Challenges in the Creation of Mixed-Use Affordable Housing: Measuring and Explaining Its Limited Prevalence

ABSTRACT

Mixed-use affordable housing buildings collocate residences and commercial uses. The Low-Income Housing Tax Credit (LIHTC) program provides one mechanism to fund such structures. But the literature offers little insight into the frequency of mixed-use LIHTC buildings, partly because of a lack of data identifying them, and it does not pinpoint conditions that facilitate their development. I explore these issues through a Chicago, Illinois, case study. First, I analyze imagery to create the first database of mixed-use LIHTC buildings. I show that only 5% of LIHTC structures incorporate commercial uses, and that these are concentrated in wealthier, whiter, and already retail-heavy neighborhoods. Second, I use stakeholder interviews to explain the low rate and selective location of mixed-use projects; I find that the stiffest barriers are conflicting governmental policies, difficulties securing financing in the context of a perception of weak retail demand and investor desires for reliable returns, and design constraints.

KEYWORDS:

• affordable housing
• mixed use
• retail
• LIHTC

Acknowledgments

Thanks to the interviewees for their willingness to devote time to this research. Thanks to Gabriella Carolini, Ingrid Gould Ellen, Nicholas Kelly, Daniel Nichanian, Prassanna Raman, Justin Steil, Lawrence Vale, Steven Vance, and the anonymous reviewers for their aid in planning and revising this article.

Disclosure Statement

The author notes, for the sake of full transparency, that he worked in the nonprofit sector in Chicago between 2013 and 2016 and interacted with many of the individuals and organizations described in this study during that time.

Supplementary Material

Supplemental data for this article can be accessed here.

Notes

1. There are varying findings on the health benefits of access to food stores. Yen and Kaplan (1999) show that supermarkets in Alameda County, California, improved health outcomes, and Morland, Diez Roux, and Wing (2006) find that they lowered the prevalence of obesity. In contrast, Cummins, Flint, and Matthews (2014) document that the opening of a supermarket in a Philadelphia, Pennsylvania, food desert did not increase intake of healthy foods, and Fiechtner et al. (2013) suggest that living close to food stores increased body mass index among already overweight children.

2. Varying allocation of federal funds by states is hardly an issue confined to LIHTC projects; for a discussion on how such variation affects Community Development Block Grants, for example, see Brooks and Sinitsyn (2014).

3. As noted by a reviewer, there is no universal agreement on the need to revitalize low-income communities, and mixed-use projects may be seen in particular as generators of gentrification. This article, however, does not examine either the revitalization or the equity impacts of such developments, questions that require future research.

4. A relatively new program from Freddie Mac is making market-rate mixed-use projects more feasible (Langdon, 2017).

5. That said, the database is not fully accurate (Oakley, 2008; Vale & Freemark, forthcoming). The City of Chicago maintains an affordable housing database (also without building-level information), but for consistency and generalizability, I used the national database as the source for this research.

6. A full list of sources used to undertake this analysis is available upon request.

7. The presence of mixed uses remained relatively stable across project completion years, suggesting no general movement toward or away from mixed-use projects. The rarity of mixed uses among Chicago projects is likely not an outlier. I examined the California Housing Finance Agency’s project-level data, which includes information about commercial space in LIHTC projects. This analysis showed that 7.3% of projects statewide include such uses; that rate is higher among new-construction LIHTC (8.75%), and in large cities like Los Angeles, San Francisco, and San Jose, California (9%, 25%, and 16%, respectively), but it still constitutes a small minority of projects.

8. Chicago business licenses make it simple to identify commercial entities offering food, so I used this category to characterize neighborhood use mix. The data do not, however, concisely encapsulate other types of commercial businesses.

9. In June 2018, Emanuel announced a plan to demerge the agencies to recreate a Department of Housing to refocus the city on addressing affordable housing needs (Spielman, 2018).

10. However, its sources largely do not support operating funds, which are often necessary to keep small-scale retailers alive.

11. The city’s recent transit-oriented development ordinance reduced parking requirements for projects near rail stations.

12. In such circumstances, developers must use “a reasonable explanation,” according to a tax-credit lawyer, to divide up capital costs for shared elements, such as the roof, lobby, and elevators.

13. For developers who work on projects involving rehabilitation of older buildings, there is typically little interest in adding commercial uses, even where it once existed. “Retail in rehabs is kind of a nonstarter because we don’t want to lose units,” a developer described. “If you take units away, it hurts our operating costs more directly than losing retail income.”

14. One developer noted that “most of the buildings you can build with tax credits don’t lend themselves to mixed use. The sweet spot,” itself hard to achieve in a city like Chicago, “is suburban, garden buildings, stick-built construction.”

Additional information

Notes on contributors

Yonah Freemark

Yonah Freemark is a PhD candidate in the Department of Urban Studies and Planning at the Massachusetts Institute of Technology.