(Above) MLS photo of 1721 West Altgeld Street in Lincoln Park, a Chicago home priced at $1.05 million.
A proposed surcharge, triple what it is now, on purchases of upper-bracket homes would raise money to combat homelessness but could also drive wealthy home buyers out of the city.
17-May-22 Chicago which likely has the second highest real estate taxes in the nation could be on a path for the title of Americas Top Tax Town.
A push now is underway to slap a huge surcharge on buyers of upper-bracket homes, boosting the so-called mansion tax to a whopping $26,500 from $7,500 on the purchase of a home priced at $1 million.
This 353 percent transfer tax increase would drive more wealthy home buyers out of the city, said Chicago Realtor Sara Benson (left), president of Benson Stanley Realty. There also may be unforeseen legal consequences because the proposed transfer tax change would, in effect, create two separate classes of ownership. This likely would violate one of the basic tenets of taxation namely the principle of uniformity.
The Bring Chicago Home proposal would more than triple the buyers property transfer tax, generating an estimated $163 million in funding for programs that combat homelessness, according to the campaigns website. Home sellers would continue to pay a transfer tax of $3,000.
The proposal calls for passage of a Chicago City Council ordinance that would allow a transfer tax referendum to be put on the ballot. Voters would approve or deny the ordinance, which would be advisory only. The proposal is sponsored by nine Chicago aldermen.
According to the Chicago Coalition for the Homeless, there are 58,000 homeless people in the city. Hundreds of those unfortunate souls are sleeping in doorways and residing in tents under viaducts and in parks all over town. The coalition estimates that the mansion tax could generate enough money to support 12,000 homeless families in its first decade.
Sales of million-dollar homes at record high
In 2021, of the total 46,720 homes sold in Chicago, some 2,535 went for $1 million or more, reported Midwest Real Estate Data. Last year, sales of million-dollar properties hit a new record high, up 19 percent from 2020.
Buyers generally do not like the idea of a massive hike in the transfer tax, said a luxury home broker whose clients are targeting home and condominium purchases in Lincoln Park and the Gold Coast. Because there is an under-supply of homes on the market, the bottom ten percent might be deterred from purchasing.
Another veteran North Side broker said in a normal market, negotiation tactics may change.
During a normal market, with plenty of listings, buyers may ask the seller to split the cost of the transfer tax equally, said the broker. Or there will be an effect on price to compensate for the higher transfer tax. Buyers will look for discounts.
This writer believes another, wiser approach might be for Chicago and Cook County to earmark a percentage of the existing real estate tax bill to support the homeless.
A study by the Illinois Policy Institute, a nonpartisan research organization, found that Chicago property taxes rose 92.3 percent between 2010 and 2020.
Two years ago, Mayor Lori Lightfoot oversaw passage of a new city ordinance that promised beleaguered property owners a ticking time bomb guaranteed annual real estate tax increases of up to five percent.
The mayor has all but guaranteed an increase in property taxes by some $1 billion over the next four years, said Paul Vallas (left), the citys former budget director, and former CEO of Chicago Public Schools. Chicago taxpayers already pay the highest property taxes among all but two Midwestern cities, and the highest among large cities.
Despite the pandemic, Cook County Assessor Franz Kaegi said that the Near North Side bounded by Fullerton Avenue on the north, Lake Shore Drive on the east, and the Chicago River on the south and west posted surprisingly robust real estate values in 2021.
In 2021, most Near North Side single-family homes ranged in market value from $920,000 to $1.59 million. Condo values ranged from $270,000 to $420,000.
The entire city of Chicago was reassessed in 2021. The assessment level is ten percent of market value for residential property.
The tax bite goes on.