From the Illinois Policy Institute:
The Illinois Senate attempted to pass a “rescue package” for Chicago area mass transit that would punish suburban homeowners with a new real estate transfer tax. State leaders must instead focus on reforms to boost housing and economic growth.
Trying to bail out transit led the Illinois General Assembly to propose a tax equivalent to $3 on every $1,000 in home value for suburban home sales – a drag on the market in a state where housing supply and affordability is a growing worry.
In the final hours of the spring session, the Illinois Senate passed an amendment to House Bill 3438 that added a mass-transit “rescue package.”
It included a new real‑estate transfer tax. Chicago residents already face a real estate transfer tax equivalent to $10.50 on every $1,000 of home value to fund the CTA, so this new tax would exclude the city of Chicago but hit the
- rest of Cook County plus
- DuPage,
- Kane,
- Lake,
- McHenry and
- Will counties.
The collar counties face some of the highest property taxes in the nation, which already makes the idea of buying a house daunting. The proposed tax on top for just selling a house would make the market worse.
The bill stalled when it was sent back to the Illinois House but had it passed, median-priced homes in DuPage County would carry an additional $1,335 fee when an owner decided to sell.
Owners in McHenry County would face an extra $1,140 tax. [Emphasis added.]
According to the Illinois Realtors group, which put $500,000 into a campaign against the tax proposal, the transfer tax would act as an “exit” tax, chipping away at residents’ equity in their homes.
Real estate transfer taxes keep households locked in place and hurt first-time buyers by reducing their ability to move to better homes and cutting the supply of starter homes.
“The proposed real estate transfer tax increase ignores the glaring reality of the state’s housing economy,” said Jeff Baker, the CEO of Illinois Realtors.
“This would add thousands of dollars of closing costs to every residential and commercial transaction in the Chicagoland area, slowing our real estate economy even more.”
Penalizing Moving
By penalizing moving, the tax scheme also reduces revenue gain the state is already collecting in other areas. Studies have estimated each dollar of transfer tax wipes out up to $8 in related spending on everything from movers to appliances.
The tax has also been shown to shrink supply because builders anticipate fewer future sales.
In a state that lags the national average in home building, adding one more deterrent for a temporary tax gain is short-sighted.
Illinois is already shy about 142,000 homes and recent studies indicate it will need to build 227,000 more by 2030 in order to have enough housing.
Transit agencies face a legitimate fiscal cliff because they have been relying on federal pandemic relief funds that are quickly running out.
They failed to make necessary cuts when ridership and revenue were lower. But state lawmakers’ proposal to tax suburban home sales is not the way to fix it.
Housing shortages push families farther from jobs and rail stations.
Regressive taxes such as the transfer tax push more people out of the Chicago metro area, cutting ridership and creating further transportation funding challenges for Illinois residents.
Illinois House Speaker Chris Welch immediately branded the transfer tax “dead on arrival” when the bill returned to his chamber with the tax amendment.
Residents need to hold him to his word and the Illinois General Assembly needs to bury the transfer tax for good and focus on expanding the housing supply.
