- By John Norquist, President and CEO, and Benjamin Schulman, Communications Director, Congress for the New Urbanism
- February 14, 2012
Throughout January and February, the Metropolitan Planning Council (MPC) is curating a blog series on vacant properties in metropolitan Chicago. In the coming weeks, MPC's blog, The Connector — as well as the web sites of some of our partners — will feature posts from elected and appointed officials, policy advocates, finance experts, and others about the many ways we are all working together to get a handle on this growing regional and national housing and community development challenge. The opinions expressed in these posts do not necessarily reflect MPC's opinion. Follow the blog series at www.metroplanning.org/vacantproperties.
Since taking office last year, Mayor Rahm Emanuel has shown he’s serious about addressing the budget crises he inherited. He’s cutting bureaucracy, confronting counterproductive work rules, and taking the political hit for raising water and car registration fees. The mayor is tough enough to make hard choices, but he can’t do it all the hard way. He needs to grow Chicago’s tax base – as soon as possible.
One area where Chicago has great growth potential is in neighborhood development. Demographic trends and consumer preferences show a growing market for walkable neighborhoods with shopping and cultural amenities. In the article “The Next One Hundred Million,” University of Utah professor Arthur C. Nelson estimates the current supply of unattached single-family housing will continue to exceed projected demand until 2037. Millennials and Boomers alike are attracted to smaller-scale housing in walkable, traditional neighborhood settings. This is the type of housing Chicago is positioned to provide along its commercial avenues and near its transit stations.
Yet, even as demand rises, government policies discourage developers from meeting it. Current rules from the Federal Housing Administration (FHA), Dept. of Housing and Urban Development (HUD), Fannie Mae, and Freddie Mac make it nearly impossible to finance low and medium-rise apartments and condos attached to retail or commercial space. Federal policy is biased against “Main Streets” — the type of dynamic retail and residential streets in Chicago neighborhoods.
Before the FHA was created in 1934, residential-commercial districts were the norm. People wanted to live in great neighborhoods, and lenders appreciated that risk was spread over different types of real estate. For example, a flower shop with an apartment above provided two sources of income. One might perform well when the other was not. Vibrant, mixed-use streets such as Clark, Belmont, and Milwaukee Avenues have weathered the Great Recession better than most areas. But instead of being heralded as examples of resilient, better-performing communities, federal financing guidelines treat them as risky investments. They view the combination of housing with retail as adding risk – "one use or the other could fail so better not to allow it at all." As a result, investors and developers who want financing are encouraged to avoid residential-commercial districts and stick to building housing subdivisions. The financial failure of these single-use districts only encourages the abandonment of underperforming assets, adding to the vacancy problem that plagues parts of the city.
The Congress for the New Urbanism – a Chicago-based, nonprofit organization consisting of designers and urban developers – is working with a coalition of homebuilder and real estate associations to eliminate the restrictions on appropriately scaled retail and commercial development in traditional neighborhood districts. Doing so does not require an act of Congress. It simply takes changes to current rules and regulations, which can be initiated by forward-thinking federal officials. Henry Cisneros, Secretary of HUD under President Clinton, is one former federal executive who has already stated, “I believe that we should encourage mixed-use communities and scrub the Fannie Mae, Freddie Mac and FHA guidelines for any impediments that would keep us from building to New Urbanist principles.” This mirrors current HUD Secretary Shaun Donovan's comments that “it’s time that federal dollars stopped encouraging sprawl and started lowering the barriers to the kind of sustainable development our country needs and our communities want.“
Mayor Emanuel, a former federal official himself, is operating on a fast track to tackle Chicago's ongoing budgetary challenges. Removing obstacles to financing traditional neighborhood districts composed of vibrant residential-commercial streets is a way to encourage new development, fight the blight of vacancy and increase the city's tax base. It is time to legalize Main Street and unlock the economic potential within Chicago's neighborhoods.