- Encourages owners of multifamily rental housing to make improvements and repairs to their property while keeping rents at an affordable level to residents in the community.
- In higher cost markets, new construction rental buildings with 7+ units will be incentivized to set aside a portion of their property to remain affordable to the average working family in the area.
- The policy does not impact property tax rates or taxing district levies, so there is no risk to taxing districts of lost property tax revenue.
- The bill passed with unanimous, bi-partisan support in the Illinois General Assembly, with support from real estate industry groups, such as Illinois REALTORS. The Illinois Municipal League was included in the negotiation process and was neutral on the bill.
Overview of Key Provisions
As part of the omnibus legislation to create and preserve affordable rental homes across Illinois that was signed into law on July 29, HB 2621, there are provisions establishing new property tax incentives for owners of properties with 7 or more units to invest in their properties while keeping rents affordable.
Statewide, there is a shortage of approximately 108,000 affordable and available rental homes for households at 60% of AMI. Local governments in Illinois can play a crucial role in eliminating this shortage, as well as the even larger shortage for lower income households, by embracing the property tax provisions in HB 2621.
In higher cost housing markets, the incentives will keep rents affordable in at least 15% of a property’s housing units. In lower cost markets, the incentives will promote owners making improvements to their properties, benefiting both the building’s residents and the community. Both market rate and affordable developers can participate.
The required investment in the new construction or substantial rehabilitation of property will increase the assessed values of properties and expand the tax base. The reduction will be applied to the higher, post-construction assessed value. The new incentives do not impact property tax rates or taxing district levies, so there is no risk to taxing districts of lost property tax revenue.
The affordability level targeted by the incentives are to serve households with incomes at or below 60% of area median income (AMI). In the six-county Chicago area, this was $62,520 for a family of four in 2022. AMIs in other parts of the state vary by county. Current maximum tenant income and rents based on household size for all counties in Illinois are available from the Illinois Housing Development Authority (IHDA) by downloading income and rent limits as an Excel file available under “General Reference Documents” at this link. Maximum income levels and rents will be updated annually by IHDA.
There are three different incentive levels, two that are available for owners to apply for in any area where the program is offered and one where the only eligible properties are available in communities with lower amounts of affordable housing. The incentive levels were designed to provide enough of an assessed value reduction to incentivize owners to charge affordable rents in different types of markets.
- Tier 1: Requires new construction or rehab costing $8 per square foot and improvements of two primary building systems. Providing 15% or more affordable units for at least 10 years results in a 25% decrease in assessed value. We believe this tier will be most attractive in higher cost markets.
- Tier 2: Requires new construction or rehab costing $12.50 per square foot and improvements of two primary building systems. Providing 35% or more affordable units for at least 10 years results in a 35% reduction in assessed value. This tier will be more attractive where market rate rents are closer to those required by the program.
- Tier 3: Requires new construction or rehab costing $60 per square foot and improvements of five primary building systems. There is also a requirement for project labor agreement with the applicable local building trades council, which is not required for Tier 1/Tier 2. Providing 20% or more affordable units results in a reduction in assessed value phased out over the course of the 30 years of required affordability. This tieir is only available in “low affordability communities,” where 40% or less of the total housing stock for a municipality is affordable, as determined by IHDA. Statewide, this is currently 152 of 1,298 municipalities, or about 12%. IHDA’s current statewide affordability list is available here. In Chicago, Tier 3 is available in the downtown area and potentially other areas, if approved by a City Council ordinance. Low affordability communities have higher development costs, necessitating a higher property tax reduction to incentivize owners to keep rents affordable.
Investment thresholds are adjusted annually for inflation. The incentive levels, investment requirements and other program details are briefly summarized in this table. A more detailed summary of all property tax provisions in HB 2621 is available here. The legislative language in HB 2621 [Public Act 102-0175] provides additional details about eligibility requirements, qualifying investments, the application process and more.
The state law includes provisions allowing for annual or periodic recertification of eligibility to continue receiving the assessed value reduction, including compliance with local building codes, affordability of rents, tenant income eligibility and any additional reasonably required by the chief county assessment officer.
In Cook County, we and others are working with the Cook County Assessor’s office to develop application materials and other resources necessary to implement the program that other counties will be able to make use of to implement their own program.
Outside of Cook County, provisions in HB 2621 allow county governments to opt-out of offering the Tier 1/Tier 2 incentives (“subparagraph (1) of subsection (c)”) and/or the Tier 3 incentives (“subparagraph (2) of subsection (c)”). State law also provides counties the ability to opt back in after opting out and/or to decide to delay implementation for a certain period of time.
However, after reviewing the program in detail, we are confident that counties will decide that these new property tax policies are excellent tools to promote investment, expand the tax base and serve the affordable housing needs of people in their community.
- On September 23, 2021 the Illinois Housing Council and others hosted a webinar on the new property tax incentive. You can see the slides here and the recording here.
- On October 6, 2021 Housing Action Illinois held a workshop session on the new tools at our annual conference. You can see slides from The Preservation Compact here and Housing Action Illinois here.
- UPDATED: Towards the end of January 2022, the Cook County Assessor posted their application for the “Affordable Housing Special Assessment Program,” as well as other resource materials on the program, here. A DocuSign account is necessary to view the application (a free account can be created here). Applications for the Cook County Program are due by January 31 of each assessment year. Those interested in looking at the application can download blank PDF versions of both parts of the 2022 application, which may have been subsequently updated, at these links: Part 1 and Part 2. There is some information specific to Cook County in the application, e.g., references to the Cook County Class 9 Program, but other counties should be able to use the Cook County application as a template for their programs.
- UPDATED: The Lake County Assessor has posted their application for what they are calling the “Affordable Housing Tax Credit” here. To receive this special assessment on the 2024 tax bill for the 2023 assessment year applicants must have submitted their documentation no later than June 30, 2023.
- UPDATED: If you have questions about whether another county has decided to opt out of offering these incentives, either Tier 1/Tier2 and/or Tier 3, please check with the local tax assessor’s office.
For more information, please contact Bob Palmer, Policy Director for Housing Action Illinois, 312-939-6075 or firstname.lastname@example.org.