Real estate industry

Real estate industry quiet over Bring Chicago Home tax hike

Across the country, increases in transfer taxes have been passed or proposed everywhere from New York to Los Angeles, primarily to fund housing programs. As domestic markets boom and newspapers advertise record-breaking purchases, “people see property taxes as low hanging fruit,” said Mike Kelly, director of government affairs at the New York City. State Association of Realtors.

“It’s not a broad-based tax on everyone,” Kelly said. “It’s a tax that only affects people who buy or sell these expensive properties. Sounds better to lawmakers. 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 more pay an additional tax, rising from 0.25% for a $2 million property to 2.9% for those over $25 million.

In Los Angeles, The November ballot will include a referendum along the lines of what is proposed in Chicago. Real estate groups reject the idea.

“It’s a mistake to go after (transfer) taxes because affordability is so tough in California now,” said Ryan Ole Hass, broker at Align RE in Santa Monica and outgoing president of Greater Los Angeles Realtors. . “Making it more difficult to buy a home doesn’t help our housing crisis.”

Like Chicago property transfer tax currently exists, a buyer pays $7,500 for every million dollars 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 million. Sellers would see no increase.

In April, Crain’s calculated that in the recent $415 million sale of a 50-story office building on Wacker Drive, the New York-based buyer paid around $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 property transfer taxes, with the entire difference, more than $7.88 million, going towards homelessness. Representatives for the buyer, Opal Holdings, did not respond to Crain’s request for comment.

When the cost of a transaction increases from $418 million to $426 million, the difference, Parang notes, “will come from tenants, in higher rents” that the buyer will likely charge.

“Rents are already under severe pressure,” says Parang.

In residential transactions, buyers are likely to factor the increased transfer tax into the total purchase cost, which could limit the price they can afford to pay and drive up home values.

In the $20 million sale of the Trump International Hotel & Tower penthouse this spring, the buyer paid $150,000 in transfer rights but reportedly paid $530,000 as part of Bring Chicago Home. Perhaps the difference, $380,000, is just pocket change for the as-yet-unidentified buyer, who may have millions more to spend finishing the mostly raw penthouse space.

But Anderson and Mario Greco of CAR, a Berkshire Hathaway HomeServices agent active in the city’s luxury home market, point out that buyers of million-dollar homes in Chicago often stretch their wallets. Under current lending guidelines, a household with an income of around $245,000 could flip the mortgage on a million-dollar home. It’s a healthy income, but it certainly doesn’t count among incredibly wealthy people who can spend lavishly.

Raise 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 beset by fees. and taxes. If you like this city, you might bear another tax.

Anderson isn’t so optimistic, warning that buyers facing $23,000 in additional taxes could “choose the suburbs, choose Indiana or Michigan.”

Bring Chicago Home would place the entire 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 the transportation tax – on sellers. In 2019, the Connecticut Association of Realtors unsuccessfully fought a proposal to increase the transfer tax on luxury 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 association president in 2022, said the industry expected the increased taxes to irritate sellers.

But any market impact of the tax increase has been overwhelmed by the pandemic-induced housing boom, which began around the same time the tax was raised. A large number of New Yorkers looking for a home in Connecticut has sent prices skyrocketing.

“That’s not to say sellers aren’t unhappy about paying extra freight taxes,” Felenstein said, “but they’re so happy with the sale prices they’re getting that they’re not complaining.”

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