Link to full article at A City That Works
Chicago is at a financial tipping point. Our decades-long inability to fund municipal employee and teacher pensions or craft sensible yearly school and city budgets has culminated in consistent bond rating reductions, conversations about bankruptcy, and fears of increasing economic irrelevancy.
Our city leaders know this. Two recent reports from the Ernst & Young Consulting Group and the Chicago Financial Future Task Force outline various recommendations addressing these issues. The 180+ pages in these reports are exhaustive on fees, fines, and service efficiencies, but they neglect a powerful revenue option completely in City Council’s control: changing land use rules to grow the tax base - particularly by upzoning residential neighborhoods.
To be clear, I don’t mean increasing the property tax on individual units. We already have some of the highest residential property taxes in the nation. Recent tax reassessments have resulted in skyrocketing property tax increases for many of our neighborhoods. The reasons behind these changes are numerous and beyond the scope of our conversation today. But it’s no coincidence that the neighborhoods that have the most units per acre are also the ones who contribute more tax per acre. Growing the number of units per acre enables us to spread the tax levy over more units - bringing in more revenue without raising taxes on individual units.
Property taxes are the largest and most stable recurring revenue source for Chicago’s local governments. Growing our property base through new development lets us expand our tax levy without raising taxes on individual homes. Today, just 11% of the city is zoned to allow more than 3 units on a single lot. The vast majority of residential land in the city only permits single-family houses1. More units on more lots means more revenue without resorting to hiking fees, fines, or taxes. A simple example: replacing a $500,000 single-family home with a $1.2 million four-flat generates 2.5 times the tax revenue on that same lot.And we have multiple ways to get there, like allowing accessory dwelling units2 and four-flat construction by right citywide. City Council can pass such zoning changes at any time. By allowing these units to be built, we’d increase our tax base with the stroke of a pen and without nickel-and-diming our fellow Chicagoans.
Analysis from zoning reforms across the U.S. highlight the fiscal benefits these changes can generate. In Fairfax, Virginia, a five story apartment building - like many of those we have around our transit stops today - accounts for more than 17x the property tax revenue per acre of a single-family home3. In Los Angeles, allowing multifamily near transit “create[d] capacity to grow the City of LA’s annual property tax income by nearly $1 billion”.4 And right here in Chicago, Michael McLean estimated that the recently passed Broadway upzoning can contribute $30 - 60 million dollars more in property tax revenue, “assuming that developers end up building between 30 and 60 percent of the 18,000 units allowed by the upzoning”5. By not legalizing more efficient land use rules across the entire city, we’re leaving money on the table at a time when we can’t afford to do so.
There’s plenty of evidence that demand currently outstrips the City’s supply of housing. Many of Chicago’s most in-demand neighborhoods are filled with three-flats, six-flats, and courtyard apartments that are technically illegal to build today. The high demand and low vacancy in these ‘legal non-conforming’ buildings prove the market is desperate for this type of housing. Rent increases in Chicago have been among the fastest of any major city. Illinois’s supply of housing for sale since 2019 has fallen by more than half. The demand for the new units is there. We just need to allow the new units to be built, and the property tax revenue they’ll generate will soon follow.
As the City Council debates which services to cut and which taxes and fees to raise, they shouldn’t overlook a revenue source that doesn’t require taking more from struggling Chicagoans: allowing more units to be built. Growing our tax base in this fashion is the first step to a more sustainable fiscal future for the city.
If you want to contribute to this future, please consider joining Abundant Housing Illinois - or at least signing up for our monthly newsletter. We’re a grassroots organization working to build a city and state where we can build homes of all kinds so our current neighbors can stay and new neighbors can move here, enriching our lives and our public coffers. We’ll let you know when to call your alder and tell them to support raising much-needed revenue by letting that next apartment building get built. Together we can build the housing we need and secure the revenue we deserve.
1 Or at best, 1 single-family home and 1 accessory dwelling unit like a basement apartment if the lot is lucky enough to be in one of the wards where the alderman’s whims allow them to be built.
2 We did recently allow more ADUs across the city, but not in a way we can describe as truly by right.
3 Land Use Efficiency in Fairfax City, Virginia Through Per Acre Property Tax Analysis, page 93, table 7.
4 How Land Use Reform Could Help Solve the Los Angeles Budget Crisis
5 Proactive upzoning is a recipe for lower rents and more tax revenue