There’s a question on all Chicago ballots to increase the city’s real estate transfer tax on all properties over $1 million, with the funding to be spent on efforts to address homelessness. Supporters call it “Bring Chicago Home,” while some have dubbed it a “mansion tax” – but what does it really do?
Chicago City Council passed an ordinance last year putting the binding referendum on ballots in the primary election. It’s one of Mayor Brandon Johnson’s campaign promises – and was the subject of a protracted legal back-and-forth that ended Wednesday when the Illinois Supreme Court denied an appeal filed by opponents of the measure, meaning votes on the referendum will be counted come Election Day.
The real estate transfer tax is the tax paid to the city on any property sold. The current rate is a flat rate of $3.75 per every $500 of the price. If passed, the proposal would change the rate to a progressive, or graduated structure on all properties, residential and commercial, with three tiers.
It would reduce that rate to $3 of every $500 for properties sold for under $1 million. For sales over $1 million, it would increase the rate to $10 for every $500 of the price between $1 million and $1.5 million. For properties over $1.5 million, the rate would become $15 for every $500 of the price more than $1.5 million.
“The people of Chicago voted for me because I said that I’m going to address homelessness,” Johnson said Wednesday. “Bring Chicago Home is an opportunity to address homelessness.”
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The city estimates 68,000 people are experiencing homelessness in Chicago. The revenue raised by the tax increase would be dedicated to efforts to combat homelessness. Proponents say it would lower taxes on the majority of home sales while projecting increase revenue of $100 million dollars a year. But those opposed warn it could seriously harm commercial real estate.
The city of Los Angeles passed a similar tax increase in 2022, increasing transfer taxes for properties sold for more than $5 million.
“Immediately the real estate, the high end real estate market went off a cliff,” said NBC Los Angeles’ Chief Political Reporter Conan Nolan. “Nobody was selling in part because the mansion tax was being challenged in court and there was a belief that perhaps if a judge overturned it, then they’d be able to sell without having to pay this remarkably greater tax.”
Nolan said supporters of “Measure ULA” predicted $900 million in new revenue each year. But one year after it took effect, that figure was in the mayor’s budget for $150 million, as the market froze.
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“That’s for a couple of reasons, one of which is that people stopped selling large real estate in Los Angeles in hopes that this measure would be overturned,” Nolan said. “But also, the mayor was afraid that if, again, the ballot measure was overturned, they’d have to pay back the money.”
“In any case, it has not materialized nearly as much as what they anticipated,” he added.
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If Chicago’s measure passes, City Council would then have to pass an ordinance deciding how to spend the money. On that, Johnson has not released specific plans.
On Wednesday, the Civic Federation, a nonpartisan research organization, released an analysis of the proposal that highlighted “serious concerns.”
“The plans for the use of the funds generated by the Bring Chicago Home referendum are too unclear for any voter to sufficiently scrutinize,” the Civic Federation’s analysis reads, adding that the graduated real estate transfer tax “has some advantages, but it is a volatile, economically sensitive revenue source.”
The Civic Federation noted commercial real estate sales in the Chicago area were down 44% in 2023 from the year before, and highlighted ways in which Los Angeles sellers tried to avoid paying the tax, from splitting properties into multiple parcels priced under the threshold, among other strategies.
“There will be a change in how people approach these kinds of transactions and whether or not they start to look elsewhere for investment,” Nolan said. “That’s the big concern, is whether or not this mansion tax is going to have an impact on investment from outside people into building things in the city of LA; it may happen in Chicago.”
“The economy isn’t static, it’s dynamic, which means once you pass the tax you change behavior,” he continued. “People try to figure out a way around it, people don’t sell or people invest somewhere else.”
The Civic Federation also took issue with the lack of detail in how the revenue would be spent, noting, “plans for use of the funds have not been publicly articulated beyond a presentation from the City of broad strategies to address homelessness and affordable housing.”
Johnson said Wednesday that if the measure passes, he’ll work with aldermen to come up with a spending plan.
“The people’s voices are represented. Now we just need a little bit more so that we can actually respond to those needs,” Johnson said.
In response to the Civic Federation’s analysis, Johnson’s office said it appreciated the feedback but disagreed with the findings. His office said there was “little concrete evidence” it would have a “major negative impact” on the real estate market and highlighted that appropriations will be subject to oversight from both City Council as well as community input from a new advisory board. If it passes, the new rates would take effect Jan. 1, 2025.
The language of the referendum is as follows:
"Shall the City of Chicago impose:
(1) a real estate transfer tax decrease of 20% to establish a new transfer tax rate of $3 for every $500 of the transfer price, or fraction thereof, for that part of the transfer price under $1,000,000 to be paid by the buyer of the real estate transferred unless the buyer is exempt from the tax solely by operation of state law, in which case the tax is to be paid by the seller; AND
(2) a real estate transfer tax increase of 166.67% to establish a new transfer tax rate of $10 for every $500 of the transfer price or fraction thereof, for that part of the transfer price between $1,000,000 and $1,500,000 (inclusive) to be paid by the buyer of the real estate transferred unless the buyer is exempt from the tax solely by operation of state law, in which case the tax is to be paid by the seller; AND
(3) a real estate transfer tax increase of 300% to establish a new transfer tax rate of $15 for every $500 of the transfer price, or fraction thereof, for that part of the transfer price exceeding $1,500,000 to be paid by the buyer of the real estate transferred unless the buyer is exempt from the tax solely by operation of state law, in which case the tax is to be paid by the seller?
The current rate of the real estate transfer tax is $3.75 per $500 of the entire transfer price, or fraction thereof, and the revenue is used for general corporate purposes. The revenue from the increase (the difference between revenue generated under the increased rate and the current rate) is to be used for the purpose of addressing homelessness, including providing permanent affordable housing and the services necessary to obtain and maintain permanent housing in the City of Chicago."
