In a contentious move that has drawn sharp criticism, the Illinois Senate has sought to pass a ‘rescue package’ designed to support mass transit in the Chicago area. This proposal includes a new real estate transfer tax aimed at suburban homeowners, which could further exacerbate existing housing market challenges in a state already struggling with affordability and supply issues.
The proposed tax would require homeowners to pay an additional $3 for every $1,000 in home value during sales, significantly impacting suburban counties such as Cook, DuPage, Kane, Lake, McHenry, and Will. While Chicago residents already face a higher real estate transfer tax at $10.50 per $1,000 to fund the Chicago Transit Authority (CTA), the new tax would impose further financial burdens on suburban families.
Housing affordability is a growing concern in Illinois, where the collar counties rank among the highest in property taxes nationwide, making home purchases challenging even without this additional burden. Real estate advocates argue that implementing this transfer tax would hinder home sales and damage an already fragile housing market.
As the Illinois Senate passed an amendment to House Bill 3438 in the final hours of the spring session, the bill now rests with the Illinois House after facing significant opposition. With the median-priced home in DuPage County potentially incurring an extra $1,335 fee upon sale, and $1,140 in McHenry County, many worry that this will exacerbate an already slow housing market.
Jeff Baker, the CEO of Illinois Realtors, emphasizes the damaging implications of such a tax, referencing its role as an ‘exit’ tax that would diminish homeowners’ equity. He claims it could trap residents in their homes, hindering mobility and limiting opportunities for first-time buyers while simultaneously reducing available starter homes in the market.
According to the Illinois Realtors group, which invested $500,000 in opposition to the proposal, the new transfer tax threatens to undermine the entire housing economy. Baker describes the proposed tax increase as ignoring the stark realities of the state’s housing challenges, warning that it would lead to heightened closing costs across all residential and commercial transactions in the Chicagoland area.
Critics further argue that penalizing home sales could undermine potential revenue for the state by stifling related economic activity. Studies have indicated that every dollar collected in transfer tax could eliminate up to $8 in associated spending on moving services, furniture, and appliances. With fewer homes available, builders might anticipate a drop in sales, further constraining the housing supply.
The urgency of addressing funding for transit agencies is underscored by their reliance on dwindling federal pandemic relief funds. However, solutions that involve taxing suburban home sales have raised alarms among real estate advocates, who call them an impractical remedy to a complex problem.
Illinois is currently facing a shortage of 142,000 homes and will need to build an estimated 227,000 more by 2030 to meet the demands of its residents. As state lawmakers grapple with future funding for transit services, it is imperative they consider the long-term consequences of such tax policies on housing markets and families, rather than pursuing short-term financial gains.
image source from：illinoispolicy
