A proposed special tax on people who buy high-end homes in Chicago, designed to fund the city's efforts against homelessness, could deter upper-income buyers who have already been nicked by property tax increases and lost homeownership deductions, according to agents and lenders who work with the city's luxury real estate market.

The Bring Chicago Home tax is proposed by a coalition of civic groups and Ald. Walter Burnett (27th), who on Wednesday will introduce at the Chicago City Council meeting legislation calling for a citywide vote on the idea. It would require buyers who pay more than $1 million for a home to pay a onetime tax of 1.2 percent of the value at the time of their purchase, with all of that additional amount going to fund homelessness programs.

At all prices, home sales incur a city transfer tax of 1.05 percent of the home's value, or $10,500 for a million dollars in purchase price. That amount is divided between buyer and seller, with the buyer paying $7,500 and the seller paying $3,000.

Under the proposal, buyers at over $1 million would pay an additional 1.2 percent of the home's value, or $12,000 more than they pay now—a total of $19,500 per million in purchase price. The amount that sellers pay would not change.

"This would be a significant deterrent for people who are stretching to afford a house," said Leslie Struthers, a vice-president for lending at Guaranteed Rate, the Chicago-based mortgage company. "Yes, a lot of them are stretching. They don't have deep pockets. They don't have extra cash stockpiled to pay this" new tax.

With the city's property tax rates already rising and likely to go up more before the fiscal crisis is solved, and with the new federal tax code shrinking the tax deductions for homeownership, "I wouldn't want to see another obstacle put in the way for buyers," said Katherine Malkin, a Compass agent who specializes in upper-end properties.

THE 'PRO' SIDE

Proponents say the tax is an effort to boost the city's spending on homelessness to a level that could make a serious difference. Its authors contend the tax would raise about $150 million in funds in the first year, which would help about 36,000 people out of homelessness.

Attaching the tax to purchases at $1 million and up is "asking people who can afford to buy these homes to pay according to their means to end homelessness in their city," said Mary Tarullo, deputy director of policy for the Chicago Coalition for the Homeless. "They have the means to contribute to solving this problem."

In the past twelve months, there have been 1,903 sales in Chicago priced at over $1 million, according to Midwest Real Estate Data. That's about 4.6 percent of the 41,536 sales at all price levels.

The addition of a special transfer tax at the upper end of the market would make the city's transfer tax more progressive, she said, meaning it would take more proportionately from higher-income people rather than a flat tax that takes from people of all incomes at the same rate, as it does now.

But Jenny Ames, a Coldwell Banker agent who focuses on upper-priced properties in the city's lakefront neighborhoods, questions the premise of the tax. "This image of people who buy million-dollar homes drinking champagne and caviar bothers me," Ames said. Most of her buyers near that level, she said, "are two-income couples working hard who want to live in the city so they can get home to see their kids before bed," she said.

Buyers at the $1 million level generally have household incomes in the $240,000 range, Struthers said, and "they're not buying a house with an inheritance. They've saved and saved to have the down payment, just like somebody who's buying a $200,000 house." That's mostly buyers in the under-$3-million range, she said.

Not everyone in the luxury real estate business opposes the tax. Brian Goldberg, CEO & Partner in LG Development—a firm that has built numerous houses and condos in the city, many of them priced at over $1 million—said, "if it helps the homeless and Ald. Burnett believes this will be effective, I'll stand by the alderman all day long."

Goldberg's firm has built projects in Burnett's Ward that needed the alderman's blessing.

OTHER CITIES' TRACK RECORDS

Bring Chicago Home press materials say that in an April poll of likely city voters, 66 percent of respondents supported the concept of imposing a tax on high-end homebuyers to be used to fight homelessness. Tarullo told Crain's the results could not be broken out to determine how many of the people polled are from upper-income households that would be subject to the mansion tax when buying their next home.

New York City has had a "mansion tax" since 1989, instituted by New York Gov. Mario Cuomo to help dig the way out of a financial crisis; it's recently come under scrutiny by Mayor Bill De Blasio, in part because at this point $1 million is a middle-class price there. In San Francisco, the rampant problem of homelessness has spawned the Proposition C, a proposed tax on businesses to generate funds for combating homelessness.

In Chicago, the existing 1.05-percent transfer tax is paid by both parties in a transaction, about seven-tenths of it paid by the buyer and three-tenths by the seller. The additional 1.2 percent would be paid entirely by the buyer, as the proposal is written.

Regardless of who actually writes the check, "it's coming out of the price," said Charles Grode, a principal in the high-end homebuilding firm BGD&C. Buyers will figure the additional transfer tax into their total cost to acquire the house, he suggested, and subtract it from what they're willing to pay the seller. "It's a zero-sum game," Grode said.

That could exacerbate the losses sellers are taking on vintage mansions. In recent years, many properties have sold for a loss, such as the Astor Street mansion that in August went for less than both its 2006 and 2000 purchase prices, and another on the same street that in May sold for about one-quarter less than the sellers paid for it in 2008.

Grode and Struthers both said they would expect to see some people who had planned to buy in the city go to the suburbs instead, not merely to escape the tax but to "get the most house they can afford, and if the suburbs don't have that tax, they can afford more there," Struthers said.

Another possible effect of the tax would be that, having been required to pay thousands of dollars toward the homelessness effort, some buyers might cut back their other charitable giving, at least in the year they buy the home.

"I think there are many people who would ... curtail their giving," said Joanne Nemervoski, a Compass agent whose most recent sale was at more than $4.6 million, on Grant Place in Lincoln Park last week. "Not only because they would have less spendable income, but because there would be some resentment."

Tarullo said because the tax is paid just once, at the time of purchase, she does not foresee an appreciable drop in charitable giving.