Chicago Legalizes Accessory Dwelling Units in Effort to Increase Affordable Housing Supply

Zachary Mauer
Associate Editor
Loyola University Chicago School of Law, JD/MPP 2022

Starting May 1, 2021, Accessory Dwelling Units (“ADUs”) will be legalized in five pilot areas around the city of Chicago. Chicago faces a declining population, a slow homebuilding pace, and an affordable housing gap of approximately 116,000 units. These ADUs are intended to increase access to affordable housing, but the ordinance isn’t expected to make a large impact on Chicago’s affordable housing gap.

What are Accessory Dwelling Units?

An accessory dwelling unit is a general term for any kind of secondary, smaller dwelling that is located within the same property as a single-family or multi-family building. The most apparent examples in Chicago are the vintage coach houses that are situated on top of garages. Other types of ADUs include units in attics, basements, rear additions, or standalone backyard cottages (also known as granny flats). ADUs have been banned in Chicago since 1957 due to the fears of overcrowding following the city’s rapid population growth after World War II.

Chicago’s affordable housing problem

Now 64 years later, the combination of population decline, lack of affordable housing options, and slow pace of homebuilding projects are taking its toll on the city’s housing stock. Chicago’s pace of housing construction in 2019 was less than half of the nation’s pace and it built the smallest share of new housing units in 2019 among the nation’s 10 biggest metropolitan areas. Further, Chicago’s population dipped 0.4% from 2013 to 2018, which was the only top 10 metro area to lose population in that period. According to DePaul’s Institute for Housing Studies, Chicago has a rental affordability gap of approximately 116,000 units with 333,00 low-income households and only 217,000 affordable housing units. Between 2007 and 2017, Chicago’s affordable housing ordinance only produced 440 new affordable housing units in market-rate developments.

ADUs can only modestly help Chicago’s housing stock

Chicago’s ADU program will initially be a three-year evaluation period in five pilot zones to report on ADU activities and make recommendations for a permanent citywide policy. These five pilot zones are spread across the city with North, Northwest, West, South, and Southeast zones. “We have seen a lot of interest [in ADUs], particularly in communities that recognize the units as a type of housing that already exists,” said Daniel Hertz, policy director for the city’s Department of Housing. “In many cases, people have family and friends who already live in basement units or coach houses, and the fact that these units have not been considered legal reflects an outdated idea about what housing in our neighborhoods ought to be. This [ordinance change] is a way to recognize the ways people are currently living and put some resources into making that better.”

The ordinance’s only affordability requirements are that property owners shall make one unit affordable (up to 60% of the area median income) for every two ADUs that they build. While this might sound promising on paper, in reality, most property owners will only build one ADU on their property and therefore not be subject to the affordability requirement. Chicago City Council Alderman Matt Martin, a sponsor of the ordinance, conceded that “we’re not talking about tens of thousands of units of new housing, whether its market-rate or affordable, coming online. We’re talking about maybe dozens or hundreds every years, so it’s modest”. Also, most experts believe that ADUs can’t make a large impact towards easing affordable housing crises because they are built by individual property owners rather than on a mass scale.

Ways to improve Chicago’s ADU program

One of the most promising ways to increase ADU construction is to create more financial incentives for homeowners to build them. Studies have shown that financing has been the biggest hurdle for people who want to build an ADU. The City could provide homeowners with low-interest loans, bridge loans, or loans against the future value of an ADU to homeowners. Another effective financial incentive would be in the form of a homeowner exception for property taxes, which would allow $75,000 of home improvements to be exempt from property taxes for five years.

Beyond financing, other methods of increasing the construction of ADUs include creating permissive zoning laws and standardized preapproved designs. Permissive zoning laws that allow ADUs to be built “as of right” in all residential zones would drastically expand properties that qualify without the need for zoning board approval for each property. Preapproved designs for ADUs could make it easier for homeowners to assess feasibility as well as a reduction in the planning and permitting process.

While these aforementioned ideas are focused on the homeowner perspective, an improved ADU ordinance needs to pay more attention to the potential tenants of these ADUs by creating stronger affordability requirements. Nevertheless, even the most robust ADU ordinance will not make a large dent in Chicago’s affordable housing gap. The City needs to continue to revamp the affordable housing ordinance in order to better incentivize developers to build affordable units in general on a sizeable scale.