If you’re selling a mansion, you should be taxed more to pay for affordable housing - Metropolitan Planning Council

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If you’re selling a mansion, you should be taxed more to pay for affordable housing

Kevin Tanaka/For the Sun Times

A homeless community under Michigan Avenue in Chicago last February

This piece originally appeared in the Chicago Sun-Times on November 07, 2018.

Last week, Mayor Rahm Emanuel shot down several proposals for creating a graduated real estate transfer tax,  claiming it would treat “homeowners as an ATM machine.”

Here’s how such a tax would work and why the mayor got it wrong.

First, consider today’s reality: Chicago has a real estate transfer tax of $5.25 per $500 of property value. This tax is not graduated, meaning someone who buys or sells a home for $150,000 pays the same rate as someone who buys or sells a home for $1.5 million. The current tax generates $160 million annually, a third of which goes to the Chicago Transit Authority.

Next, consider the vision: In the Metropolitan Planning Council’s “roadmap to a more equitable future,” a document released last spring, the MPC and the Center for Tax and Budget Accountability recommend a graduated real estate transfer tax to generate desperately needed funds for affordable housing. Because the tax is pegged to property values, only the highest-value transactions would cost more. In most cases, the buyer and the seller would pay less than they do now.

What’s actually needed: Most Chicagoans may be surprised to learn just how little of the city’s budget is allocated for affordable housing. Take a guess: Ten percent? Five? One? Try just about three-tenths of one percent in 2017, or $24.5 million out of $8.3 billion.

Tax increment financing revenue — local funds that get spent outside the normal budget process — contributed another $16.9 million in 2017 toward affordable housing. But even that represented less than three percent of the $660 million raised by TIF districts.

Rather than spend its own money on affordable housing, Chicago has depended overwhelmingly on resources passed down by the state and federal governments through programs such as public housing and the Low Income Housing Tax Credit. In 2017, Chicago spent 36 times more of its own money on policing than on affordable housing, and three times more on legal settlements.

While all cities are struggling with a decline in federal support for affordable housing, there’s more Chicago can and must do to support this need locally.

Finally, here’s what is possible: The Chicago Coalition for the Homeless and other groups have proposed a plan to generate $150 million a year for affordable housing and services for some 80,000 homeless people. The plan calls for increasing the city’s real estate transfer tax on high-value property. An ordinance seeking to put this proposal on the Feb. 26 election ballot, as a referendum question, has been presented by Ald. Walter Burnett.

This is one of many versions of a proposed progressive real estate transfer tax that could get us over the finish line.

Chicago suffers from a shortfall of 120,000 affordable housing units. That alone is reason enough to consider a progressive real estate transfer tax, just as there is in San Francisco, Baltimore and New York City. Such a tax was approved in Evanston on Tuesday.

A graduated real estate transfer tax to cover some of Chicago’s most pressing affordable housing needs would not be breaking new ground. Chicago would simply be catching up — both to other cities and to our own profound shortfalls.

Daniel Kay Hertz is the Research Director at the Center for Tax Budget Accountability and Marisa Novara is Vice President of Metropolitan Planning Council.

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