Across the country, increases in transfer taxes have been passed or proposed everywhere from New York to Los Angeles, mostly to fund housing programs. With home markets booming and newspapers trumpeting record-priced purchases, “people see real estate taxes as low-hanging fruit,” said Mike Kelly, director of government affairs at the New York State Association of Realtors.
“It’s not a broad-based tax on everyone,” Kelly said. “It’s a tax that only impacts people who are buying or selling these expensive properties. That looks better to legislators.” In 2019, the state raised transfer taxes on high-end properties in New York City only. Homes sold for $1 million or more had been subject to a special transfer tax since 1989; now those sold for $2 million and up pay an additional tax, rising from 0.25% for a $2 million property to 2.9% for those over $25 million.
“It’s wrong to go after (transfer) taxes because affordability is so absolutely crazy hard in California now,” said Ryan Ole Hass, a broker at Align RE in Santa Monica and immediate past president of Greater Los Angeles Realtors. “Making it more difficult to buy a home is not helping our housing crisis.”
As Chicago’s real estate transfer tax now stands, a buyer pays $7,500 for every $1 million in purchase price, and the seller pays $3,000. Bring Chicago Home’s proposal would more than triple the buyer’s tax, to $26,500 per $1 million. Sellers would see no increase.
In April, Crain’s calculated that in the recent $415 million sale of a 50-story Wacker Drive office building, the New York-based buyer paid about $3.1 million in transfer taxes to the city of Chicago. Under the Bring Chicago Home proposal, the buyer would have paid nearly $11 million in transfer taxes, with the entire difference, more than $7.88 million, going to the homelessness fight. Representatives of the buyer, Opal Holdings, did not respond to Crain’s request for comment.
When a deal’s cost increases from $418 million to $426 million, the difference, Parang notes, “is going to come from tenants, in higher rents” that the buyer likely will charge.
“Rents are already under a lot of pressure,” Parang says.
In residential transactions, buyers are likely to factor the boosted transfer tax into the total cost of buying, potentially limiting the price they can afford to pay and weighing down home values.
In the headline-grabbing $20 million sale of the penthouse at the Trump International Hotel & Tower this spring, the buyer paid $150,000 in transfer taxes, but would have paid $530,000 under Bring Chicago Home. Perhaps the difference, $380,000, is mere pocket change to the yet-unidentified buyer, who may have additional millions to lay out in order to finish the mostly raw penthouse space.
But CAR’s Anderson and Mario Greco, a Berkshire Hathaway HomeServices agent who’s active in the city’s luxury-priced home market, point out that buyers of $1 million homes in Chicago are often stretching their wallets. Under current lending guidelines, a household with an income of about $245,000 could swing the mortgage on a million-dollar home. That’s a healthy income, but certainly doesn’t count among the insanely wealthy who can spend with abandon.
Increase the transfer tax they’ll pay from $7,500 to $26,500, and “you might hear some vocal opposition,” Greco says, “but probably not in this city that’s used to being pummeled with fees and taxes. If you love this city, you might put up with another tax.”
Anderson is not so sanguine, warning that buyers facing an additional $23,000 in taxes might “choose the suburbs, choose Indiana or Michigan.”
Bring Chicago Home would put the full burden of the increase on buyers, who are already losing affordability as home prices and mortgage interest rates rise.
Connecticut takes the opposite approach, imposing its transfer tax—called a conveyance tax—on sellers. In 2019, the Connecticut Association of Realtors unsuccessfully fought a proposal to increase the conveyance tax on high-priced homes and use the money to fund open-space preservation. The market was slow then, and Tammy Felenstein, an agent at William Raveis in Southport, Conn., and 2022 president of the association, said the industry expected the tax increase to anger sellers.
But any market impact of the tax increase was overwhelmed by the pandemic-driven housing boom, which kicked in about the same time the tax went up. Large numbers of New Yorkers house hunting in Connecticut sent prices skyward.
“It’s not to say that the sellers aren’t upset that they’re paying additional conveyance taxes,” Felenstein said, “but they’re so happy with the sales prices they’re getting that they’re not complaining.”