A vacant lot is for sale near the 606’s Bloomingdale Trail, a popular amenity that’s now known to have an effect in increasing home values. It’s zoned RS-3, which means it bans apartments. If the zoning stays the same, then the vacant lot will only allow a rich family to move in here. If the lot’s zoning is changed to allow apartments or condos, then the vacant lot could welcome families that earn median incomes.
You can build multi-family housing on the lot if you can get a zoning change, but you’ll have to pay the city a fee, convince your future neighbors that they shouldn’t oppose it, convince the alder that he should support it, and you’ll have to hire a lawyer.
Let’s say that zoning changes in Chicago were free and frictionless*. What should be built on this lot?
If the lot would allow multi-family housing, we can build several units for less money per unit than if we built a single-family house. That means that three families (let’s stick with three, which requires a zoning change to RM-4.5) could be housed for less money per family than the cost of one family.
How’s that? The sticker price for this lot is $425,000 right now, and if one family is paying for that plus the cost of building a house, then your minimum investment is pretty massive. (I suspect the lot will sell for something closer to $400,000.)
I looked at new construction costs on Chicago Cityscape, as indicated on building permits issued within 1 mile of the vacant lot, took the average, and added it to the cost of land per unit.
The average new construction single-family house, from the 10 most recent permits, is $304,052.78.
The average new construction multi-family housing, from the 10 most recent permits, is $230,192.13 per unit.
Total cost per unit (land + construction)
Add in the land cost per unit ($425,000 for the single-family house and $141,666.67 per unit for the 3-flat) and you end up with the total costs of:
- $729,052.78 for the single-family house
- $371,858.80 per unit in the 3-flat
Add in the profit or “cap rate” that a builder wants to make and the price is even higher, but the people who would buy in the multi-family house would be paying much less for their homes.
The city can generate more affordable housing if it “upzones” vacant land and stops banning multi-family housing. (Much of the city’s parcels have been “downzoned” to ban multi-family housing in a process that creates “exclusionary zoning” and allows only – expensive – single-family housing.)
The city and the Chicago Transit Authority will earn more real estate transfer taxes (RPTT) from the sales of the units as condos than from a single-family house.
Three families instead of one would enjoy living to the wonderful amenity that the Bloomingdale Trail and the parks that the 606 offers.
Want this kind of analysis for a property in Chicago? You can order a zoning report from me.
* The City of Chicago charges a zoning change fee of $1,025, and you will most likely have to hire a lawyer, and it will take about 3-6 months, depending on the complexity of the proposal that requires the zoning change. You can use Chicago Cityscape to see actual approval times (excluding the time meeting the alder for the ward of the proposed project).