CHICAGO: Large Lots Program, "castle-making", 87,000 distressed properties, and 135 opportunity zones

55,000. That would be the number of abandoned homes in the city of Chicago.

32,000. That would be the number of vacant lots in the city of Chicago.

In order to increase Chicago's tax base, vacant, abandoned, and distressed homes could be renovated, rehabbed, and then transitioned to new owner-occupying home buyers. Vacant city lots could conveyed to new owners too...new property owners, who then pay the property taxes to the city.

While Chicago is saddled with a high number of non-performing distressed homes, a surplus of vacant lots has been, and continues to be, a daunting challenge for the city of Chicago as well.

Since 2015, Chicago sold 1,250 out of approximately 11,500 vacant city lots. Vacant lot sales by the city have been pursued in order to...a) revitalize neighborhoods, and, b) increase property tax revenue.

Chicago has their Large Lots Program. In this Program, local property owners are permitted to purchase up to two vacant city lots. The vacant lots acquired need to be located on city blocks on which the buyer of the lots already owns city property. The price for the lot(s)? $1 for each vacant lot.

Flipping homes is known to bring an overabundance of single-family rental housing into a neighborhood. As such, the artificially-inflated increase in the number of rental homes in a neighborhood - by way of flipping homes, in lieu of managed city planning - could destabilize a neighborhood.

Renters, along with property owners who do not have a vested neighborhood interest, could be less inclined to maintain properties. Consequently, flipping lots, and going further, real estate speculation in general, each have no place in Chicago's Large Lots Program. In order to prevent real estate speculation - and the flipping of properties - Chicago places a stipulation on the lot sales in the Large Lots Program. City lots acquired in the Large Lots Program must be held for at least five years. 

Whereas the Large Lots Program is a Chicago city program put into place to transition non-performing vacant city lots to new tax-paying property owners, "deconversion" is a market response to the high number of distressed multi-family properties in Chicago.

Deconversion - i.e.: "castle making" - occurs when a buyer purchases a building which consists of multiple apartments. The buyer then remodels the property, into an expansive single-family dwelling. An upside to deconversion is, the preservation of the historic exteriors of properties located in historic Chicago neighborhoods. Updated Chicago properties...increased market values of updated Chicago properties...leads to, the creation of additional property tax revenue, for the city of Chicago.

However, "castle making", while there are "pluses" to "castle-making", does come with perceived downsides as well.

"Castle-making" diminishes the already-dwindling stock of potential affordable housing units, in Chicago. The duplicative objectives within Chicago - a) to create a larger tax base, balanced against, b) the provision of affordable housing - is structurally conflicted. Conflicted in that "castle-marking" does in fact create the sought-after added property tax revenue for the city. Yet "castle-making" does then in-turn reduce the number of potential affordable housing units available, in Chicago.

In Chicago, "castle making", combined with the demolition of upwards of 20,000 multi-family buildings between the years 2010 and 2016 - the demolished properties were two, three, and four-flats - further complicates the city's objectives, pertaining to the provision of affordable housing options. 

Twenty-thousand demolished distressed and vacant Chicago properties, has a similar barren effect, on Chicago's finances, as would, the 10,000 (estimated) remaining vacant city lots in Chicago's Large Lots Program. Twenty thousand demolished buildings, and ten thousand vacant lots owned by the city? Neither property group brings in any property tax revenue, to the city of Chicago.

An affordable rental in Chicago, is $940.00/month in rent. $940/month in rent consumes about 30% of the monthly income of a "low-income household" in Chicago ($37,641 annual income).

Take 20,000 multi-unit buildings out of the Chicago real estate market...and then there are those 10,000 vacant city lots in the Large Lots Program.

A market-based approach for a real estate developer, might be, to look at cap rates, to assess build costs, look at local labor costs (and labor supply), study "comps" - and demand too - then consider reaching out to the city of Chicago. To learn about incentives available to real estate developers. Then think through an affordable housing real estate development project in one of Chicago's 135 opportunity zones.