Real Estate Transfer Tax Heads To The Voting Booth, Setting Up Major Battle

The Chicago City Council approved a measure Tuesday to put the real estate transfer tax on voters’ March ballots, setting the stage for a months-long showdown between proponents of the tax and a business community fiercely opposing it. 

City council members approved the ordinance, referred to as Bring Chicago Home by supporters, in a 32-17 vote, representing a major policy win for Mayor Brandon Johnson. The ordinance’s passage was widely expected after a subcommittee made up of the entire city council body approved it in a 32-16 vote last week.

“My vote today is a vote for the Chicago residents’ voices to be heard,” 11th Ward Alderwoman Nicole Lee said before casting a yea vote Tuesday on the measure, which would impose a tax on real estate purchases to fight homelessness in the city. 

The proposal would create a tiered system that lowers the tax for property sales below $1M to 0.6% and increases the rate on sales larger than $1M. The transfer tax on property sales between $1M and $1.5M would be 2%, while the transfer tax on property sales over $1.5M would increase to 3%, quadrupling the current rate.

The city would spend the estimated $100M in additional tax revenue to support policies to fight homelessness, though the precise allocation of funds is to be determined.

Though some on the council voiced opposition to how money earmarked for homelessness had been spent to date or would be spent in the future and others questioned its impact on commercial real estate, the majority threw it to voters to decide. 

Until then, debate is expected to be fast and furious.

With downtown commercial real estate struggling and vacancy rates remaining high, the move comes at a questionable time, said Christopher Berry, a professor at the University of Chicago’s Harris School of Public Policy and faculty director of the Mansueto Institute for Urban Innovation. 

“Even if the intentions are good — and the intentions clearly are good — the timing of this is bad,” Berry said. “You can see it as an example [of] the city in some sense working at cross purposes with itself.” 

Alderman David Moore of the 17th Ward, a supporter of the measure, said he was concerned about the impact the tax would have on investments in communities like Englewood, Auburn Gresham and Chicago Lawn.

Other members of the city council, like 15th Ward Alderman Raymond Lopez, said the city’s issue in combating homelessness doesn’t boil down to a lack of funds — it comes down to improper allocation of the money it already has. 

“We are asking now for $100 million more to add to the pile that we don't know how to already spend,” Lopez said. “Clearly we have failed at every turn to address perennial homelessness in the city of Chicago. The issue isn't the money, Mr. Mayor. The issue is the execution.”

Alderwoman Maria Hadden of the 49th Ward bristled at insinuations the city had failed to properly manage its approach to homelessness, characterizing them as lies.

“You had a bunch of civil servants working overtime for months to come up with a plan. The voters are going to tell us what they want,” she said. “And then we're going to work even harder and we're going to come up with a plan and we're going to spend the money like we've been spending the money.”

Lee acknowledged the city must do something to address its homelessness problem, exacerbated by an influx of migrants in recent months. But in a preview of the battle to come, she warned that voter approval of the tax would have to be tempered by ensuring costs aren't passed on to renters and landlords on the brink.

Just because the referendum is going to the ballot in March doesn’t mean it is a certainty to get the voting public’s stamp of approval, Berry said. There will be a large, well-organized campaign against the measure from opponents in the commercial real estate and business communities, he said.

Berry compared the likely opposition to the real estate transfer tax to the campaign against the 2020 Illinois Fair Tax, a proposed amendment to the Illinois Constitution that would have effectively changed the state income tax system from a flat tax to a graduated income tax. Although the tax had widespread state government support, the referendum failed on a November 2020 public ballot. 

“I think people thought the Fair Tax was also going to just fly through and [there was] similarly an organized opposition against it,” Berry said. “I suspect that the opposition against this will be even more vociferous, even more well-funded.”

While there are clear drawbacks to the tax for commercial real estate stakeholders, Berry said there is the potential for the industry to benefit if the policies to combat homelessness are executed well.

“If it's successful in reducing homelessness … that is going to benefit everyone, including commercial real estate, because it's going to make the quality of life in the city better for everyone,” Berry said.