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, 2021, 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. (Note that some of the provisions in the original bill have subsequently been amended. Please refer to Property Tax Code (35 ILCS 200/15-178) for the current law.)
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.
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 $66,180 for a family of four in 2023. 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 limits and maximum rent as an Excel file available at this link. (Use the “regular” maximum rents and income limits in the Excel file.) Maximum rents and income limits 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.
- 15% Affordability: 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.
- 35% Affordability: 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.
- 20% Affordability: 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 for this level of inentive. 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. Outside Chicago, this tier 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. Based on IHDA’s most recent analysis, released in December 2023, this is currently 146 of 1,298 municipalities, or about 11% of all communities. IHDA’s current statewide affordability list is available here. In Chicago, this option is available in the downtown area and potentially other areas, if approved by a City Council ordinance. The rationale for this level if incentive is that 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 the Property Tax Code (35 ILCS 200/15-178) 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.
Outside of Cook County, provisions in HB 2621 allow county governments to opt-out of offering the 15%/35% incentives (“subparagraph (1) of subsection (c)”) and/or the 20% incentives (“subparagraph (2) of subsection (c)”). State law also provides counties the ability to opt back in after opting out, e.g., 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.
Additional Resources:
- On September 23, 2021 the Illinois Housing Council and others hosted a webinar on the new property tax incentive. You can see 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.
- In January 2022, the Cook County Assessor posted their initial 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). To receive the special assessment on the 2024 tax bill for the 2023 assessment year, eligible applicants should submit parts 1 and 2 of the application no later than September 5th of the same assessment year. Those interested in looking at a sample 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.
- 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.
- If you have questions about whether another county has decided to opt out of offering these incentives, please check with the local tax assessor’s office.
- The state law allows county assessors to determine a reasonable application fee and set certain other application requirements. Property owners should confirm what these application requirements are prior to submitting an application. In August 2023, the Illinois Department of Revenue revised a sample set of application documents, but they way not match the application created and required by your local county. Housing Actoon Illinois has posted the IDOR sample forms here for illustrative purposes. Please check with your local county to determine actual application requirements and to see if they will accept the IDOR sample forms as part of the application process.
- The Illinois Housing Development Authority (IHDA) has created a webpage with information on this and other provisions in the Property Tax Code to encourage the development and rehabilitation of affordable housing. Access that here.
For more information, please contact Bob Palmer, Policy Director for Housing Action Illinois, 312-939-6075 or bob@housingactionil.org.