Why Affordable Invest South/West Apartments Cost More to Build

No one can accuse former mayor Lori Lightfoot’s signature economic development program Invest South/West of producing cheap apartments, though the program’s fancier designs and financing arrangements are being scrutinized by some who say it should yield more homes.

The Invest South/West initiative was created to spur more housing and economic growth in historically underbuilt and underinvested parts of Chicago. But construction costs for the program’s affordable units sometimes stretch beyond $600,000 or even $700,000 per unit, compared to $450,000 to $500,000 per unit for luxury downtown and Fulton Market high-rises, Crain’s reported.

Part of the reason is the program’s rules, which involves the city selecting a winner among a number of competing proposals, and the aesthetic of individual projects playing a large role in determining the contest winners.

“Any time there’s a design competition, those projects tend to be more expensive in general because there’s a lot of pressure to get the design just right,” Bill Eager, of non-profit Preservation of Affordable Housing, told the outlet. “You’re looking to have a good ‘wow’ factor and you want to win the competition.”

Invest South/West was backed by $750 million in public investment, and new Mayor Brandon Johnson said he wanted to boost funding for the program by $500 million per year during his campaign.

To put the disparity into perspective, developer Sterling Bay started construction last September on a 350-unit luxury apartment tower in the Fulton Market District that will feature high-end finishes, a pool, fitness center and other amenities. The development will cost $156 million, or $445,000 per unit. However, a 58-unit Invest South/West project in Auburn Gresham has a construction budget of $48 million, or nearly $828,000 per unit.

Officials at the Chicago Department of Housing and Department of Planning and Development pointed to increased construction and labor expenses, along with rising interest rates, as reasons for the higher costs. They also said affordable housing often costs more to build than conventional market-rate housing because financing these projects can be complicated, as nuanced tax exemptions and credits can result in hefty fees paid to lawyers and other professionals, the outlet reported.

According to a statement from a Lightfoot spokesperson, the former mayor was unapologetic for the higher construction costs, stressing the importance of quality when undertaking affordable housing developments on the South and West sides to stimulate growth around them. Lightfoot believes these projects should include world-class design and amenities.

The Auburn Gresham project is the most expensive of Invest South/West development. But among nine such projects, two cost less than $500,000 per unit, four cost between $600,000 and $700,000, and three exceed $700,000, with average costs being $653,000, the outlet reported.

The variance exists in part because the developers chosen to lead these government-funded projects often don’t have to pay for the land, which is usually city-owned and awarded to the team behind the winning proposal, in exchange for covenants that require a certain amount of units in the projects to remain affordable.

Some argue that Invest South/West projects are so expensive because they place a heavy emphasis on the design portion. Rather than focusing on efficiency, these projects are meant to stand out in targeted neighborhoods, and create a magnet effect by drawing additional investment.

Officials also say that larger-scale developments typically have a lower cost per unit than projects with fewer apartments. Plus, the review process for Invest South/West projects often require developers to jump through hoops with multiple city agencies that drive up development costs, such as expensive sustainability features.

— Quinn Donoghue