To RPBG Members, Colleagues and Friends:

Just as the Inflation Reduction Act, which included half a trillion of government spending, likely caused the exact opposite of its intention, so too do our affordable housing regulations exacerbate the issue of affordable housing in Chicago.

Regulations are interventions into markets, civil society, and communities to reach specific outcomes. These kinds of interventions tend to produce self-enforcing processes that in the end contribute to unintended and often counter- productive consequences that are very dangerous to society.¹

The description above explains housing provider frustration with almost all interventions lobbed at them by the elected officials of Chicago, Cook County, and the State of Illinois. We are experiencing an affordability crisis, locally and nationally, that politicians are aspiring to de-escalate. If you assume these interventions are pure in spirit, and not to garner votes for re-election, it’s still hard to make a case that rent control, or the Affordable Requirements Ordinance (ARO) make housing more affordable. As noted above and studied in the oft-cited rent control paper², not only do these regulations miss their mark but they also produce the opposite effect: increasing the cost of housing.

The simplest solution is almost always the best and what seems simple to us – build more housing(!), seems to evade those in power. Even when a local developer tries³ to deliver more density/supply to a housing-starved neighborhood (Rogers Park) they’re stymied by local bureaucracies. Instead of more supply and six rent-restricted units, the neighborhood received half as many apartments⁴, none rent restricted! If you extrapolate this example across the city, you can imagine how these elected officials are forcing rents up while running on the opposite agenda.

The Additional Dwelling Units (ADU) ordinance⁵ established in 2020, which was itself a repeal of an ordinance enacted in 1957 prohibiting such units, was a breath of fresh air and lauded for embracing the simple concept that more supply reduces housing costs. Because of its success, the city is planning to expand the pilot boundaries citywide.⁶

Unfortunately, the regulation keeping the city from many more units is that half of the housing units must be “affordable,” thereby blunting housing providers incentive to create more. If one can ignore the language, and instead understand incentives and economics, it becomes clear what’s happening: less supply, higher rents.

How ironic that housing providers should be championing these misguided regulations, like rent control and ARO, as both regulations choke supply and create an imbalance that makes rents boom. Instead of that, I think both sides should find one of the few issues in the country that both sides agree on: find ways to create more housing to ease the housing shortage throughout the country. Chicago ought to de-regulate: relieve the ADU ordinance of its intervention (50% “affordable”) and remove the ARO requirements for new housing, both of which inhibit building.

We have the rare opportunity for a win-win-win if we can de-regulate:

1. The city gets much more housing thus lower rents.
2. Builders build, providing stimulus to the local economy.
3. City nets more tax dollars as land is monetized and economy grows.

We have seen how affordable regulations have created unaffordable housing, now let’s try to incentivize building!

1 - Unintended Consequences Of Regulation - Austrian Economics Center (austriancenter.com)

2 - DMQ.pdf (stanford.edu)

3 - Replacing The Heartland Cafe: Here's The 6-Story, $15 Million Apartment Building Proposed For Site (blockclubchicago.org)

4 - Heartland Cafe Site Being Turned Into Apartments As Developer Breaks Ground After COVID-19 Delays (blockclubchicago.org)

5 - City of Chicago: Additional Dwelling Units (ADU) Ordinance

6 - Chicago aldermen express support for citywide granny 􏰀at ADU permits | Crain's Chicago Business

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