Getting Ready for a Changing Market

Experts gathered at the “Rental Housing in the New Economy” conference to discuss and plan for how to best protect Cook County’s affordable rental housing stock

By Carl Vogel

Rebounding from the crash, the real estate market is in the midst of another big change, one that has deep implications for affordable rental housing in Chicago and the surrounding suburbs, for quality of life in our neighborhoods, and, in many ways, for the economic and competitive future of the city and region.

That big picture was the frame for the presentations and conversation throughout “Rental Housing in the New Economy,” a daylong conference on July 18 on the UIC campus. Sponsored by The Preservation Compact, the event brought together more than 250 government officials, housing advocates, community developers, academics, building owners and foundation officers to discuss key issues in the current market for affordable rental housing in Cook County and what it will take to preserve this important asset.

“Within the context of a big vision for jobs and growth and trends for the entire economy, where does the drive to preserve affordable housing fit?” asked Julia Stasch, the vice president of U.S. programs for the John D. and Catherine T. MacArthur Foundation, in the morning remarks. “Stable, affordable housing is an essential platform for people to be able to take advantage of training, feel confident that their kids will do well in school, and be likely to benefit from other investments we make.”

In his keynote address for the conference, Richard Florida, author of The Rise of the Creative Class, professor at the University of Toronto and co-founder of the website Atlantic Cities, made a similar point. In what he characterized as the biggest economic transformation of all time, cities are an essential platform for the creative, knowledge economy and rental housing is an important ingredient in a region’s competitiveness. He even cited a specific target (about 45 percent) of how much of a local population should be renters for a healthy knowledge economy.

Florida argued strongly, however, that the type of “class clustering on steroids” that is starting to occur in cities like Chicago is a very dangerous road. “[The rising popularity of cities] puts enormous pressure on affordable housing,” he said. “Rental housing is going to be an increasingly important part of our social bargain.”

Preservation of Affordable Stock

Despite the importance of affordable rental housing, the reality is that the Chicago region is facing a mismatch between demand and supply. Jack Markowski, the president of Community Investment Corporation and the chair of The Preservation Compact, gave the statistics in his morning presentation.

More than half of renter households in the Chicago area pay more than 30 percent of their income in rent, considered the limit for affordability. For households making less than $30,000 annually, that figure shoots up to 89 percent. As Markowski noted, that income level includes working families headed by nursing aids, janitors, private school teachers, office clerks and others on whom society depends.

The gap between the supply of available affordable rental units in Cook County stood at 165,000 in 2005 and is expected to rise to 224,000 by 2020. When many people hear “affordable housing,” they think of government subsidized units—public housing, Section 8, housing vouchers, etc. However, the vast majority of affordable units in Cook County are market-rate and paid for with no subsidies at all (nationwide, the figure is at 75 percent).

To ensure that Chicago’s crucial stock of affordable private rentals is protected, preservation and rehab of existing units—a crucial asset of the city and region—is a must. Building new rental housing can cost more than $300,000 per unit, as compared to about $40,000 per unit that it can cost investors to rehab an existing building. With affordable rents at about $1,000 a month, “there is no way in the world that the private market will produce new affordable rental housing,” Markowski pointed out.

Life in a Changing Economy

The nascent real estate recovery and glimpses of the “new normal” of a service-and-knowledge economy are having profound yet mixed impacts on Chicago’s affordable rental market. One big factor is a lag in recovery for low- and moderate-income communities, which hold most affordable housing in the region.

For example, the median price for a 2-4 unit building in Edgewater, where the median household income in 2009 was about $40,000 annually, fell 48 percent from 2005 to 2010. In East Garfield Park, however, with a median household income of  just $23,000, the price plummeted 83 percent. The median sale price of a 2-4 unit building in Garfield Park in 2010 was $50,000, a mark of a community with essentially no demand.

The fact that Chicago as a whole added 3,000 rental units from 2007 to 2010 masks this uneven recovery: the areas surrounding the Loop and communities like Logan Square and Lincoln Park added thousands of units, while poorer communities lost rental housing: 4,800 units in the Chatham/Woodlawn/South Shore area, 4,600 in Englewood and Auburn Gresham, 2,900 in Austin.

In a panel discussion, “Financing Multifamily Rental Housing,” participants discussed the post-crash realities of finding credit for purchase, rehab and operation of smaller buildings—less than 100 units in general, and less than 50 units in particular. Before 2008, this segment of the real estate market had been served by locally based portfolio lenders.

“Banks dropped out of this market in dramatic fashion [when the real estate bubble burst],” said Panelist Barry Zigas, a member of the Bipartisan Policy Center’s Housing Commission and the director of housing policy for the Consumer Federation of America. Nonprofit lenders like Community Investment Corporation have worked to fill the gap, but the market remains underserved, with serious consequences for low-income communities and their affordable housing stock.

Building a Better Market: What It Takes

The multifamily financing panel discussed options for replacing the banks’ lending activity for affordable multifamily buildings, including pension funds, nonprofit lenders and tweaking the Community Reinvestment Act. The consensus was that no clear winner is easily discernable at this time—and that no one program or solution alone will be sufficient.

The focus on results and useful programs and policies was an ongoing theme throughout the conference, and for most issues, the existing and emerging opportunities were much more hopeful than in the multifamily finance panel. In her remarks to start the day, for instance, Cook County Board President Toni Preckwinkle talked about the importance of affordable rental housing and several programs that her office has pursued to protect it, including a $30 million loan fund and the Cook County Land Bank, which opened earlier this year.

“We want to look for areas where we can reinvest, where for a variety of reasons reinvestment is difficult,” Preckwinkle said of the Land Bank. “I’ve seen first hand how many municipalities—and let me say, outside of Chicago there are 130 other cities, towns and villages, a lot of very small units of government—that often lack the resources to put vacant land back to productive use…. So the land bank authority will work with these units of government to pursue local goals.”

The Cook County Land Bank was discussed in greater detail at the “Recovering Lost Rentals in 1-4 Unit Properties,” discussion, one of four breakout sessions that went into deeper detail on tools that can be used to address some of the biggest hurdles in preserving affordable rental housing in today’s changing market, from energy retrofits that reduce operating costs for landlords to specialized programs to protect Section 8 housing in strong markets, from a $22 million loan fund for the Community Investment Corporation to finance small buildings to forming close partnerships with community development activists beyond the housing sphere.

Julia Stasch noted that in recent polling, Americans have said that they now see homeowners and renters as both having the same capacity to “achieve the American dream,” and that, at one point in their lives, almost everybody in the room has been a renter. With a new era of rental housing beginning to dawn, conference attendees rededicated themselves to the work of ensuring that affordable options remain for those at the lower end of the income ladder.