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Aldermen deadlock on new housing tax

Evanston aldermen split 4-4 Monday on a measure that would raise its recently adopted tax on new condo developments from an average of $4,000 to as much as $8,560 per unit.

The tax is framed as an expense to be borne by condominium and townhouse developers to subsidize affordable housing programs, but depending on market forces, some or all of the cost will be passed along to condo buyers.

The council's debate came just a month after Evanston voters rejected increasing the tax on all real estate sales by 20 percent to fund affordable housing.  

The recently adopted condo construction tax is calculated relatively simply as a flat $40,000 charge for each 10 units in a development.

The new measure would add a requirement that 3 percent of all units in a project be sold at below-market prices. Calculating the impact of that measure was so complex that the city hired a real estate consultant to try to figure out what it would cost.

With Alderman Delores Holmes absent because of the illness of her husband, the aldermen Monday received a report from consultant Valerie Kretchmer that looked at the impact of the new measure on real estate developers.

Ms. Kretchmer said the typical developer now earns a 10 percent profit on a project and that banks that finance new construction are reluctant to approve projects with a profit ratio much lower than that norm.

She said the median price of a newly-constructed two-bedroom condominium in Evanston is $384,000 and that for that unit to be affordable to someone earning 80 percent of the area median income it would have to sell for half its market-rate price.

She concluded that if developers are unable to pass along the cost to buyers, the new measure would reduce their profit margin to between 8.1 percent and 9.1 percent, depending on how low the incomes of the ultimate buyers turn out to be.

Her analysis did not consider the impact of the tax adopted last month, which, if it can't be passed along to buyers, has already shaved one percentage point off the developer's profit margin.

Developer Bob Horner, whose projects in Evanston include the Winthrop Club at 1567 Maple Ave., said the increase would add up to an effective 22 percent tax by the city on developer profits. "We only pay the state and feds combined 40 percent," Mr. Horner said

"You can't pass this along to the buyer in Evanston," he added, "they can buy in Chicago, Des Plaines or Arlington Heights instead. You'll be making yourself uncompetitive."

Alderman Edmund Moran, 6th Ward, said, "We have a fabulous market here in Evanston, and part of what makes it so attractive is the community's progressive tendencies and willingness to look out for issues like affordable housing."

Alderman Melissa Wynne, 3rd Ward, said the city now has a price advantage over Chicago that she feared could be lost under the new ordinance.

"What I'm concerned about is that we're designing soething for a market that was a once-in-20-years market and that we're not going to see that again. We've done that before — with our zoning ordinance — and came to regret it," Ald. Wynne said, "To say our market is hot is to not understand the statistics" in the report.

The aldermen will take up the affordable housing issue again at their Jan. 8 meeting.

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