In nearby Chicago, city residents face a tax hike on their March 19 primary ballots, but there may even be implications for the suburbs.
Chicago Mayor Brandon Johnson and his political allies have hyped their real-estate transfer tax as a “mansion tax” and named it “Bring Chicago Home.” The initiative increases the amount a buyer pays in taxes on properties worth over $1 million. Johnson said the point is to funnel revenue to fight homelessness, but so far, he’s very light on details.
With commercial property sales accounting for a disproportionate value of all real estate transactions over $1 million — at a rate of 9 to 1 — the Chicago ballot initiative essentially is a tax on businesses. That means it will hit people who own or buy office towers, storefronts, restaurants, bars, clothing boutiques and multifamily units.
If Chicago voters pass the tax, could it trigger a migration out of the city with suburbs attracting more businesses and people? That’s something suburban businesses and communities should consider.
With many companies downsizing, closing and relocating offices, this tax hike comes as downtown commercial vacancy rates hit record highs in 2023 — sales plunged 44% last year. Property values also have trended down. Just last month, another Loop office building listed for 60% less than what it previously was bought for and valued at. And that’s before buyers scramble to save as much as possible in potential tax hikes.
Chicago already contends with the nation’s second-highest commercial property taxes and corporate income tax rates. Adding even higher taxes promises to push more firms out of the city. We all remember the recent exodus of big businesses such as Caterpillar, Citadel, Boeing, TTX and Tyson Food. The shift could be significant. It could be an opportunity for those communities outside city limits.
If the tax passes, Chicago multifamily and luxury real estate property values could also suffer. In a poll of landlords, 74% estimated they would raise rents, with the average rent increase at about $100 a month, according to Crain’s Chicago Business.
Suburban housing markets could be affected by the Chicago tax proposal. As more Chicagoans consider moving to the suburbs to escape high taxes in the city, housing costs could rise for buyers and renters, and home values could accelerate for homeowners.
The demographic changes could be lasting if employers flee Chicago’s egregious taxation policies and families follow. Johnson has campaigned for ideas about having the suburbs pay the difference as migration shrinks the city’s tax base.
If you’re a city resident or business owner, you have a chance to vote against tax hikes and push for reforms instead.
But if not, now is the time to position suburban communities as a lucrative place to live, work and do business. Communities and contractors would be well-served to start increasing development of single-family and multifamily properties now to alleviate the pressure of increased demand.
The “mansion tax” could be a blessing for the suburbs. If local communities start by passing taxpayer-friendly reforms that prioritize current residents and incentivize new businesses, what’s bad for Chicago could be great for everywhere else.
- Matt Paprocki is president and CEO of the Illinois Policy Institute.
