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Steve Fifield Explains The Difference Between Revenue Neutral And Punitive Affordable Housing

Affordable housing is a riddle. An approach that proves successful in one market may not work in another. We reached out to Fifield Cos chairman Steve Fifield, one of our panelists at Bisnow's BMAC Midwest Annual Conference, Nov. 30 at the JW Marriott Chicago, to share his experiences dealing with affordable housing requirements across different markets.

Fifield Cos. CEO Steve Fifield and his daughter Samantha

Steve (with daughter Samantha) says there are two ways cities can approach affordable housing. The first approach, revenue neutral, is where local governments give incentives for developers to build affordable housing as a way of offsetting construction costs and taxes. Steve says one of the brightest examples of the revenue neutral approach is in New York City. City planners there demanded 20% affordable set-asides in new rental developments. In exchange, developers asked to have their property taxes frozen for a 20-year period. Steve says the deferred taxes wound up being equal to the lost revenue, and the program generated thousands of new affordable units for decades, before Mayor Bill DeBlasio ended the program.


The other popular approach to developing affordable housing puts the majority of the burden on developersan approach Steve dubs "punitive." The most notable example of the punitive approach is in Chicago, where the city's Affordable Requirements Ordinance calls for developers to pay higher in-lieu fees and meet the ordinance's 10% affordability requirement, by allocating 25% of those units either on-site or off-site, within two miles of the building project. When all of those details are included, Steve says the rents charged on the affordable units are slightly less than operating expenses and taxes, combined. More developers are choosing to opt out of the affordable requirements by paying into the city's neighborhood opportunity fund.

In Chicago, Steve says the burden for affordable housing is almost exclusively placed on the shoulders of apartment developers. Condo developers only have to pay a flat fee plus 10% to opt out of the ARO. This is limiting the types of housing that are most neededfixed income, senior housing and graduates entering the workforce.


Steve suggests the city have developers put in 10% affordable inclusionary for 20 years, in exchange for a 50% real estate reduction for the same time frame, which he believes would quadruple the affordable units built on affected deals.

In other markets like Santa Monica, which has a 25% affordable housing requirement, the economics behind building is restricting supply. If something isn't done, developers will either have to increase prices or stop building. If the former happens, new renters entering the market will have to move to more marginal areas. You end up with more higher-end apartments, while everyone in the middle is shut out.

To learn more from Steve and our other experts, register for Bisnow's BMAC Midwest Annual Conference, Nov. 30 at the JW Marriott Chicago.