Affordable housing can be built without raising taxes
It has been a rough start of the year for Mayor Brandon Johnson. In the last several weeks alone, Johnson has had to deal with new Republican leadership in Washington, D.C., plummeting favorability ratings, and both the possible loss of federal funds and a Department of Justice lawsuit over Chicago’s "Sanctuary City" status.
With Johnson’s mayoralty slipping off the rails, it is no surprise the mayor is looking for a rebound. To pull his term in office off life support, Johnson said last Monday he would try again to convince Chicago voters to give the Chicago City Council the power to hike taxes on the sales of properties worth $1 million or more to fight homelessness. Speaking at a town hall about the state of Chicago hosted by WTTW and community organization My Block, My Hood, My City, Johnson returned to his narrative blaming “corporations” and the “ultra rich” for the failure of a ballot measure to “address homelessness,” Bring Chicago Home, which was rejected by 53 percent of Chicago voters in March 2024.
Johnson alleged that the “ultra rich” confused as well as baited voters into believing that that revenue would go somewhere other than what we had purposed it for.
“Here’s what I’m asking the people in Chicago: At the point of which we go for this revenue again, let’s not allow the interests of the corporations as well as the ultra-rich to dictate what working people deserve in this city. We have to pass Bring Chicago Home,” Johnson said.
Opponents of the tax increase, which included apartment owners, the broader real estate community, and business organizations, certainly raised issues of whether the mayor could be trusted with the money. However, the decisive argument for voting against it was the mayor’s deliberate misrepresentation of the measure: Johnson’s presentation of the tax as one borne by millions mansion owners when in reality over 90 percent of the tax would be borne by businesses and apartment owners.
How can one trust a mayor who has spent nearly $500 million on illegal migrants, five times what the tax would have raised, and unilaterally diverted $95 million in pandemic relief funds to pay for migrant housing when it was intended to assist Chicagoans? The fact remains that Chicago has the highest commercial property taxes and general business taxes in the nation and renters will absorb any tax increase on the transfer of apartment property.
The fact remains Mayor Johnson has no comprehensive affordable housing strategy, if you exclude his efforts to house illegal migrants. Johnson’s ostensible regulatory reforms have amounted to deceptiveness thus far and his massive affordable housing subsidies to politically connected developers should send progressives into a frenzy.
The use of Tax Increment Financing (TIF) assistance totaling more than $150 million to downtown developers who are converting office buildings into 300 affordable housing units is a recklessly inefficient use of tax revenue. Just as the misuse of TIF assistance for 300 units is a colossal waste, the use of Multi-Family Program Funds, Illinois Housing Development Authority (IHDA) multifamily housing revenue bonds and IHDA Trust Funds to finance much of $52 million for 37 micro housing units is folly. This is robbery. Calling Elon Musk!
The time has arrived for Chicago to develop a cohesive affordable housing plan. Mayor Johnson should abandon a second attempt at the Bring Chicago Home ballot initiative and consider nine cost-effective alternatives to raising taxes.
Streamline housing approvals
The most promising reforms should concentrate on making it easier to build more, and more varied types of housing. Reforming restrictions on granny flats and other alternative housing units on single-family lots would create more low-cost housing. Between May 2021 and the end of 2022 Chicago approved fewer than 500 of these units.
Chicago also needs to severely cut back on land-use regulations: Over 40 percent of Chicago’s land is reserved for only single-family housing. Allowing single-family property owners to build additional units, along with duplexes, triplexes, etc. in these areas, will greatly boost the affordable housing supply. Finally, shortening the approval time for new developments would produce more housing in less time.
Approximately 17 percent of zoning licenses in Chicago were not processed and were returned to applicants because of insufficient information. Over 1,300 buildings required more than three different inspections per year, according to a Harvard Kennedy School of Business study. That is a recipe for less housing.
The Chicago City Council has Mayor Johnson’s “Cut the Tape” proposal with a number of solid solutions proposed, but they need to be put into action.
Restore unoccupied properties
Chicago can partner with local developers and community-based organizations to renovate thousands of vacant residential properties for middle- and low-income families and to address special needs such as temporary housing for victims of domestic violence, those with chronic drug addictions, returning citizens, and immigrants.
According to the U.S. Census Bureau, there are over 103,000 vacant housing units in Chicago. More than 13,000 of the units are vacant because they need repairs, are abandoned or condemned.
Encourage private sector involvement
Chicago should engage with landlords to create more affordable housing units by facilitating conversions of unused spaces. The additional income would be incentive enough if the impediments were removed for such conversions and the approval process were streamlined and less costly. There are as many as 130,000 apartment buildings, ranging from two-flats to multi-unit buildings of 24 apartments or more, that have space available for conversions.
Simplify tax relief programs
There is an array of programs designed to reduce the impact of property taxes through exemptions, credits, grants, or deferrals. The process for accessing these programs is cumbersome and confusing. Also, benefits must be renewed annually, imposing a particular hardship on the elderly. A simple, one-stop process should be established to access the programs and to secure renewals. The foreclosure statutes should be modified to prevent families and seniors from losing their homes.
Fully utilize resources and assets of the Chicago Housing Authority
Chicago has an affordable housing institution: The Chicago Housing Authority (CHA). The CHA has immense resources, some often squandered, as it operates independently of the city, divorced from any comprehensive affordable housing strategy. The authority must be part of the solution and brought under the direction of the city’s Department of Housing by having the housing commissioner select the authority president, or the commissioner or a designee should serve as the authority board president.
Strategically use property tax abatements
The strategic granting of property tax abatements can be offered for a fixed period to encourage the restoration of residential property and conversion of unimproved space to garden units. Longer-term, tax-exempt status can be provided for housing dedicated to addressing specific housing needs. Those include temporary housing for homeless families, victims of domestic violence, individuals in drug rehabilitation programs, and transitional housing for returning citizens.
Create a city housing trust
A city housing trust can be created and funded by dedicating a share of developer fees, a share of the city’s annual tax increment financing surplus, housing-related fees and fines, or dedicated revenue from legalized gaming. Additional funding can be secured by issuing bonds financed by future, freed-up revenue from retiring tax increment financing districts. The Johnson administration has proposed this move, but a portion of the proceeds must be dedicated to the housing trust.
Take full advantage of the Federal Opportunity Zone (OZ) Program
With Trump returning to the White House, Chicago can expect a revival of Opportunity Zones. Created in the 2017 Tax Cuts and Jobs Act, Opportunity Zones (OZ) are a federal tax incentive which permits investors with recognized capital gains to deploy capital into projects and businesses located in designated areas in exchange for federal tax advantages. OZs can be used for commercial and industrial real estate, housing, infrastructure, and existing or start-up business investments.
Unlike the traditional tax cut model to lure investment in blighted areas, OZs use capital gains incentives to propel investment. Between its establishment in 2017 and 2020, Opportunity Zones unleashed $48 billion worth of direct equity capital for investing in targeted low-income communities affecting over 30 million residents nationwide.
Imposing a property tax cap on unimproved property
While these initiatives will help unleash the housing market and result in an unprecedented improvement on the affordable housing situation, the city needs to take steps to address the issue of gentrification with stifling development and new housing investment. This requires the capping of local property taxes for individual residential and commercial properties critical to combating gentrification in at-risk neighborhoods
Property taxes raised by the city proper total nearly $1.8 billion, up 105 percent between 2014-2024. Chicago Public Schools raised property taxes by 74 percent in the last decade. The sum for 2024 was $3.7 billion. However, the biggest percentage increase comes from property taxes sucked up by Chicago TIFs. A decade ago, Chicagoans paid about $370 million in property taxes into TIFs. Today, those Chicago TIFs take in about $1.4 billion yearly, up 266 percent in comparison to 2014. In all, city of Chicago and CPS property tax revenues are up 103 percent, three and a half times the 29 percent inflation over the same time period.
Imposing a cap on individual property parcels will allow residents to reap the benefits of rising home values, urge small business development, and foster greater job opportunities while avoiding sharp increases in rents and home values in low- and moderate-income urban neighborhoods. Any revenue impact will be offset by the dramatic increase in housing and home improvements. Economic growth is a much healthier alternative to expanding the revenue base than raising taxes.
Voters did well to reject Johnson’s proposed tax increase. Thankfully Johnson failed to get support for his other taxes, such as the city income tax, the head tax, the hotel-motel tax increase and the jet fuel tax. Chicago’s affordable housing crisis can be addressed without raising taxes by harnessing the potential of the housing market and implementing these nine pragmatic alternatives.
