Brandon Johnson’s ‘mansion tax’ would likely hurt Chicago renters

Brandon Johnson’s ‘mansion tax’ would likely hurt Chicago renters

Mayoral candidate Brandon Johnson seeks to triple the real estate transfer tax on real estate valued at $1 million or more. That would include apartment complexes. In Los Angeles, a similar tax has hurt housing.

Chicago mayoral candidate Brandon Johnson’s “Better Chicago Agenda” is intended to hit “the suburbs, airlines and ultra-rich” with $800 million in new taxes, including his “mansion tax” on real estate transfers topping $1 million.

But not every building worth $1 million is a mansion. Some are apartment or multifamily complexes where working-class families live. They will be the ones paying his “mansion tax” through higher rents.

Johnson endorsed a plan by an activist group called Bring Chicago Home that would impose a “mansion tax” on real estate transfers valued at $1 million or more. The plan would more than triple the current rate paid by buyers of 0.75% up to 2.65%. That would be an increase to $26,500 from $7,500 per $1 million.

Johnson argues the “mansion tax” is necessary to promote “safe and affordable housing” in Chicago. But other cities have tried it and found the mansion tax hurt more than it helped.

One major problem is multifamily projects would be affected by the large tax increase, stifling new housing projects and jacking up rent costs. Such adverse consequences directly contradict Johnson’s aim of providing “safe and affordable” housing for Chicagoans.

In Los Angeles, a recent and similar “mansion tax” has seen that result. Lenders have halted making loans to new multifamily construction projects because of the cost of real estate transfer taxes. Developers have described the situation as “extremely difficult.”

Los Angeles property records indicate numerous institutional lenders have not issued a single construction loan for a multifamily or commercial project since voters approved of the new tax in November. A smaller number of available lenders means it is more difficult for potential borrowers to get favorable terms to proceed with projects, placing further strain on the supply of housing and driving up rent prices.

Johnson’s proposal to triple Chicago’s real estate transfer tax will only serve to make housing more expensive and line the pockets of established developers whose competition will largely have been priced out of the market.

Bill Neidhardt, an advisor to Johnson’s campaign, dismissed the idea that the affluent housing market would be adversely affected by the tax hike. He said it would be part of a progressive tax system that “produces investment in Chicago that will strengthen the city overall and lead Chicago into a positive growth trajectory, rather than leading to urban decline and then leading people to flee.”

But data also shows sales of high-end homes that would be subjected to the higher transfer tax are declining as well. During the past year, 2,391 Chicago homes sold for $1 million or more, down 14.5% from the previous 12 months, according to Midwest Real Estate Data.

The effects of the tax on multifamily housing would have the opposite of their intended effects, making housing more expensive for Chicagoans and exacerbating homelessness. Recent data showed Chicagoans experiencing homelessness declined by 28% from 2020-2022, although the percentage of those experiencing homelessness who were unsheltered and living outside increased. Johnson’s massive real estate transfer tax threatens to reverse this progress and make housing even more unaffordable in Chicago.

Johnson’s plans to hit Chicagoans with higher taxes is likely to speed up the Chicago exodus. Recent polling shows more than one-third of city residents would leave if they could. They cited taxes and affordability among their top concerns. Despite the numerous problems plaguing the city, most Chicagoans understandably would rather stay than leave.

Johnson’s perplexing plans for new and higher taxes totaling hundreds of millions, if not billions, of dollars may leave residents wondering whether they can afford to stay.

Want more? Get stories like this delivered straight to your inbox.

Thank you, we'll keep you informed!