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Affordable Requirements Ordinance

Chicago, Cook County

Policy and Governance

An MPC policy and governance case study

Policy background

In October 2015, the City of Chicago revised its Affordable Requirements Ordinance (ARO), marking its third amendment to the policy since its adoption in 2003. Each iteration of the ARO sought to incorporate lessons learned, account for changing behavior in the housing market, and reposition the City to increase its housing affordability. Residential projects of 10 or more units that are also receiving a zoning change, City land, financial assistance from the City, and/or are a Downtown planned development trigger the ARO. Development projects that trigger the ARO are required to make 10 percent of the units affordable (20 percent if financial assistance is received).

One of the biggest changes to this latest revision was the in-lieu fee, which is the per-unit fee that developers need to pay if they choose to opt out of building affordable units required under the ARO. By changing it from a flat fee to a tiered structure that is tied to the demographic and socio-economic characteristics of Chicago’s 77 community areas, the City is hoping to generate more affordable housing, particularly in higher income areas. 50% of fees-in-lieu collected through the ARO will be diverted to the Chicago Low-Income Housing Trust Fund, up from 40% under the old ARO guidelines.

How it works

The ARO zone map helps to explain the new approach that the City took to implementing the ARO. The map is divided up by community area (with the exception of Downtown), and each community area has been given a designation of higher income or low-moderate income based on the total area of higher income census tracts versus the total area of low-moderate income census tracts. View more information about what qualifies a census tract as higher income and low-moderate income. If a community area consists of a greater physical area of high income census tracts, the community area would be given a designation of higher income on the zone map. If a community area consists of a greater physical area of low-moderate income census tracts, the community area would be given a designation of low-moderate income on the zone map. The “Downtown” area in the map corresponds with the boundaries of the Downtown zoning districts as outline in the Chicago Zoning Ordinance.

Under the ARO’s 2007 guidelines, developers were required to pay a $100,000/unit in-lieu fee for units they were responsible for building to comply with the ARO. Guidelines adopted in 2015 created a new fee schedule based on zone designations. In-lieu fees for units that are not provided on the development site are $175,000/unit in the Downtown zone ($225,000/unit for for-sale projects if developers elect not to build ARO units), $125,000/unit in the higher income zones and $50,000/unit in the low-moderate income zones. Most developments that have triggered the ARO have historically been located in the Downtown and higher income zones. The City’s new fee schedule intends to both incentivize new development in low-moderate income zones, and incentivize developers to build required units on site in the Downtown and higher income zones. Assuming positive market conditions, the update to the in-lieu fees and other policy changes are expected to generate 1,200 new affordable units and $90 million.

View a quick summary of other enhancements
Access the full ordinance
View Income eligibility for for-sale and rental units

Public involvement

A 26-member taskforce appointed by Mayor Emanuel with representatives from the development, advocacy and not-for-profit communities oversaw the updates to the ARO. Public comment was also accepted for the overall proposed changes, as well as the drafting of the rules and selection of the zone map.

  • Goal

    Create more affordable housing for Chicago’s working families.

  • Target

    Developers and low-and-moderate income families.

  • Financing

    The ordinance provides density bonuses for affordable units near transit and incentives for developers to work with the Chicago Housing Authority to offset the cost of compliance with the ordinance.

  • Lessons learned

    The City’s approach has been to incrementally expand Chicago’s housing policies. This ensures policies tap market activity without slowing private development or causing negative economic effects.