Taxes can do a lot of good. Illinois already imposes a modest tax on transfers of real estate, half of which funds the Illinois Affordable Housing Trust Fund, which our state deploys to build affordable housing all over Illinois. The tax is modest, simple and goes directly to good things.
The Bring Chicago Home referendum on our ballots this month would change the city’s real estate transfer tax, lowering it slightly on property transfers under $1 million, while raising it substantially on transfers above that amount (quadrupling it on transfers of over $1.5 million). Money from the tax would legally be required to address the needs of homeless Chicagoans.
I love creating more money for affordable housing. We need so much more. Most of my practice as an attorney is in supporting affordable housing development. Bring Chicago Home could have been something like the Illinois Affordable Housing Trust Fund.
But in an effort to “stick it” to luxury developers, it ends up undermining its purpose.
One of the most important things we need to do in Chicago to address homelessness is to build more homes — not just subsidized housing, but all housing.
Upward pressures on rents in more desired parts of Chicago could be alleviated by making it easier, faster and cheaper to build homes at the density level the market in those areas can support. The most progressive thing we can do on this front is to upzone large swaths of Chicago so there is no local battle with the community every time a developer wants to build an apartment building.
‘Not in my neighborhood’ is a culprit
This costs nothing except the willingness of our alderpersons of all political stripes to cede their hyper-local control over zoning. This also needs to be done in the suburbs, which use zoning to make it a bruising, years-long fight to build even the most modest of affordable housing developments or even market-rate apartment units.
This is an area where progressive politics may hurt the needs of homeless and rent-burdened Chicagoans. Some oppose higher density because it diminishes their neighborhood’s charming character, some because they think it’s a handout to moneyed interests, and others because they’re fighting the amorphous enemy of gentrification and worry that letting in a new apartment building will push out renters.
But on a citywide basis, renters get pushed out by constraining development because that constrains the supply of housing. Efforts are better served by supporting affordable housing developments in communities that are gentrifying so that lower-income residents can remain there, while also allowing for higher-density development. When you’re holding down the lid on a very hot pot, don’t be surprised when rents start to boil over.
Jacking up the tax on transfers of over $1 million has nothing to do with “sticking it” to luxury developers; instead, it will just chill multifamily housing development. Many apartment buildings transferred in Chicago are going to exceed that threshold — not just luxury apartments, but ones that house middle-income and low-income tenants, too. (Also consider how many luxury condo sales won’t reach the $1 million threshold.)
Some of that money may come out of the developers’ pockets, but some of it may increase rents for regular tenants. A large increase in the transfer tax may also prevent deals from going forward that would otherwise proceed because the numbers simply won’t add up. Properties that should be transferred to new owners so they can be rehabbed or rebuilt will sit. We should be making it easier and cheaper for those kinds of transfers to happen, not harder.
Let’s not raise money to fight homelessness in a way that might cause more homelessness. Researchers on the subject, such as Gregg Colburn and Clayton Adern in their book “Homelessness is a Housing Problem,” provide clear data that, well, homelessness is a housing problem.
The markets that have the worst homelessness problems are those that clamp down on housing supply — not just subsidized housing, but housing generally. Homes aren’t built to keep up with demand, rents escalate, and the most vulnerable among us fall into homelessness.
We need more money for affordable housing and supportive services. The way to raise that money shouldn’t be by chilling the development of housing overall. That’s one of the few things we know alleviates rent burdens throughout the housing market.
We can create a dedicated funding stream to support homeless Chicagoans by increasing the real estate transfer tax a little bit on all transfers — the Lincoln Square condo that sells for $900,000, the swath of vacant property that transfers for $900,000 but will then be redeveloped into luxury homes, and the middle-income apartment complex that sells for $15 million.
What actually fights homelessness might be different from what feels progressive when doing so.
Paul Balik is an attorney who handles affordable housing transactions.
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