How the real estate lobby defeated Chicago’s transfer tax

On the afternoon of Feb. 22, field organizers for the transfer tax initiative packed a small courtroom in Chicago’s Richard J. Daley Center. They sat shoulder to shoulder and listened as a Cook County judge ruled against them and in favor of real estate trade groups, which had sued to keep their referendum off the March ballot. 

The crowd erupted in protest. Organizers chanted, “68-K, need a place to stay” — a reference to the proposal,  known as the Bring Chicago Home ordinance, to use a transfer tax increase on property sales over $1 million to fund services for the city’s estimated 68,000 homeless residents. 

They were soon asked to leave, and they spilled out into the hallway where a camera crew was waiting. 

“It’s supposed to be my city, my vote. And [the county judge] just got through telling me that my vote doesn’t matter,” Shantonia Jackson, a supporter of the ballot initiative, said in the press conference that followed. 

The trade groups’ legal victory was short-lived. An Illinois appellate court overturned the ruling on March 6, saying the lawsuit was considered “prematurely” and that the matter should be put to voters first. There was less fanfare and media coverage this time, but it was still a victory to the organizers and to Chicago’s Mayor Brandon Johnson, a supporter.

This win was also short-lived. 

The March 19 vote took place as scheduled, and opponents of the measure won at the ballot box. 

Johnson is not the only local politician looking to raise taxes on property trades to fund social programs, and industry lobbyists fighting back across the nation — including in Los Angeles, where there’s an uphill battle to nullify a year-old transfer tax increase via statewide referendum, and in Washington state — might look to Chicago for one strategy. 

A real estate primer

Unlike in L.A., where industry leaders did not challenge a similar “mansion tax” in court until after it was passed in 2022, industry groups in Chicago pulled out all the stops to try to squash Johnson’s proposal for a new, tiered transfer tax structure before it was put to voters. 

Though the courts ultimately sank the suit, it had success as a political strategy.

The lawsuit and media coverage confused voters about the issues, Bring Chicago Home organizers felt. The industry considered it an educational opportunity, Farzin Parang, head of the lead plaintiff, the office group Building Owners and Managers Association, said in an interview.

“It was a valuable tool to educate people about how the real estate industry works, commercial real estate industry works and how we are all connected,” Parang said. “I think the average resident in Chicago thinks that their property taxes are too high, and they don’t realize the role that commercial property in our industry plays in preventing that from being much worse.”

The industry moved fast.

In November, the City Council approved a resolution to put the transfer tax question on the ballot.

Two months later, BOMA/Chicago, along with a slew of other trade groups, filed the lawsuit challenging the language of the ballot question. They alleged that it violated constitutional law and local municipal code by asking voters about two transfer tax increases, as well as a decrease in the transfer tax on sales under $1 million, in one ballot question. 

Throughout the court battle, the message remained clear: This was not just a one-time sales tax, it was a “back-door property tax” that would raise rent rates and property taxes if investors sour on the Chicago market as some did in L.A., Parang said in statements to the press. 

Taxes generated by Chicago’s commercial real estate market, mainly office buildings, help subsidize property taxes for the residential market, making for a particularly strong tie between the health of the city’s commercial and residential real estate markets. 

“We’re the eighth-highest subsidy from commercial to residential,” Parang said. L.A. is much lower on the list, he pointed out: “In our market, it’s a tighter connection.”

Bring Chicago Home organizers maintained that these remarks were “misinformation” designed to stoke fear. The proposal was crafted to mitigate the impact on commercial real estate and represented an investment in the city’s health and well-being that would spur new development and empower people to join the residential market who previously could not, said Doug Schenkelberg, executive director of the Chicago Coalition for the Homeless. 

This, in turn, would keep home prices affordable and stabilize low-income communities, organizers said. 

Lukewarm debate

The court battle forced pro-Bring Chicago Home organizers to pull resources away from their political campaign. The industry kept at it.

Turnout on March 19 was “shockingly low,” according to the Chicago Board of Elections. Just 26 percent of the city’s registered voters showed up.

Even without all this, binding citywide referendums like this one are historically difficult to pull off in Chicago, Max Bever, a spokesperson for the local Board of Elections, said. 

The only successful binding citywide referendum was in 1885, he said. It created the Board of Elections.

In Los Angeles, voters passed their transfer tax — Measure ULA — with a 57% majority in November 2022, but collections so far have been a quarter of what the city hoped. Real estate mounted a legal campaign, but it has hit a dead end. So local industry groups are turning to the voters again, putting millions of dollars behind a statewide initiative called the Taxpayer Protection Act on the November ballot. 

If passed, this initiative would repeal the L.A. transfer tax because it would require two-thirds voter approval for all new local special tax increases, which Measure ULA did not obtain. 

At a 2024 election night watch party back in Chicago, campaign organizers and aldermen who sponsored the proposal vowed to keep pushing to develop a funding plan for affordable housing and homelessness services that will gain voters’ support.

“I look forward to continuing this fight with you,” said 49th Ward Alderman Maria Hadden, who spoke at the event. “This question that made it to the ballot, this ordinance that we would seek to pass at the City Council, was built from the ground up by Chicagoans.”

A seat at the table

After the Chicago transfer tax referendum failed at the polls, the Illinois Realtors — one of the campaign’s biggest opponents — and other industry groups made statements calling for the industry to come together with the city to identify a “comprehensive strategy for funding and delivering the wrap-around services that are desperately needed right now.”

This is a change of tune from the way Alderman Hadden said the industry related to them during roughly six years of policy development that led to City Hall looking to the transfer tax as a revenue source. Parang countered that the industry has tried before. 

“You should really involve all of the stakeholders who are impacted, including your real estate communities, commercial real estate communities and industries to come up with a really sustainable plan that actually addresses homelessness,” Parang said.

Thad Wong, co-founder of @properties Christie’s International Real Estate, echoed the sentiment.

“My hope is that by [Chicago’s tax] not passing, this current administration will begin to lean into business and start a constructive conversation with business owners in Chicago focused around growth and job creation, and bringing it back to a Chicago that really attracted some world-class businesses,” he said.