HomePrivate WealthChicago’s Proposed Mansion Tax Faces Troubled Real Estate Market

Chicago’s Proposed Mansion Tax Faces Troubled Real Estate Market

A Chicago City Council committee advanced a measure Tuesday to raise taxes on the sale of properties over $1 million, making the third-largest U.S. city the latest to seek to tap higher-end real estate deals to reduce homelessness.

Aldermen on the rules committee voted 36 to 16 to put the proposal to increase the so-called real estate transfer tax on the March 2024 ballot. The item is now headed to the full City Council, which is expected to vote Wednesday to determine if the measure will go in front of voters next year. 

The steps this week are part of a lengthy process that could potentially raise more than $100 million in revenue a year to increase affordable housing and services for Chicago’s homeless. They are the culmination of years-long efforts by the city’s progressive aldermen and an issue on which Mayor Brandon Johnson, who took office in May, campaigned.

The Windy City is just the latest municipal government looking for revenue from more well-off residents and businesses. Major cities such as New York have levied mansion taxes to raise revenue for services including transportation. Chicago is facing pushback similar to Los Angeles, where the mansion tax—intended to address its massive homelessness problem—faced legal challenges.

Property owners in Chicago fear that another tax could exacerbate the local real estate crisis deepened by the slow return to offices after the pandemic and the most aggressive rate hikes by the Federal Reserve in a generation. The mansion tax “will worsen this crisis and impose costs on everyone in the city,” said Farzin Parang, executive director of the Building Owners and Managers Association of Chicago.

Vacancies in downtown Chicago have shot up, with office buildings losing value and facing higher property tax rates than many other cities, according to the association. In 2022, Chicago’s commercial property tax rate ranked the highest among the largest cities in each state, according to the Lincoln Institute of Land Policy report.

“As we look to the future, it is essential that we align our policies to support investment and business recruitment,” Parang said in a statement. “If we want to see our entire city flourish, we need a thriving downtown.”

Rising Homelessness Crisis

Proponents of the higher real estate transfer tax proposal still say that it’s the best solution so far to raise revenue to address a rising homelessness crisis. More than 68,000 Chicagoans are homeless—on the streets, in shelters or living temporarily in someone else’s home.

Funds tapped for homeless services from the American Rescue Plan Act—the massive federal aid state and local governments received during the pandemic—are running out, but the need is growing, said Alderwoman Maria Hadden, a sponsor of the resolution. 

The resolution looks to increase the levy to $10 per $500 of the transfer price—from $3.75 currently—for the portion of the sale that’s between $1 million and $1.5 million. The levy would reach $15 per $500 of the transfer price for any part above $1.5 million. It also proposes to decrease the transfer tax on properties under $1 million. 

In the Chicago metro area, 3.6% of homes were worth at least $1 million in June 2023, unchanged from a year ago, according to online real estate firm Redfin. Nationally, the share of homes worth at least $1 million is on the rise.

The measure isn’t an instant solution though. Even if City Council and voters end up approving it, Chicago won’t see the money from the higher levy until 2026. The number of homeless the city can serve is already declining given diminishing resources, Hadden said. 

This article was provided by Bloomberg News.


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