Bring Chicago Home - The Unintended Consequences of Bad Policy

By Corey Oliver, CEO, Community Venture Investment Corporation: A Chicago Grown Naturally Occurring Affordable Housing Provider

The Bring Chicago Home binding referendum on the March 19, 2024, ballot in Chicago aims to address issues of homelessness by raising the transfer tax on properties sold over $1M It claims that the tax can generated $100M per year that will be put towards the goal of housing the homeless, addressing issues of housing instability, and providing funding for other services that some of the most vulnerable citizens in the city face. Proponents of the tax claim they can tax the rich while protecting the vast majority of Chicagoans.

But is this true? Can they actually create a tax that will benefit 94% of Chicagoans while having no adverse impact on the remaining population. The short answer is no. The longer answer is a bit more complex.

For the last 19 years, my family has been dedicated to providing affordable housing across Chicago’s south and west sides. We have learned that there are two primary ways to to approach affordable housing. The first way is what we call “big A” affordable housing. This is often what you see when large developments pop up in low-income neighborhoods, often layered with different types of public money There are federal income restrictions placed on the properties that will keep them affordable for the years to come These properties can also cost $600k or more per unit to develop. This is the type of development proposed to be protected from any impact of the transfer tax.

The other way that affordable housing is provided is through private ownership. These properties are often owned by smaller community developers that carry the responsibility of the debt and operations of the buildings they own. They are called Naturally Occurring Affordable Housing (NOAH) developers. Most of the affordable housing in the city is provided by this group. The developers often don’t have deed restrictions that force them to keep rent affordable, nor do they have resources for bailouts if their investments fail. They are connected to their properties and care about the communities they serve. This is the group that will be directly impacted by the proposed transfer tax. This is the impact that I want to speak about.

First, as a multifamily property operator, I can tell you that it is extremely difficult to operate operator, I can tell you that it is extremely difficult to operate buildings and keep them affordable. We constantly face increases in the cost of materials, utilities, and labor. In this post-COVID world, we are seeing increases across the board of almost every expense related to operating properties The transfer tax will present untenable exit scenarios for distressed owners.

If struggling owners cannot sell their properties and they cannot keep and sustain management of their properties, then those properties are destined to end up vacated and boarded up. This will lead to a decrease in the availability of affordable units, which, in turn, will in turn force rents to increase due to high demand and short housing stock. Furthermore, rents will have to increase to support the additional costs, even if that owner isn’t selling today Why? Because when an owner is ready to sell, they need to be able to provide 12 months of financial statements to support the operation of a building. This means if they want to sell next year, they need to start planning for the sale in the present, which includes making cost adjustments to account for additional taxes.