Mayor Brandon Johnson has signed off on a compromise to elevate Chicago’s transfer tax rate on property sales of $1 million or more in the city, while cutting it for deals below that price threshold.
The move sets in motion a progressive agenda espoused by Johnson on the campaign trail in a fashion that frightened bigtime Chicago real estate players.
Johnson is ditching the real estate transfer tax hike he originally supported, which would have more than tripled the one-time transfer tax paid at the time of a property’s sale from 0.75 percent to 2.65 percent for all property sales of $1 million or more, and will instead enact a three-tiered system, the Chicago Sun-Times reported. All real estate sales are currently subject to the 0.75 percent charge by the city regardless of price.
Under the proposed revision the rate would drop by 20 percent for property sales of less than $1 million to 0.6 percent of the price, whereas it would rise to 2 percent for sales between $1 million and $1.5 million and jump to 3 percent for transactions greater than $1.5 million.
The changes are likely to irk owners of big commercial assets, who would face an even higher tax rate under the compromise than the original proposal even as surging interest rates and evaporating demand for downtown offices are crushing values of both apartment and office towers in the Loop and elsewhere, threatening to permanently shift how central business districts function.
But the proposal still has a long way to go before getting enacted. A majority of the Chicago City Council would have to support sending a binding referendum to voters in time for a March election, and then a majority of voters this spring would have to support the proposal to turn it into law. The measure is likely to be introduced to the city council at a Sept. 13 meeting and a vote to put it on the spring ballot is being eyed in October, the outlet reported.
Funds from hiked transfer tax would be funneled towards affordable housing projects and other efforts to curb homelessness, as part of Johnson’s Bring Chicago Home initiative.
The adjusted plan is expected to lower the city’s projected additional annual revenue to about $100 million, rather than about $160 million predicted when the tax hike to 2.65 percent for all sales over $1 million was the universal rate used in the proposal, and before the break for deals below that mark was instituted.;
“Chicago voters are supportive of progressive revenue structures, particularly when they know where the funding is going to go,” said 35th Ward Ald. Carlos Ramirez-Rosa, who chairs the council’s Zoning Committee. “People who are purchasing homes for the first time are likely spending less than $1 million, and they will now see a decrease. So effectively, we’re asking the average Chicagoan, ‘Do you want to pay less in real estate transfer taxes?’”
Exemptions to the higher tax rates would be granted to affordable housing projects receiving government subsidies.
Johnson’s tweaks were prompted by pushback from city council members who considered the $1 million threshold too low for such a substantial transfer increase. Furthermore, the changes are meant to minimize the impact on sales of three-to-six-flat buildings, a crucial component of Chicago’s multifamily inventory.
— Quinn Donoghue