Ruling keeps homebuilders on the hook to create affordable housing

Home Builders Association | October 06, 2016

Ruling keeps homebuilders on the hook to create affordable housing
A local homebuilders trade group has lost its legal campaign to kill off an ordinance designed to increase affordable housing in Chicago.

A federal judge recently dismissed a lawsuit by the Home Builders Association of Greater Chicago and a Chicago developer that challenged the city's Affordable Requirements Ordinance, shooting down their argument that the ordinance is unconstitutional.
Under the ARO, residential developers who seek a zoning change for their projects are required to include affordable housing in the developments or pay into a city trust fund that finances affordable housing. The city put more teeth in the law last year over the objections of developers, who argued that the changes would curb new projects by driving up their costs.

In a lawsuit filed in September 2015—before the revised law took effect—the Home Builders and co-plaintiff Hoyne Development argued that the original ordinance violated a clause in the U.S. Constitution preventing the government from taking property from its owner without just compensation.

But U.S. District Court Judge Rebecca Pallmeyer didn't buy it, dismissing the case on Sept. 30. She wrote that the ordinance doesn't represent an unconstitutional taking because housing developers receive a benefit from the city—zoning for a bigger project—in exchange for their affordable housing obligation.

The trade group and Hoyne could appeal her decision or file a new lawsuit.

“Obviously, we're disappointed in the ruling, but she did leave some options for us,” said Paul Colgan, director of government affairs for Home Builders. “We're reviewing this with our attorneys, but we haven't made a decision about next steps.”

Under the original ordinance, which went into effect in 2007, developers seeking a zoning changes for residential projects with10 or more residential units were required to set aside 10 percent of them as affordable. Builders could opt out by paying a fee of $100,000 per each required unit into a fund to pay for affordable housing elsewhere.

The new ordinance made it harder for developers to opt out by raising the fee—it jumped as high as $225,000 per unit for downtown condominium projects—and by requiring that they build at least a quarter of the required units within their project or at an off-site location.

To get in under the old rules, a number of developers filed zoning-change requests before Oct. 14 last year, when the revised ordinance went into effect. Amid strong apartment and condo markets, developers are still filing zoning applications with the city at a steady, albeit slower, pace.


The Home Builders sued the city with Hoyne, a Chicago developer that sought a zoning change from the city in 2012 for a 14-unit residential project in North Center. Though Hoyne paid $200,000 into the affordable housing fund, it also decided to file a lawsuit challenging the ordinance.

Yet that payment to the city didn't constitute a government taking because Hoyne entered into the deal voluntarily and actually received a benefit from the city, a zoning change, Pallmeyer wrote. “Hoyne did not have a pre-existing right to build the proposed development, and obtain market rates for each of those units, before the up-zoning,” she wrote.

Spotlight

A new force has emerged in the UK’s large scale, institutionally-backed, residential investment sector, with the £1.4 billion merger of entities owning East Village, London E20, and the first phase of the Elephant and Castle Town Centre redevelopment, London SE1. The merger creates an equal partnership between the founding investors behind these significant enterprises: Qatari Diar Real Estate Investment Company, Delancey’s flagship client fund, DV4, and the Dutch pension fund asset manager, APG. Delancey and Qatari Diar’s UK development company will work jointly on all the venture’s development activities.


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