Illinois Property Tax Incentive Could Change Affordable Housing Development  

In August 2021, Illinois Governor J. B. Pritzker signed into law the Illinois property tax relief program. The state’s Affordable Housing Omnibus Bill adds new depth to the term “omnibus.” The Illinois tax incentive will work to lower property developers, builders, and property renovators as well as relief to lower-income renters, who previously were either stuck in low-quality, low-income housing or had no hopes of finding affordable rentals.

Provisions of the law – How Will the Incentive Lower My Property Taxes?

The Illinois property tax relief program provides a reduced assessed value for at least 10 years (renewable for up to 30 years) for rental buildings with seven or more units that are undergoing a qualifying rehab or are new construction. Developers must set aside a portion of the units for renters who are at or below 60% of the area’s median income level.

The law establishes tiers of housing affordability and tax reductions and incentives according to the percentage of units designated for low-income rentals. Specifically:

Tier 1: The required percentage of affordable units must be 15%. The tax incentive is 25% of the assessed value. To qualify, the units must be new construction or rehabs with $8 per square foot, along with improvements of two primary building systems, e.g., energy efficiency, accessibility.

Tier 2: The required percentage of affordable units is 35%. The tax incentive is 35% of the assessed value. Again, the units must be new construction, but the rehabs must cost $12.50 per square foot with the same improvements in primary building systems.

Tier 3: This is an incentive for lower-income residents to find rentals in high-income areas. This incentive is only available in downtown Chicago and some suburbs. The required percentage of affordable units for these high-rent areas is 20%. This tier works in a gradually reduced tax incentive schedule:

• Years 1-3: 100% of the difference
• Years 4-6: 80% of the difference
• Years 7-9: 60% of the difference
• Years 10-12: 40% of the difference
• Years 13-30: 20% of the difference

As in Tiers 1 and 2, seven or more of the units must be new construction or rehabs costing $60 per square foot.

Goals and benefits of the legislation

This new affordability legislation targets a growing affordable housing shortage in the state, especially in Chicago’s Cook County. Its goal is to reduce racial and economic segregation in high-cost areas by:

• keeping rents affordable in high-cost areas
• making it easier to create new and maintain existing affordable rental housing
• qualifying owners in historically disinvested communities for financing to improve buildings and provide higher quality housing

The new legislation is especially attractive to builders, who have been reluctant to invest in new construction or rehabs because of tax assessment increases. There is no tax burden shift or increase because the reduction applies to the higher after-rehab assessed value with no decrease in property tax revenues. Further details about new legislation can be found in the Newsroom of the Illinois Department of Revenue website.