The city of Chicago has the constitutional authority to require developers of new condo and apartment buildings to designate a portion of the project as “affordable housing,” a federal judge has said - and developers should enter into a new project understanding the rule could apply to them, despite efforts to avoid it.
On Sept. 30, U.S. District Judge Rebecca R. Pallmeyer threw out a challenge to Chicago’s affordable housing ordinance brought by a developer and the association representing Chicago’s home builders, who argued the ordinance amounted to an unconstitutional taking of property.
The ruling comes about 13 months since the lawsuit first landed in Cook County Circuit Court. In late August 2015, Hoyne Development, a home building company owned by Robert Mangan, of Chicago-based Mangan Builders, and the Home Builders Association Greater Chicago filed suit over the ordinance, asking the court to find the ordinance unconstitutional and unenforceable.
The city responded by transferring the case to the U.S. District Court for Northern Illinois, and then asked Pallmeyer to dismiss the litigation, arguing an abundance of federal case law had declared other such ordinances constitutional.
The case centered on Hoyne’s objection to the city’s action to force it to set aside a total of two units in three multi-family residential buildings the company was developing at Irving Park Road and North Hoyne Avenue in the city’s North Center neighborhood.
The city had taken that action under its so-called Affordable Requirements Ordinance (ARO). In place since 2003, the ARO requires developers of housing developments which contain 10 or more units, and which are proposed for land which must be rezoned to allow increased residential density, to dedicate 10 percent of their units as so-called “affordable housing” – meaning charging rents or selling at prices below market rates – or pay the city $100,000 per unit.
The ordinance was updated in spring 2015, dividing the city into zones in which affordable housing fees could range to as much as $175,000 per unit, and requiring developers to satisfy at least a quarter of the affordable housing mandates through actual housing, rather than just paying a fee in lieu.
However, Hoyne asked the city to permit its development in 2012, under the previous version of the ARO.
According to the lawsuit, Hoyne proposed redeveloping two former commercial properties, subdividing them into three separate parcels and building two six-unit residential buildings and a mixed-used building.
In 2013, however, the city said it would consider the project to be one 14-unit development, subject to the ARO requirements.
To keep the project going, Hoyne paid the city $200,000 - $100,000 for each of the two affordable homes the city said the project should include under the ARO.
Hoyne and the HBAGC then filed suit, arguing the city’s ARO represented an unconstitutional taking of property by regulation.
Pallmeyer, however, sided with City Hall, saying the ordinance was in keeping with established legal precedent, and the city was not acting unreasonably in treating Hoyne’s three buildings as one project, as, at the time Hoyne applied for its zoning and permits, the property had “not yet been subdivided into three tax parcels," the properties had been “purchased at the same time” and Hoyne had “applied for zoning changes and building permits simultaneously.”
Pallmeyer said, rather, Hoyne and its officers were the ones whose “expectations do not appear to be reasonable ones,” as the company “did not have a pre-existing right to build the proposed development, and obtain market rates for each of those units” before the city granted Hoyne’s specific request to “up-zone” the properties to allow for more units than would have been allowed under its prior zoning.
In making the development plans and submitted the up-zoning request, Hoyne should have known the city could require the project to comply with the ARO, the judge said.
“Hoyne had no reasonable expectation of developing 14 market-rate units because Hoyne never possessed that right in the first place,” the judge wrote. “Hoyne purchased the property when it was zoned for commercial use. As soon as Hoyne requested and received the up-zoning, it had the right to develop 12 market-rate units and two affordable units.”
Pallmeyer dismissed the lawsuit without prejudice, saying the plaintiffs had 21 days to file an amended complaint.
Hoyne Development and the HBAGC were represented by the firm of Much Shelist P.C., of Chicago.
The city was defended by attorneys with its Department of Law.