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On West Winnemac Avenue in Chicago’s Lincoln Square neighborhood stands the kind of four-bedroom house to which a growing family could aspire. There’s an old brick exterior, a finished basement, a small deck and a newly redone kitchen. The exterior hardly will draw attention, homes press on either side of this single lot and one of the house’s bedrooms is in the basement, but this still looks like a nice place for a young family who wants to raise kids in the city. It’s near a lovely park.
As of Wednesday, that 3,158-square-foot property was listed for $1.05 million on Realtor.com which puts it in the crosshairs of Mayor Brandon Johnson’s proposed new “mansion tax,” even though describing this sweet but quotidian home as a mansion is patently absurd.
The tax increase came up during Johnson’s campaign. The idea is to massively increase the city transfer tax on homes with a purchase price of more than $1 million. The proposal would triple Chicago’s real estate transfer tax to 2.65% of the sale price from the 1.05% in place now for all real estate deals, regardless of price. (In Chicago, the total tax is split between buyer and seller.) So, by our math on that $1.05 million purchase price, the transaction tax would go from $11,025 to a whopping $27,825.
Anyone who has bought or sold a house knows the financial stresses of the transactions. The sellers face paying a real estate commission, typically at least 5% of the purchase price, and diligent buyers need to hire inspectors and appraisers. And most real estate transactions in Illinois involve attorneys, who work with the dominant title companies. Other closing costs are legion: underwriting fees, processing fees, loan points, loan origination fees, flood certificates, recording fees, title insurance fees (the list seems to go on and on).
Whatever side of the transaction you are on, it can feel like an armored truck drove up to your house and left with a huge chunk of your money. After all that happens, you then have to pay to move.
It’s also worth noting that most people who buy $1 million homes don’t show up with $1 million; they take out a mortgage, which right now means they typically are signing up for somewhere north of 7% in annual interest for a traditional 30-year, fixed-rate mortgage, a whole lot more than the 3% to 5% that would have been the case a year or so ago. In most cases, first-time buyers come to the table with maybe $50,000 as their down payment, money carefully saved over years of frugality or perhaps borrowed from a relative who wanted to help their kids get a foot on the property ladder.
Regardless of how they arrived in Chicago, most families want the same thing: a stable neighborhood near friends, relative safety, decent schools, kind neighbors and as much convenience as they can afford to all the great things this city has to offer. In many of the neighborhoods with those attributes, it is challenging for a sizable family to find a four- or five-bedroom house that won’t swallow yet more of their money for less than $1 million. We’re not talking about a mansion, and we’re not talking about homes in Lincoln Park or the Gold Coast, where $1 million buys very little in the arena of family-sized homes. Instead, this is the price of most nice houses in Woodlawn and Wicker Park. And although renters might think this won’t affect them, landlords invariably pass on these costs.
This cash grab has, of course, been given a clever title, “Bring Chicago Home,” and a cause that is intended to make it hard for people to object: the alleviation of homelessness. All decent people believe the city should do all it can for unhoused people as part of the services it offers through the revenue it raises, but you could apply such a moniker to almost any attempt at redistributing wealth. Such as this one.
Chicago Tribune Opinion
There may be some room for change. But as floated, first in the campaign and now coming to the City Council, the threshold of this tax is far too low and the rate of increase is far too aggressive.
We object to the first on the grounds of the harm it could do to the middle class. We object to the latter, notwithstanding the ability of many to pay it, on the grounds of the harm it could do to Chicago’s competitiveness.
Evanston, a progressive bastion with its share of homelessness and larger lots, on average charges just 0.5% for properties up to $1.5 million and 0.7% between $1.5 million and $5 million, topping out at 0.9% for transactions above that floor. That’s reasonable. Oak Park, which gets a diverse array of families coming from Chicago, charges 0.8% for all transactions and Skokie just 0.3%. You can look at the transfer tax for whatever suburb you like, rich or poor, and none of them comes close to what Johnson has proposed. Robbins and Westchester charge a flat fee of $25.
And, of course, this is not just going to hit Chicago’s residential properties but also office buildings and small businesses. Office building transactions have slowed to a trickle in recent months as work from home has extracted a huge cost and sent valuations plummeting. For that sector, this huge tax increase could not be coming at a worse time.
It does take an experienced Realtor to figure out that this scheme, in its current form, will not so much be a matter of Bring Chicago Home as Send Chicagoans Packing.
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