social housing program or the private market.
We can build high-quality affordable housing at scale, or we can build specialized projects that gesture at a laundry-list of other laudable policy goals.
Pick one.
Richard Day writes about public policy in Chicago for A City That Works. He worked in the mayor’s office for the administration of Lori Lightfoot.
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