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Proposed Tax Relief for Affordable Rentals

There has been no lack of legislative initiatives in Springfield lately to preserve and expand the supply of affordable housing in Illinois. Unfortunately, several of these legislative initiatives focus on Rent Control as a cure-all to the region’s affordable housing woes. The Rogers Park Builders Group firmly opposes any effort to adopt rent control in the state. RPBG believes that, far from solving our affordable housing problems, rent control will only make them worse with considerable collateral damage to our livelihoods and the wider economies of the city, region and state.

But a recently introduced bill approaches the affordable housing problem from an entirely different vantage point – one that our organization can and will enthusiastically support. House Bill 2168 is currently up for consideration in the Illinois Assembly and was introduced by Representative Sara Feigenholtz’ (D-Chicago, 12th District). Rep. Feigenholtz has represented the 12th District since 1994, an area that extends along Chicago’s North Side Lakefront from the Gold Coast to Uptown.

HB 2168 is based on a proposal developed by a working group formed under the auspices of the Preservation Compact – a coalition of public, private and nonprofit leaders all working together to preserve affordable rental housing in the region. Steve Thomas, President of 5T Construction Inc., and Rafael Leon, Executive Director of the Chicago Metropolitan Housing Development Corporation (CMHDC), chaired the working group. The challenge was to create a tax incentive program that would provide sufficient incentives to the developers and owners of rental housing for them to create new affordable units, without busting the budget of the taxing bodies that would ultimately award these incentives.

At the time the working group got started, a number of other initiatives were already underway to craft a tax relief program, including efforts by the Illinois Housing Council, SRO owners and large developers. All of these groups were brought into the working group effort, ultimately resulting in the legislation now being proposed. If passed, HB 2168 would amend the Property Tax Code to provide tax incentives to create affordable rental units in exchange for a reduction in the equalized assessed value of the rental properties in which those units are located.

Members of RPBG may recall reading an article in The Builder“New Incentives for Affordable Housing” Spring 2018 – that detailed how this tax relief would work. HB 2168 puts these ideas into legislative form. If passed, the bill will become law in Cook County and may be implemented in any other Illinois county where the local county board votes to adopt it.

To qualify for the proposed tax relief, buildings must contain at least six rental units and include an affordability component. The proposed tax relief is only available to buildings that are newly built or that have undergone qualifying rehabilitation, defined as compliance with local building codes and replacement or renovation of at least two primary building systems. The affordability requirement can be met by lowering rents to required levels, renting to Housing Choice Voucher holders, or using another rent subsidy where households do not pay more than 30% of income. The affordability thresholds work as follows:

  • For multifamily building (more than six units) where at least 15% of the units are rented to households earning not more than 60% of area median income (AMI) at rents that do not exceed 30% of income, the county will reduce the assessed value of the property by an amount equal to 25% of assessed value. The rent and income restrictions must be maintained for a period of at least ten years.
  • For multifamily building (more than six units) where at least 35% of the units are rented to households earning not more than 60% of area median income (AMI) at rents that do not exceed 30% of income, the county will reduce the assessed value of the property by an amount equal to 35% of assessed value. The rent and income restrictions must be maintained for a period of at least ten years.

Mathematical testing of this proposal demonstrates that the first option (15% restriction for 25% reduction in assessed value) would provide a net benefit to property owners in stronger markets, such as Rogers Park, where rising rents have resulted in the displacement of some lower-income households. The second option (35% restriction for 35% reduction in assessed value) would provide a net benefit to property owners in weaker markets where price appreciation has not been as pronounced, but where lower rents will still provide much needed relief to low and moderate-income households. This program is unlikely to provide a net benefit to property owners with rental properties in the strongest markets where rents are high, such as the greater downtown area or Lincoln Park.

While this program may not work for every property in every neighborhood, it is likely to provide a net benefit to property owners across a wide range of urban, suburban and rural areas across the state. This includes Rogers Park where many of our members are most active.

There are many reasons to support HB 2168:

  • First and foremost, it has a high likelihood of succeeding. This legislation is designed to provide a replacement to Cook County’s Class 9 program. For many years, this program was widely used, but fell out of favor after 2008 when multifamily property assessments were changed from 20% to 10% of market value. HB 2168 is designed to work under the new assessment system, once again providing meaningful and predictable tax relief to property owners who agree to its terms.
  • Second, it relies on market-based solutions. Our market economy has generated tremendous wealth that has benefitted a broad cross-section of our society. HB 2168 uses market forces to incentivize property owners to forego some rental income in exchange for a slightly larger tax benefit to create an even wider distribution of benefits, enabling more low and moderate-income households to obtain housing at affordable rents in a broad array of locations.
  • Third, it’s fair. This legislation benefits everyone. The supply of affordable units will increase. Any loss of rental income to properties owners will be compensated by an even greater benefit from reduced property taxes. No property owner is obligated to use it if he or she does not choose to do so. Unlike rent control and similar proposals, the costs of this program will be equally shared by all taxpayers – this includes, but is not limited to, property owners.
  • Fourth, the carrot is always better than the stick. Nobody likes to be made a scapegoat for problems which they do not fully control. This describes how property owners feel about the affordable housing problem in Chicago. We all recognize that the problem exists. But we reject the efforts of many “progressives” and tenants’ rights groups to lay both the blame, and the full cost of the solution, at our feet. HB 2168 avoids this problem by providing incentives to all interest groups (tenants and property owners), while spreading the cost more equitably among all taxpayers. We should expect more of this kind of creative legislation from all levels of government. Sadly, in these polarized times, HB 2168 is the exception, not the rule.

We applaud the Preservation Compact for crafting the proposal that led to this legislation and are grateful to Representative Feigenholtz for sponsoring it. HB 2168 provides a common sense, market-based solution to a difficult problem. We encourage those individuals and organizations that purport to care about affordable housing to support this proposal, and to work with property owners to find other effective and workable solutions. We will continue to reject any “solutions” that seek to demonize property owners, or that punish us by shifting an undue share of the cost onto our shoulders.

HB 2168 demonstrates that property owners, progressives and tenants’ rights groups can find common ground and work together in our effort to solve the affordable housing problems in the Chicago region. There should be many other areas of agreement that the two sides can find in this effort. We hope that HB 2168 represents just a first step in building a better working relationship between property owners and affordable housing advocates.


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