The State of Colorado defines regulatory barriers to affordable housing development as an action that "prohibits or discourages the construction of affordable housing without sound reason…or procedure that excessively increases the cost of new rehabilitated housing, either by improperly restricting the location of housing, or by imposing unjustified restrictions on housing development with little or no demonstrated compensating benefit" (2000).

In August 2002, Business and Professional People for the Public Interest (BPI) conducted a survey of developers and homebuilders in northeastern Illinois. Survey results are illustrative at best (Business and Professional People for the Public Interest, 2003); nonetheless, the results paint a distressing picture. The vast majority of those surveyed believe that there are local regulatory barriers that make the development of affordable housing difficult (BPI, 2003). They cite the length of the approval process, large minimum lot-size requirements, lower density requirements, and lack of land zoned for multi-family housing as the top four issues that prove to be significant barriers to developing affordable housing in northeastern Illinois (BPI, 2003).

To learn more about regulatory barriers and housing affordability in the region, please click here to read the strategy report.

Some developers interviewed in preparation for this research agreed that development costs associated with rehabilitation exceeded those associated with demolition and new construction for two reasons. First, there are too many unknowns inherent in any rehabilitation project. Structural conditions are difficult to determine before a project begins, which leads to uncertain development costs and profit margins. In contrast land condition is the only unknown in new construction. Second, for the same reason, rehabilitations are not subject to the same economies of scale that make new construction so profitable. These developers also pointed out that the cost of dealing with government entities, mostly in terms of time spent in the approval process, make subsidized rehabilitation and construction projects unattractive.

Developers and housing experts alike, when interviewed, pointed to the cost of land as an overwhelming barrier to preserving affordable housing units as well as housing stock overall. A municipal affordable housing planner pointed out that it is nearly impossible to sell or lease a unit for less than the value of the land upon which it sits regardless of the housing strategies used. In affluent municipalities, this makes affordable housing development much more challenging. It also can lead to a lack of income diversity.

In terms of overall housing stock preservation, there is less of a market incentive to rehabilitate housing structures worth less than the price of the land upon which they sit. Based on analysis conducted for CMAP's Infill Snapshot Report, it was found that obstacles to infill development include difficulty consolidating parcels, general apprehension toward increased density, and often higher private development costs. All of these have an adverse effect on the amount of multi-family housing that is built throughout northeastern Illinois, regardless of price point. Some areas have outdated regulations that make it easier to develop greenfields than to build on infill sites. However, aforementioned private costs do not fully account for the public costs of connecting greenfield development to existing infrastructure or the social costs of increasing impervious surface area.

It is a common perception that new housing units provide a higher degree of energy efficiency and therefore lower energy costs. This is a huge concern, especially for low-income households. In its allocation plan for LIHTCs, the State of Illinois looks favorably upon proposed affordable housing developments with energy cost-saving amenities (National Housing Trust, 2007). However, these can be expensive additions, the costs of which are usually passed on to the consumer.