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Interview with Daniel K. Hertz


He has only been working for the City of Chicago Department of Housing (DoH) since September of last year. But you wouldn’t know it from his deep knowledge of housing policy or the important role he plays with the Inclusionary Zoning Review process that began late in 2019. An important element in this review is the work currently being done by a 20-member Task Force assembled to make recommendations for how to revamp the Affordable Requirements Ordinance (ARO). This is just one part of a multi-prong effort to study ways to make inclusionary zoning more effective in Chicago.

None of this should come as a surprise, given Daniel’s job title. He is, after all, DoH’s Director of Policy. He did not get this job without an impressive educational background and resumé of housing policy experience. Daniel is a Chicagoan by birth. Other than two years in Madison during high school, most of Daniel’s childhood was in Albany Park on the city’s North Side.

Daniel began his undergraduate studies at McGill University in Montreal, but transferred to, and graduated from, Harvard. He got his Master’s Degree in Public Policy from the University of Chicago and went on to work at several organizations, honing his skills and expertise in housing and municipal finance before being hired by DoH. This previous work experience includes time at the Center for Tax and Budget Accountability as a policy expert.

If Daniel’s name sounds familiar, it may be because of the attention he received for the book he recently authored and published about gentrification in Lincoln Park called, appropriately, The Battle of Lincoln Park. If you haven’t read it, you should. It’s short, well-written and packed with the fascinating history of the evolution of Lincoln Park and the Near North Side from a Bohemian, mixed-income area with a storied past into the affluent and exclusive residential enclave it has become today.

Daniel emphasized that the Lightfoot Administration and DoH are both deeply committed to countering the decades-long pattern of income and racial segregation that have defined Chicago and led to the enormous inequities between different parts of the city.

All of this is a big aside to explain why Daniel is a really good person to talk to if you want to know what’s going on with the ARO, inclusionary zoning more generally, and where housing policy might be headed under the new Lightfoot administration and DoH’s new Commissioner, Marisa Novara.

During my February interview, Daniel emphasized that the Lightfoot Administration and DoH are both deeply committed to countering the decades-long pattern of income and racial segregation that have defined Chicago and led to the enormous inequities between different parts of the city. The ARO is one of the few tools the City has at its disposal to create new, affordable units in high-income areas. As such, this is an important component of DoH’s efforts to reduce segregation and create better housing opportunities for lower-income populations across the entire city.

Daniel said the City of Chicago has created between 1,000 and 1,200 new affordable housing units each year for the past several years. These units have been developed with the assistance of a wide range of programs, including Low Income Housing Tax Credits, CDBG and HOME funds, TIF revenues and a variety of Bond programs. DoH provides quarterly, on-line reports on its housing activities. These reports can be accessed through the DoH website. DoH also recently added an ARO Dashboard that tracts affordable housing production across Chicago through the ARO program.

What I really wanted was to find out what the Task Force was doing and what recommendations were likely to come out it. Daniel wouldn’t tell me – he’s sworn to secrecy until the Task Force finishes its review.

Daniel represented DoH at a December 11 “fact finding” meeting of the City Council, directed by Alderman Harry Osterman (48th Ward) who represents the Edgewater area on the far North Side. Alderman Osterman invited housing advocates, community members and representatives of the city’s real estate establishment to speak about the current Affordable Requirements Ordinance (ARO) and possible changes to that ordinance that would revise the way inclusionary zoning works in Chicago.

When I spoke to Daniel in February, he reported that the Task Force had met three times and would likely meet three more times before making recommendations to DoH for revisions to the existing ARO. This process has been delayed due to the arrival of the COVID-19 emergency.

Daniel clearly views the ARO as an important tool in the arsenal of programs DoH has at its disposal to address affordable housing in Chicago.

The December 2019 “fact finding” meeting began with a presentation by a coalition of housing advocates whose immediate goal is the passage of the proposed Development For All (DFA) Ordinance. The DFA would replace the ARO and, in so doing, greatly expand the affordable housing requirements currently in place. The DFA would also, according to every real estate professionals who spoke at the meeting, virtually shut down new development in Chicago due to the much higher cost of compliance with DFA requirements. An article in the Winter Newsletter outlined these rules, and why the real estate industry expects it to have such negative consequences on new development in Chicago.

Bookended by the housing advocates who kicked off the meeting and the real estate professionals who spoke near the end of the meeting, Daniel outlined the reasons DoH put the Task Force together, and what DoH hoped would emerge from it and their other outreach efforts. Daniel also came armed with a lot of information about how the current ARO works, both as a tool to provide affordable housing in new developments, but also as a source of revenues for the other affordable housing programs that DoH uses to create affordable housing and subsidize rents all across the city.

Given the importance of the Inclusionary Zoning Review and its potential impact on property owners and real estate development in Chicago, I wanted to talk to Daniel more about his work on affordable housing and with the Task Force in particular.

Of course, what I really wanted was to find out what the Task Force was doing and what recommendations were likely to come out it. Daniel wouldn’t tell me – he’s sworn to secrecy until the Task Force finishes its review and makes public its recommendations.

But he did give me a lot of information about the process and the different viewpoints on this important subject. Not surprisingly, different interest groups have widely different views regarding how the ARO should be changed, and what kind of policies should be adopted. Here is some of what I learned.

The ARO and Inclusionary Zoning

Daniel clearly views the ARO as an important tool in the arsenal of programs DoH has at its disposal to address affordable housing in Chicago, and an invaluable way to increase the number of affordably priced units in high-income neighborhoods.

At the same time, Daniel recognizes the limitations of the ARO as an affordable housing development tool. At his December 2019 presentation, Daniel made it clear that the ARO has produced only a modest number of affordable units since its inception in 2007 – 1,046 units as of his December 2019 presentation. This is a fraction of the number of units produced under DoH’s other primary programs to create affordable housing or subsidize low and very low-income renter households. As Daniel stated at the fact finding meeting, “the ARO is not going to [solve the affordable housing problem in Chicago] on its own.”

Daniel also points out that the ARO units that have been created are only affordable to households earning 60% of AMI. Other DoH programs provide housing and rental assistance to households at much lower incomes, generally 30% of AMI and even lower.

At the same time, Daniel recognizes the limitations of the ARO as an affordable housing development tool.

Since 2007, when the ARO was first adopted into law, this program has generated $123 million in “in-lieu” fees which have primarily gone to two other DoH programs: the Affordable Housing Opportunity Fund (AHOF) and the Chicago Low Income Housing Trust Fund (LIHTF).

AHOF is a “gap financing” program that provides needed additional funding for affordable housing projects that require some component of city assistance to be financially viable. In-lieu fees from the ARO have produced about $53 million in funding that have been directed to the AHOF program, resulting in the creation of 2,663 housing units since 2007. Most of the rest of the in-lieu fee revenues have gone to the LIHTF. In 2018, the LIHTF provided rental assistance to 2,535 households across the city with incomes at or below 30% of AMI.

Daniel cautions that any requirement mandating 100% of ARO units on site would necessarily mean that the in-lieu fees would disappear.

While Daniel is all ears with regard to changes to the ARO program and how it works, he cautions that any requirement mandating 100% of ARO units on site would necessarily mean that the in-lieu fees would disappear. This would have serious and negative consequences for DoH and the AHOF and LIHTF programs they administer. Daniel points out that these in-lieu fees support “gap financing” and rental subsidies in other parts of the city where housing needs are even more acute.

Where We Go from Here

The end result of Daniel’s Inclusionary Zoning Review efforts will be a set of proposed changes to the ARO, or some other broader recommendations for making inclusionary zoning more effective in Chicago. The end goal of the Lightfoot Administration is to use this tool as effectively as possible to reduce income and racial segregation across the city.

The recommendations that come out of this process could have profound impacts on property owners and developers. As such, we will be closely monitoring these proceedings, and will make every effort to voice our concerns and perspectives as it unfolds. This is a frightening prospect for many in our industry, given the growing influence of the far-left of the Democratic party, and their affinity for solutions that rely primarily on the real estate industry for the funding needed to create the affordable housing they demand.

The end goal of the Lightfoot Administration is to use this tool as effectively as possible to reduce income and racial segregation across the city.

Clearly, these “solutions” will be counter-productive if the new ARO requirements are so extreme as to choke off the production of new rental housing, although this may have happened already as a result of the rapid spread of the COVID-19 virus and its devastating impact on the economy. In the interview, Daniel stated the obvious when he acknowledged that the City cannot require developers to build affordable housing “by fiat.” Development has to make economic sense. If the economics don’t work, nothing gets built and no additional affordable units are created.

Clearly, these “solutions” will be counter-productive if the new ARO requirements are so extreme as to choke off the production of new rental housing.

Daniel assured me the City is taking concerns about economic feasibility very seriously. He fully recognizes that the proposed DFA Ordinance would have serious implications on the economics of new, multifamily housing development. While he remains open to all proposals for how to change the ARO – including the DFA and other tenant advocacy group recommendations – he is also exploring ways to offset the increased costs these measures would impose, including off-site development options, real estate tax relief and changes to the building code to reduce construction costs, just to name a few.

Once the Task Force and focus groups are concluded, Daniel says DoH will issue a report that will be made available to the general public. Following this report, DoH staff will conduct additional analysis and hold subject matter hearings. The public will be allowed to comment on findings and recommendations which will all be taken into consideration by the City Council when they use the report as a basis for a new Ordinance that will amend or replace the ARO. The conclusion of this process is open-ended due to the “shelter in place” restrictions currently in place.

Daniel assured me the City is taking concerns about economic feasibility very seriously.

We can take some comfort that Daniel is playing an important role in this review process. Daniel has proven himself to be smart, thoughtful and willing to listen to all sides of the debate. We look forward to working with Daniel and with DoH as they continue their Inclusionary Zoning Review. We will work hard to insure a good outcome for all.

 

 

 

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