Chicago IL: ‘Affordable Requirements Ordinance’

Chicago, with a population of 2.8 mil,  is now the largest jurisdiction with an inclusionary zoning program.  Adopted in 2007 against opposition from its then powerful mayor, this program represents a compromise that falls short of what the proponents sought.  In conjunction, a new organization — the Chicago Community Land Trust — has been set up to administer the affordable units.


The City of Chicago passed the current version of its Affordable Requirements Ordinance (ARO) in May 2007.  This version significantly expanded upon the initial version passed in 2003.  The ordinance is found in Section 2-44-090 of its Municipal Code.

The city has a population of 2.8 million.  So, this particular inclusionary program is now the largest in the US in terms of community size.

This ordinance was the result of a multi-year effort by a broad coalition of community organizations, including Business and Professional People for the Public Interest (BPI).  Since the early 2000s, this coalition has been pressing the city to pass an inclusionary zoning program.  They were behind the limited initial 2003 ordinance, as well as the enhanced 2007 version.  Because the more recent ordinance still fails to meet their objectives, the coalition continues to press for further improvements.

As part of these efforts, BPI researched programs elsewhere and prepared a number of important seminal papers on inclusionary zoning.  When this research and rational persuasion had little impact, the group turned to political action by engaging and supporting candidates for city council that were in favour of inclusionary zoning.  The steady and continuous pressure on local politicians, together with their improved understanding of the subject, proved to be decisive.

The mayor of Chicago over this time had resisted these efforts, raising concerns that such a program would stifle development and harm the tax base.   Nevertheless, the mayor introduced the current version as a compromise in the dying days of one council, when it became apparent that the newly elected council would have passed much more demanding measures.

State law does not specifically refer to inclusionary zoning.  Nevertheless, there is language in one key act that is seen as authorizing the use of mandatory inclusionary zoning.  That language enables local government to use their zoning powers to require the creation and preservation of affordable housing.

In any case, the city of Chicago (along with many other municipalities in the state) has “home rule” status, which gives them very broad powers to legislate, including mandatory inclusionary zoning in the absence of explicit of state authority.

A number of other jurisdiction in the state now also use mandatory inclusionary requirements.  The program in Chicago has not been challenged.

The city has had two other earlier programs that also use regulatory incentives to provide for affordable housing: Community Partnership for Affordable Neighbourhoods (CPAN) and Downtown Affordable Housing Density Bonus.


Subject Developments

Under the current ordinance, the developments subject to ARO include any residential developments of 10 or more units that:

  • obtain city-owned land, with or without a price reduction;
  • receive financial assistance from the city;
  • receive a zoning change that

–     increases project density,
–     allows for change from a non-residential to residential use, or
–     permits residential floor space on the ground floor where not previously allowed; or

  • are within a designated ‘planned development’ in a downtown zoning district.

This considerably extended the original 2003 ARO, which applied only to residential developments that received financial assistance or land at a reduced price from the city.

Under the ARO, development is defined to include new construction, substantial rehabilitation of existing units as well as conversion of any building to a residential condominium.

The term ‘planned development’ is not defined, but is taken to mean any large or complex development that is subject to a special and comprehensive approval process.

The ordinance allowed for phasing in these provisions by exempting developments where:

  • the land was purchased in the two years prior to the passage of the ordinance, or
  • the zoning changes or planned developments were filed prior to the effective date of the ordinance (which was roughly three months after its passage).

Housing Obligation & Income Targets

The developments generally are required to set aside 10% of the total units as affordable housing.   Whenever financial assistance from the city is involved, the obligation is increased to 20%.

Ownership housing must be affordable to households earning at or below 100% of the area median income, while rental must be at or below 60%.

The 10% set-aside requirement can be reduced when the ownership units are made available for incomes at or below 80%.  In this case, the required number of units is left for determination, but in principle the fewer units must be “substantially equivalent” in value to the 10% obligation at 100% of area median income.

Compliance Alternatives

In lieu of providing affordable units, developers are permitted to make payments to the Affordable Housing Opportunity Fund.  The payments are based upon $100,000 for each affordable unit not produced, adjusted annually by the CPI.  There has been no change to this rate so far.

Out of these monies, 60% goes to the construction or rehabilitation of affordable housing, and 40% for rental assistance administered by the city’s Housing Trust.

Cost Offsets

The ordinance does not explicitly offer any cost offsets, such as density increases or any other regulatory incentives.

The lack of explicit offsets has not been an issue because all of the subject developments already involve increased density, financial assistance or land.  Furthermore, it is a well-established practice in the city that the developers are able to negotiate for increased density and other regulatory concessions as part of the development approval process for any substantial project.

The city does not grant waivers of permit fees or development charges under this program, but it does under other programs.

These units are eligible for property tax reduction based on the restricted sale price rather then market value.

Affordability Controls

Under the ARO regulations, the affordable units must be maintained as affordable for at least 30 years, but nearly all will be subject to control for 99 years.

The city for sometime has been using secondary recapture mortgages to control the affordability of affordable ownership units generated by various programs.  At the time of purchase, the city records a 30-year lien for the difference between the unit’s market price and its affordable price.  If the owner resells to an income-eligible buyer at an affordable price, this lien stays with the home.  If the owner sells to a non-income-eligible buyer or sells at a price above affordable level, the seller must repay the lien from the sale proceeds.

Recently, the city changed its policy and begun to impose 99-year agreements.  To do so, it established in 2006 a new organization, the Chicago Community Land Trust (CCLT) (see Appendix 2), both to develop and then administer the necessary legal documents.

Units under the control of CCLT will be subject to a 99-year restrictive covenant with a maximum resale price.  The maximum resale price will be the original purchase price plus a percentage of the market appreciation, and in most cases will be a below-market price.   Homes must be resold to the CCLT or to an income-qualified buyer.

The city’s intent is to place all of the ARO affordable ownership units under the control of CCLT, but there might be exceptions.  CCLT has established a policy that they will accept only affordable units selling at a price at least $25,000 lower than its market price.  (Their concern is that an affordable unit with a smaller price deferential would not be marketable due to the legal encumbrances.)  It is also possible that local aldermen in some cases could intervene to negotiate the lesser 30-year period.


The program is administered by two organizations:

  • The Development Services Division of the Department of Community Development (DCD) is responsible for ensuring that the developers meet the affordable housing obligations of the ordinance.  In this capacity, it is principally engaged in reviewing and approving  the development agreements reached with the developers of the subject developments.
  • The Chicago Community Land Trust is responsible for maintaining the permanent affordability of the affordable ownership units.  (Another division of DCD holds the corresponding role for the affordable rental units generated by this and other city programs.)

At the present time, the Development Services Division has a staff of only one engaged roughly 30% in the program.  Separately, a staff member in another division is engaged roughly 60% to assessing income qualification for all of the city’s affordable ownership programs.  Two city lawyers are also engaged part-time in reviewing the sales documents.


The impact of this new program has not been felt, due to the economic downturn as well as the time lag between the adoption of new regulations and construction.  So far the program has generated only 4 units.

The initial ARO generated 857 affordable units through May 2007, or roughly 200 units per year.

Based upon past development activity, the new program is expected to produce roughly 1000 units per year (or their equivalent in fees-in-lieu).


This program imposes the affordable housing requirements principally on developments receiving regulatory benefits through the re-zoning process.  This approach is consistent with the practices used in nearly every other “big-city” program, but not with the more common greenfield programs where the requirements are imposed on as-of-right developments.  This approach is defended by city staff because it should cover nearly all large developments.

The use of a separate organization like the Chicago Community Land Trust to administer the on-going affordability requirements is relatively unique.   Most programs are administered entirely in-house.  Establishing this new organization was seen as a way of consolidating the administration of affordable ownership units coming out of a number of programs, and also a way of introducing stricter “permanent affordability” measures.  In time, this organization is expected to be entirely self-sufficient.

The introduction of “permanent affordability” is a reflection of a trend seen across the US.   In this case, restrictive covenants that lock in the affordability for 99 years are being to replace 30-year secondary recapture mortgages, which are widely used in Ontario and elsewhere in this country.

The current ordinance still falls short of what was sought by BPI and the community coalition that led the push for these measures.  For that reason, they continue to lobby for following more demanding provisions:

  1. extending the affordable housing requirements to new residential developments built within the ‘as-of-right’ zoning provisions;
  2. setting the income threshold for ownership at 80% of area median income;
  3. using the median income specific to the city’s municipal area rather than the metropolitan area;
  4. setting the affordable housing requirement at 15%; and
  5. applying localized fees-in-lieu that reflect the public cost of providing affordable housing in various places across the city.

The municipal median income is seen as preferable to the metropolitan median income because the latter is inflated by the higher incomes of the surrounding affluent suburbs outside of the city.  So, in turn, this sets a higher and less affordable income threshold for the units.

The fees-in-lieu provisions, it is recognized by city staff, need further work.  One rate is difficult to set for an entire city with the size of Chicago.  The current rate of  $100,000 is probably too low for downtown and too high for the outer areas.  (Nevertheless, this is consistent with the city’s planning policies, which is to encourage affordable housing outside the downtown and not inside.)  The rate also is not adjusted by unit size.   One alternative that has been considered is to use a rate based on a fixed percentage of sale price.

APPENDIX:  Related Programs

Downtown Density Bonus

This program, started in 2002, allows increased density in downtown residential buildings in return for contributing to the Affordable Housing Opportunity Fund.   The additional housing built by the developers need not be affordable housing as in the case of inclusionary housing programs.  The fees represent the affordable housing benefit as they are used through the fund to support housing for low-income and working families.  The fees are set in fixed and non-negotiable rates, set in $/ft2 that vary for four different downtown areas.

From 2001 to mid-2007, the downtown density bonus generated $24 million.

Chicago Partnerships for Affordable Neighborhoods (CPAN)

This program, started in 2001, supports the provision of affordable condominiums and single family homes in market-rate developments, particularly in appreciating neighbourhoods.  The developments must provide a percentage of the units at a purchase affordable to households earning below 100% of area median income.

Developers receive these fixed and non-negotiable incentives:

  • a permit fee waiver of $10,000 for every affordable unit provided;
  • site improvements for projects generally developing 10 or more units; and
  • a partial reimbursement of $3,000 in review process charges.

Homebuyers are also eligible for purchase price assistance in the form of a $10,000 interest-free loan repayable upon sale.

These incentives generally are not sufficient to provide the write-downs meeting the income targets.  Nevertheless, some local aldermen have been able to pressure the developers to meet the targets in the absence of additional incentives.

Developments subject to the ARO are not eligible for this program unless they provide another 10% of units as affordable.

From 2002 to mid-2007, CPAN produced 492 units.

APPENDIX 2:  Chicago Community Land Trust


The Chicago Community Land Trust (CCLT) is a quasi-independent non-profit corporation operating city-wide across Chicago. It was created in 2006 to protect the affordability of affordable ownership homes being providing by for-profit or non-profit developers through various programs in the city.

It currently controls affordable ownership units generated by Chicago Partnerships for Affordable Neighborhoods (CPAN), New Homes for Chicago, and now also the Affordable Requirements Ordinance (ARO) since 2007.

The organization was established with the expressed purpose to ensure that these units remain permanently affordable. Formerly, the city’s affordable ownership units were subject only to secondary recapture mortgages, and many of these were forgiven over time. Consequently, the homes were only affordable to the first buyer. Even when the value of the reduced price was recaptured, the city found that in an appreciating housing market the money recovered was insufficient to provide replacement housing at the same income level.

Establishing a new city-wide organization for this purpose was seen as a way of providing uniform legal documents with a consistent resale formula across the city, ensuring fairness and consistency in the allocation of the units, eliminating administrative duplication, and reducing the potential for fraud through better monitoring and stronger controls.

Despite the name, the CCLT is not a community land trust as generally defined in the US. While it shares many of the same goals – including permanently affordability – it does follow all of the hallmark practices of these organizations in the US. They typically operate independently of government, include homeowners in their board, and use leases to maintain ownership of the land while selling the units built on it.


The organization is currently funded and supported by the city through its Department of Community Development (DCD). This department pays the staff salaries, and provides office accommodation and support staff. In time, the organization expects to be self-financing from the fees that it will charge.

The organization was initially supported by start-up funds from a major foundation. These funds have run-out and it is looking for another similar temporary source.

The organization as a board of directors appointed by the mayor and approved by City Council. The directors are drawn from various community, business and professional groups, including private and non-profit developers, service providers, universities and foundations, financial institutions and law firms, city departments and others. In time, when its housing portfolio has increased, one third of the board will be drawn from the owners of CCLT units.

The organization now has two full-time staff, an executive director and outreach director. This staff is expected to grow as the number of units under its control increases.


CCLT currently administers 38 ownership units. Only 4 of these have come from the recently-established ARO. (The latter number is not surprising because inclusionary programs take time to be productive, and also because production is being affected the current economic downturn.)

There are well over another 1000 existing affordable ownership units in the city generated by other programs. Unless CCLT is able to buy these units as they are resold, these units will continue under their existing agreements and outside of the permanently affordable restrictions of CCLT.

The intention is that all of the new units generated by ARO and the other programs will be placed under the control of CCLT, but there might be exceptions. The local aldermen in Chicago on occasion strike their own deals. So, there is the possibility that some of the ARO units will fall outside of CCLT’s control because they are subject only to the 30-year recapture mortgages used in the past.

Also, the CCLT has established a policy that it will accept only affordable units selling at price at least $25,000 lower than the market price. The concern is that affordable units with a smaller price deferential would not be marketable due to the legal encumbrances imposed on them to protect affordability.


The CCLT was established with the express mandate to establish resale controls and procedures for ensuring the long-term affordability of the ownership units placed under its administration. The provisions were to be designed to balance the competing goals of long-term affordability and providing a fair return on the homeowner’s investment.

Legal Agreements

CCLT is using a covenant in the form of deed restriction recorded against the property title as the legal mechanism to control the affordability of the units. This agreement will control affordability for 99 years. It is also renewable whenever the unit is sold within that period.

Consideration was given to using a ground lease for single family units and the restrictive covenant only on multi-unit structures, but the decision was made to use only the covenant for various reasons:
1) one document would be easier to administer than two;
2) a ground lease could not be used on multi-unit structures;
3) the use of covenants was well-established and understood in the city; and
4) it would be more cost-efficient to administer.

Targeted Incomes

In general, CCLT will target households earning 100% or less of area median income, but under its resale price formula it will allow a price rise up to a cap set at 120% of area median income (see below).

Eligibility Criteria

In addition to meeting the income limits, CCLT requires prospective buyers to participate in pre-purchase homeownership counselling provided by one of various nonprofit agencies, and also attend its own education program to deal with the covenant and other matters specific to the organization.

It applies no other criteria to ARO buyers, although some programs have asset and first-time-buyer limits.

The buyers must qualify for a mortgage loan from a private lender.

Sales Procedures

All new CCLT homes are currently being marketed and sold through the developers. The units are posted on a website operated by another city agency that lists all of the affordable ownership and rental units available in the city. They also rely on staff at the DCD to assess the income qualifications of the buyers.

CCLT expects to develop and operate a waiting list of eligible buyers. It also will be developing procedural rules for the sales. These are expected to depend upon a “first-come/first-served” approach, but modified by a points system to give priority to certain buyers. It also could also use lotteries when justified by demand.

Resale Price

For the duration of the agreement, the owners are able sell their homes only either back to CCLT or to another income-qualified buyer. In either case, they can be sold only for a price up to the maximum permitted resale price.

The maximum permitted resale price is allowed to rise up to a price not exceeding what would be affordable to household earning 120% of local median income. The permitted resale price is allowed to rise so that the homeowners are able to receive a percentage of the increase in the market value of the unit.

The percentage is based on the difference between the initial fair market value of the home as determined by appraisal and the affordable purchase price that the homeowner pays. The percentage also varies according to the difference between the two figures as shown in the following:
• 25% for a difference of less than $50,000;
• 20% for $50,000 to $100,000;
• 15% for $100,000 to $150,000; and
• 12% for over $150,000.

Resale Process

When the homeowners decide to sell, they must first notify the CCLT, which will then order an appraisal of the home. The cost of the appraisal is paid out of the sale proceeds.

CCLT holds a first option to purchase the home. Whenever CCLT exercises this option – rather than actually buying the unit – it expects to use the 4-month closing period to transfer the ownership to an eligible buyer from its waiting list. In lieu of real estate fees, it will charge the seller a fee based upon 3% of the sales price.

If CCLT does not exercise its option, the homeowner is responsible for marketing and finding an income-qualified buyer. In time, CCLT expects to assist in these sales by providing the names its waiting list.

A copy of the sale contract and income qualifications of the new buyer must be submitted to the CCLT for approval prior to finalizing the sale.

Other Key Requirements

The owners are required to pay a covenant fee, currently $25/month, to cover the cost of managing the program and providing services and referrals.

The owners must use the home as their principal residence and occupy it for at least nine months out of the year. They may not lease the land or sublease the home.

When a spouse, domestic partner or a dependent of the owner inherit a unit, they can continue to live there as long as they wish, provided they abide by the terms of the restrictive covenant. Others heirs are able to stay in the home when they are income-qualified, but otherwise must sell according to the resale terms.

The owners must obtain approval from CCLT before making any improvements that require a building permit or increase the livable square footage of the home.

The owners must also obtain the approval of CCLT before refinancing the purchase.


The early activities of CCLT have focused on the following:
• developing the deed restriction and resale formula to be used in the preserving affordability of the units;
• developing and operating its pre-purchase education program;
• recruiting and educating a pool of mortgage lenders willing to offer mortgages for their buyers;
• recruiting and educating a pool of lawyers to assist their buyers. (The buyers are not required to use these lawyers, who charge their full rates.);
• securing outside funding to help low-income buyers with their legal fees; and
• obtaining a commitment from the local county assessor’s office to base the property tax on the controlled sales price and not the market price.

The organization describes the following as its major on-going responsibilities:
• helping the developers in marketing the affordable units;
• providing community outreach and education for developers, aldermen, community organizations and other interested parties;
• organizing and operating pre-purchase CCLT education courses;
• securing additional service providers (lenders, attorneys and others) for the CCLT buyers;
• monitoring the closing of the sales;
• providing post-purchase homeowner support
– to prevent default and foreclosure,
– to provide oversight and assistance for refinancing and resale,
– to monitor the property taxes and assist in property tax appeals, and
– to troubleshoot any other emerging problems;
• monitoring properties to confirm owner-occupancy, payment of property taxes and that homes are free of unauthorized liens; and
• evaluating and updating its policies and restrictions.


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