More real estate organizations are raising their voices against a proposal to triple taxes on Chicago property sales over $1 million, an idea brought back to the table as mayoral candidates try to find their footing on thorny issues of addressing homelessness and affordable housing.
The measure, called Bring Chicago Home, is backed by mayoral candidate Brandon Johnson and opposed by his opponent Paul Vallas.
While it’s no surprise that Illinois REALTORS is against the proposal as the trade organization represents agents across the state who feel the tax would tamp down prices and deal volume in the high-end market and thus their commissions, some commercial real estate players have spoken out against the idea since it resurfaced on the campaign trail, as well.
It’s made the rhetoric around the issue more rounded than the run up to last year’s election in Los Angeles, where the impact on commercial assets of a similar new tax hike on properties traded for $5 million or more was overlooked before getting passed by voters, sending market players scrambling to complete deals before the measure takes effect next month and drying up financing for some properties.
Activists who back the proposal in Chicago had a discussion of the measure turned down by city council last year, but they see a new path forward in Johnson.
It’s nicknamed the “mansion tax,” as most residential buyers purchasing property over $1 million are likely on the higher end of the housing market, even though the proposal would also hit commercial real estate, where $1 million is closer to the market’s entry point.
“We are very much opposed to that,” said Michael Mini of the Chicagoland Apartment Association, which endorsed Vallas on Monday along with a slew of other area business groups.
Easing the process to get housing development approved is the best way to alleviate affordable housing shortages, his group said.
Currently, Chicago’s one-time transfer tax costs $7,500 per $1 million of sale value. The proposal would more than triple that to 2.65 percent, or $26,500 per $1 million. The additional money would all go toward addressing homelessness, but the proposal doesn’t say how or which city fund the money would go to. The advocates behind Bring Chicago Home say the proposal would generate an additional $163 million annually.
It’s unclear whether the measure has support in city council should Johnson be elected. Neither Johnson nor Vallas responded to requests for comment.
The additional real estate transfer tax echoes broader views of each candidate on the industry and their support bases. Johnson’s support of some form of rent control has also raised red flags with real estate industry groups.
“Do we want that to be what we tell businesses looking at expanding here or coming here? The real estate transfer tax which affects every industry and homeowners, it affects commercial hotels, all businesses we want to come here and grow here and expand here,” said Jack Lavin of the Chicagoland Area of Commerce, which also endorsed Vallas on Monday. “All these taxes are very concerning, especially when our small businesses are also facing all these other challenges.”
Plus, residential market leaders are paying close attention to the fate of the transfer tax proposal, too. Illinois REALTORS spent big on aldermanic races in the March election.
The group said it doesn’t endorse candidates and wouldn’t comment on whether they had elected to provide financial support for either Johnson or Vallas, but did say it won’t support Bring Chicago Home. It said the tax will make it harder for families in Chicago to pool their resources on small multifamily properties, and also noted that the tax would be “highly volatile” and if the housing market or the broader economy takes a downtown, tax revenue would shrink.
“Illinois REALTORS supports dedicated funding to combat homelessness and encourage homeownership,” the group’s spokesperson Anthony Hebron said in a statement. “This real estate tax increase will make it more expensive for everyone from grocers, health care facilities and small businesses to open in our neighborhoods. This is a tax that makes real estate transactions even less affordable at a time when the affordability gap continues to widen exponentially throughout the city.”
Timing couldn’t be worse to institute a new tax on property sales, especially one that touches commercial assets, which are already struggling with the impacts of the pandemic on their revenue streams as office tenants continue to downsize in the age of hybrid work schedules, the Building Owners and Managers Association commercial real estate industry group said.
“The reality is that Chicago’s downtown is suffering from record high vacancy while building transactions and development are a fraction of what they were in years past,” said BOMA’s Amy Masters. “Increasing city taxes on real estate sales a whopping 253% will only discourage future investment. Right now, we need to focus on revitalizing our downtown and local neighborhoods to create more jobs and expand our tax base — that’s the best way to increase tax revenues without penalizing businesses and taxpayers.”
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