A new state incentive designed to boost affordable housing could be a key piece of the housing puzzle, both developers and affordable advocates say.
The program is designed to spur creation of affordable rental housing in expensive areas and encourage investment in existing affordable units, in exchange for varying property tax incentives. Tucked into a multifaceted housing bill, it was signed into law by Gov J.B. Pritzker at the end of July..
Developers are already weighing its potential, and one has said it is key to plans to keep 20% of units affordable in an upcoming project near booming Fulton Market. Others have said it could also boost the success of recent steps the city has taken to create or preserve affordable housing, including a reworked Affordable Requirements Ordinance governing affordability rules in some buildings.
The program offers several types of cuts to a property’s future assessed value depending on the number of units kept affordable and the level of construction the building undergoes.
Developments must have at least seven units to qualify, include an investment in the property and keep apartments affordable to renters making no more than 60% of the area’s median income. County boards outside Cook can vote to opt out.
“With one pretty simple formula and pretty simple law, we’re accomplishing a lot,” said Stacie Young, president of the affordable rental housing lender Community Investment Corporation, who was involved in creating the new program. “We’re creating affordability and locking in affordability in higher-cost markets, and we’re encouraging investment in lower-cost markets. And we’re not necessarily taking property value off the table.”
One tier of the program targets the creation of affordable units in new construction buildings and gut rehabs in designated expensive areas, including downtown Chicago. If eligible buildings keep at least 20% of their units affordable, they can see steep cuts to their future assessed value, and the cuts will diminish over time. They are required to commit to the program for 30 years.
The prospect of that incentive convinced developer Related Midwest to keep 20% of units affordable in a planned 43-story building near Fulton Market.
The developer had long been trying to create a building with that mix of affordable and market-rate units, but needed the incentive to make the project’s economics and financing work, Related President Curt Bailey said. Renting just a portion of the building at market rate wouldn’t support the debt on the project, he said.
Now, the company plans to keep 60 of the building’s expected 300 units affordable, he said. Work has begun to clear part of the site on North Peoria Street near West Randolph in preparation for the project’s construction.
“That means all the people that work in that immediate area — and you think of how many restaurants are there and coffee shops and, really, businesses, and you have people at all income levels at these businesses — this is a really great place for them to live and walk out their front door and get to work,” he said.
Another branch of the incentive program calls for properties that set aside 15% to 35% of units at affordable rates and that invest in upgrades to see their assessed value, after the upgrades, reduced by one-quarter. Properties that set aside more affordable units and include more upgrades will have their property value reduced by 35%.
The program lasts at least 10 years, with the option to extend up to 30.
The incentive could help small developers keep up with maintenance on buildings that naturally rent at lower rates, said Steve Thomas, who handles development and acquisitions for 5T management, and has dozens of buildings on the South Side. That, in turn, helps improve neighborhoods, he said.
“Each year, our taxes are going up, the water’s going up, and we’re capped (by the market) at what we can really charge,” he said. “So each year it makes it more difficult for us to invest in that building.”
The property tax incentive could help with two projects he hopes to undertake: rehab of a 167-unit, 12-building Englewood development, including upgrading roofs, masonry and systems like boilers; and turning a Pilsen theater into 42 units of affordable rental housing. Though the projects were conceived before the incentive was approved, it could provide a financial cushion for both, he said.
The incentive has its roots in a Cook County program advocates say had become outdated and ineffective. Advocates have long pushed for some type of updated affordable housing property tax incentive, many said.
“I think that the pandemic has refocused attention on affordable housing as a really important, pressing issue,” said Bob Palmer, policy director for Housing Action Illinois, which was involved in drafting the program.
Developers have criticized Chicago’s Affordable Requirements Ordinance that requires developers create affordable units with many new projects, but Michael Mini, executive vice president at the Chicagoland Apartment Association, said the property tax incentive could offset the costs for developers associated with the requirement. It could also help convince developers to create the required affordable units on-site, rather than building them outside high-cost neighborhoods, he said.
“If we’re serious about addressing the affordable housing issue, we really need to be doing everything we can to attract new construction, new development and maintenance of existing apartments,” he said.
Chicago Ald. Daniel La Spata, an affordable housing advocate whose 1st Ward includes expensive neighborhoods like Wicker Park and Logan Square, described the incentive as a “catalyst” to make other affordable housing programs work more effectively. It provides a tool he can offer developers to encourage them to bring affordability back to areas of his ward where it has been lost, he said.
That affordability can be crucial to his ward, helping stabilize declining school populations and boosting businesses and neighborhood institutions, he said.
“It both helps people stay in the neighborhood, and then it helps them hold on to and create cultural and community spaces in the community as well,” he said.
For developer The Habitat Company, the property tax incentive and prospect of lower taxes is “a big step” toward helping create and preserve affordable housing, and encouraging mixed-income development, said Charlton Hamer, senior vice president of the company’s affordable group.
The Habitat Company is still assessing the incentive, but it could apply to one transit-oriented development already planned near the 43rd Street Green Line station in Bronzeville, slated to bring 99 units and retail to the neighborhood. Half the units will be market rate and half affordable, Hamer said.
Another project underway on Ogden Avenue might also qualify, he said. Part of the Ogden Commons development in Douglas Park is slated to include nearly 80 units of affordable housing, he said.
Though those projects were in the works before the incentive came to light and rely on other types of affordable financing, the new tax incentive can be one tool that helps fill in funding gaps for other, similar projects, he said.
“It’s a business, and it’s one where the economics have to work for each project,” he said. “That’s simply what it comes down to.”
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