Cook County Assessor Fritz Kaegi took to the City Club of Chicago stage Thursday to quell worries about a “doom loop” and rising tax bills, telling the crowd concerns of a downtown downward spiral in property values are overblown.
“Higher-end office buildings are doing OK,” he said during his appearance at the lunchtime chat series. “Rents are holding up better, valuations are holding up better, occupancy is holding up better in trophy buildings.”
The doom loop theory is that when big commercial buildings have lower property valuations, it increases the tax burden on homeowners, fueling an exodus of residents. With fewer people to pay, those who stayed would have to pick up more of the tax slack, pushing more to exit and fueling the loss of both homeowners and businesses, accelerating disinvestment and economic decline. Those fears have been sparked by continuing historic highs for vacancy rates in downtown office buildings during the first half of 2024, plus a wave of downtown foreclosures.
Kaegi’s office has not released fresh downtown assessments yet. But the assessor said he worries more about “other people worrying about it,” predicting that worst-case scenario is “not going to play out in Chicago.”
Property taxes are a zero-sum game. When one taxpayer pays less, all the rest make up the difference. In Chicago’s case, downtown office buildings typically pick up a large share of the city’s value and tax burden. When big building values drop, that typically means homeowners will shoulder more tax pain.
But Loop area offices — including in Fulton Market and on the Near North Side — make up a smaller portion of the property tax base than people assume, Kaegi argued, just 20% of Chicago’s tax base, not 40% or 50% as he said some have guessed.
Lower-tier office buildings are seeing more drastic drops in value because of higher vacancies, Kaegi said, citing work-from-home trends. But those lower-tier properties make up “less than 5% of Chicago’s tax base,” Kaegi said. “There’s less at risk than you think.”
Recently built or renovated skyscrapers have fared well, however, according to a recent report from Savills, a commercial real estate firm.
What’s more, the Loop area has a built-in shock absorber: tax increment financing districts. Some of the city’s biggest buildings — including Willis Tower — are located in a TIF. If their value drops, it doesn’t hurt the city’s overall tax base, only the fund balances of each individual TIF.
Still, many homeowners in Chicago have already been caught off guard by their new valuations. The median single-family home value set by Kaegi grew by 16%-19% in several Chicago townships.
“The last three years have been the strongest three-year period for house prices in Cook County and in Chicago than in the past 20,” Kaegi said. “People are still adjusting to that.”
That adjustment meant record property tax hikes in the south suburbs this year and the north suburbs the year before. Kaegi put some blame on the county’s Board of Review, which hears property tax appeals. Because they granted reductions to commercial property owners, residential homeowners paid more.
Kaegi said he is drafting legislation to offer bill relief to low-income residents who see large hikes in their bills. However, Kaegi does not expect to take that legislation to state legislators until next spring. Nor has he identified a funding source to pay for it.
Kaegi’s City Club appearance came after last month’s investigation from the Tribune and Illinois Answers Project found his office had misclassified hundreds of properties across the county, failing to capture new construction and major improvements to homes and businesses.
His office promised it would audit old permits and rework its internal workflows when new permits come in. Taking questions for the first time publicly on those pledges, Kaegi offered little detail, saying the office is “always looking at improving how we find permits.”
