This post first appeared in the Chicago Daily Law Bulletin in March, 2023
For a variety of reasons, affordable housing has been a prominent theme lately.
For the City of Chicago, it seems to be part of every major housing development. Many of the Chicago suburbs have discussions as part of any new development. The issues revolve around how many units should be committed as affordable housing units, at what price (i.e. what percentage of what indicator of income should be used, and at what point does building affordable housing discourage development?).
It is certainly a balancing act.
“Affordable” Under Local Ordinance
In suburbs which do not designate any fixed percentage of housing as “affordable” under local ordinance, developers can choose their own percentage of units to set aside as affordable housing—or they could choose to designate no units as “affordable.” They can also choose to use cash-in-lieu deals instead of setting aside units, so that the municipality can choose units in other developments as set asides for affordable housing.
Some developers take full advantage of government programs (HUD, Section 8, IHDA, local funds, etc.), thereby assisting municipalities with their objectives to provide more affordable housing dwellings.
There are developments aimed at seniors, to allow them to age in the communities in which they worked and raised their families. There are developments aimed at helping families move into areas where their children will be safer and can attend better schools.
Recently, I had the pleasure of sitting through a closing for a family that was able to purchase a home in Wilmette through a program funded by Community Partners for Affordable Housing. CPAH had purchased the home, renovated the property and then found a family that could afford the home based on the program’s formula. CPAH provides a 99-year lease, places a mortgage ahead of the buyer’s own financing (so that no lender can be ahead of CPAH) and then assists the buyers in obtaining loans from banks that are anxious to work with these types of borrowers.
I believe that the house was sold for $350,000, CPAH put a $190,000 mortgage on the house – which the buyers were not obligated to pay – and the buyers took out a $160,000 mortgage. There is a $50 per month payment for rent on the lease. The payments were affordable, but the ability to build equity was highly limited. Negotiations with CPAH would be necessary if the homeowners ever wanted to sell.
Like all buyers receiving assistance from CPAH, this family needed to go through CPAH‘s training program before they could qualify for their property. They will be able to develop the pride of homeownership and their four children will be able to attend schools in a good community. And no developers were injured in the process.
“Renting From the Bank”
When I look at modifications that homeowners who are delinquent in their mortgages often receive, I tell them they are “renting from the bank.”
In the program with CPAH, that might be the same situation, but the homeowners are building credit and have a partner in their success rather than an anchor weighing them down.
Affordable housing can take many different forms. Ultimately, I predict it will become the norm rather than a work-around.