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On June 29, City staff held a community meeting to gather input on a proposed amendment to the City’s Inclusionary Housing Ordinance (IHO) and on potential sources of revenue to develop affordable housing. Approximately 55 people, including aldermen, housing advocates, community members, landlords, and developers attended the meeting.
The City’s current IHO was adopted in 2007 as a way to increase affordable housing in the City, but it “has not resulted in the development of any affordable housing units,” said Sarah Flax, the City’s housing and grants administrator. The purpose of the proposed amendments to the IHO is to expand its reach and hopefully to make an impact.
At the meeting, Ms. Flax summarized the need for affordable housing in Evanston and the proposed amendments to the IHO. Participants then held small group discussions, after which a representative of each group provided feedback on the requirements of the proposed amendments to the IHO, the proposed benefits to developers, and other potential sources of revenue for affordable housing.
The Need for Affordable Housing
“The need for affordable housing is pretty great in Evanston,” said Ms. Flax.
In 2000, 25.9% of all housing units in the City were affordable to purchasers whose income was 80% of the area household median income (AMHI) or to renters whose income was 60% of AMHI. By 2011, that percentage dropped to 15.4%, said Ms. Flax, citing data provided by the Illinois Housing Development Authority (IHDA).
The number of affordable housing units in Evanston dropped from 7,730 in 2000 to 4,434 in 2011, or by 43%, according to IHDA.
Another measure of affordability is to look at the percentage of income people in a community spend on housing. Ms. Flax said that 28% of Evanston renters and 10.2% of its homeowners spend more than 50% of their income on housing. These households are regarded as “severely cost burdened,” said Ms. Flax.
Expanding the Applicability of The City’s IHO
The City’s current IHO applies to new condominium or townhouse developments with 25 or more owner-occupied units. Under the ordinance, 10% of the total units must be “affordable units.” Twenty-five percent of the affordable units must be affordable to a household whose income is 80% of the area median income, as adjusted for household size ($60,800 for a family of four). The balance of the affordable units must be affordable to a household whose income is 100% of the AMI ($76,000 for a family of four).
The ordinance is thus geared to moderate- and middle-income households.
The proposed amendments to the IHO would expand its reach in several ways:
• First, the IHO would apply to developments of 10 or more units (rather than 25).
• Second, the IHO would apply to additional types of projects: new apartment buildings and condominium conversions (rather than just to new condominium and townhouse developments).
• Third, for projects funded with private funds, the percentage of units that must be affordable would remain at 10%; for projects funded with public funds the percentage would increase to 20%.
• Fourth, for owner-occupied units, the affordable units must be affordable to households earning 80% and 100% of AMI, in the percentages specified. For rental units, though, 50% of the affordable units would be required to be affordable to households with incomes at 30% of AMI ($24,250 for a family of four) and 50% to households with incomes at 60% of AMI ($45,600, for a family of four).
Reactions: Participants at the forum had differing views on these requirements. One group leader said there may be a benefit to providing housing affordable for households at different income levels in each development (i.e., 60/80/100% of AMI) because that would add diversity and balance. Another view is that providing housing affordable for households with income at 60% of AMI near transit stations is critical. One group noted there was no housing provided for households with incomes lower than 30% of AMI, which includes the working poor and some fixed-income seniors.
Some participants at the forum thought the percentage of affordable units required to be developed should be lower than 10% of the total units, maybe in the 7 to 8% range, but that it could be higher near transit areas. Some suggested that the percentage should be flexible and depend on the size of the development.
Some developers felt the ordinance would make it harder to secure financing for their projects, that their profits will be lower, and that it would discourage development. They pointed to Chicago’s new affordable housing ordinance that applies to developments of 10 units, saying there has been a lot of proposed developments with 9 units or less, and there is a rush to get projects approved before an Oct. 1 deadline.
The Size/Nature of Affordable Units
The proposed amendments provide that affordable units shall have a comparable number of bedrooms as market rate units, but would allow the affordable units to be smaller than market rate units. Currently, the affordable units must be substantially the same square footage as market rate units.
Reactions: Representatives of all groups who spoke on the issue said they thought it was acceptable for affordable units to be smaller than other units. One group leader said, “The developer could have some less costly amenities in the affordable units. Everybody doesn’t need granite countertops.”
The proposed amendments increase the amount of the fee-in-lieu of developing affordable housing units, which is currently $40,000. For developments in zoning districts for multi-family housing, City staff recommends that the fee in lieu be $75,000 per unit; and that in other zoning districts, the fee-in-lieu be $100,000 per unit.
Under the ordinance, a developer may also request that City Council allow it to build any required affordable housing units off site, at a different location in the City. A developer may also request that Council reduce the number of affordable units, based on clear and convincing evidence that it would be “financially infeasible” to full comply.
Reactions: Some participants thought that developers should not be permitted to opt out by paying a fee in lieu. Others thought if there was an opt out it should be limited to a portion of the required affordable units, say 25%, with the remaining units developed on site.
Assuming there is a fee-in-lieu, some participants thought the amount provided was at about the right amount, but others thought it should be $20,000, and others $200,000. Still others thought the amount should vary depending on the size of the project.
One group said they opposed allowing a developer to shift affordable units off site. They felt if developers could establish affordable units in a different location, it might end up clustering affordable units in one part of the City.
Some felt if off-site development were permitted, the developer should be required to construct two off-site units for every affordable unit required on site.
In order to provide incentives and to relieve the burden on developers, City staff propose that a developer be given certain benefits if they develop affordable units. “Many other cities across the country allow developer incentives for incorporating affordable housing units on site,” says the staff memo.
Staff recommends that a developer who provides affordable units be allowed to increase the height of a building by 10%, the floor area ratio (FAR) by 10% and the density by 20%, on top of existing maximum site development allowances.
In addition, staff recommends that the parking requirements for developments with affordable housing be reduced by between 0.5 and 0.75 parking spaces per unit, depending on the number of bedrooms per unit.
Developers would also receive a waiver of building permit and other fees for affordable units and would not be required to pay fees on the project until a certificate of occupancy is granted.
Ms. Flax gave examples of the impact of these incentives. Under one scenario, a developer could increase the size of a project from 75 to 114 units. If the development was owner-occupied, the developer’s return on investment would be 16.6% (with the affordable units, plus incentives) versus 17.9% (assuming no affordable units were created). If the development were rental, the net annual income would be 6.0% versus 6.2%.
Reactions: Many group leaders said there was a “need for incentives.” One group leader said, “There’s a real need for a carrot and a stick.” Another said, “There was universal support for more height and more density.” One proviso was that if the developer selected the fee-in-lieu option, then the incentives were “too generous.”
There appeared to be support for reducing the parking requirements, although one participant thought there should be at least one parking space per dwelling unit. Many groups supported requiring storage space for bicycles and making car-sharing available on site.
One group pointed out that there were a lot of incentives for developers of new properties, but “there are no perks” for local landlords who have scattered sites throughout the City. Landlords face a challenge: “How to stay affordable for local residents and how to stay solvent as a business.”
Other Sources to Fund Affordable Housing
City staff recommend that the City develop additional sources of revenue for affordable housing “to more equitably share the cost of addressing affordable housing needs” based on models being used in Fairfax County, Va.; Cambridge, Mass.; Boulder, Colo.; and Mann County, Calif.
Some of the potential sources include an “impact fee” on certain commercial or residential projects, a portion of real estate property taxes, and a real estate transfer tax.
Reactions: Many groups supported expanding the source of revenues for affordable housing. One group leader said, “One of the things we discussed at great length was how to make the fees equitable across the City so that single family owners would also be paying for affordable housing. We thought the easiest way to do that was through the real estate transfer tax. A percentage of that could be assigned to affordable housing.”
Another said, “The source of income for affordable units should be spread across all residents of the City, not just those in the affected developments, meaning there would be a transfer tax, maybe a slight increase in other kinds of revenues, so everybody in the City says, ‘we care about affordable housing and we’re contributing to it.’”
“The bottom line is everybody should help with affordable housing. It’s not just the developers. It’s not just the renters,” said another group leader. “All the citizens of Evanston, all the taxpayers in Evanston should help with affordable housing.”
One group suggested a small levy that could be put into a fund and that could be used to fund rent subsidies.
Ms. Flax said, “We’ll be consolidating all the information.” She added that staff welcomed other suggestions.
It is expected that City council will consider the proposed amendments in the next several months.