CHICAGO — Earlier this year, Los Angeles hiked a transfer tax imposed on pricey real estate purchases, a move designed to generate revenue to fund homeless services.

The measure, which hits both commercial and residential properties, bears a striking resemblance to the “Bring Chicago Home” proposal up for a citywide vote next March, and has so far failed to fill Los Angeles coffers.

Luxury home sales, the mainstay of a market home to Hollywood stars, popular recording artists and entertainment executives, plunged in the first few months after the new law took effect in April, leaving the city far short of its fundraising goals, at least for the first six months.

“With not a lot of digging, you’ll find it’s been a disaster for LA real estate,” said Matthew Hargrove, president and CEO of the California Business Properties Association. “This is a market, and markets react to taxes. They’re not coming anywhere near the promised numbers. That’s the problem with doing policy at the ballot box.”

If Chicago voters approve Mayor Brandon Johnson’s request to hike the tax that he hopes will pour more funds into homelessness prevention, it would help fulfill campaign pledges to tackle the affordable housing crisis, ensure the wealthy pay more for city services, and grant more power to grassroots organizations.

“We are committed to finding a dedicated funding stream to combat homelessness,” said S. Mayumi “Umi” Grigsby, Johnson’s chief of policy. “And we’re trying to do it in the most equitable way possible.” Grigsby acknowledges that so far, the Los Angeles initiative hasn’t raised the hoped for amount, but said the Johnson administration reached out to city officials there to learn more about its policy and made important adjustments to Chicago’s proposal, including a tax cut for many property buyers.

But critics worry Bring Chicago Home might encounter the same pitfalls Los Angeles has struggled with. They also fear raising any tax will sabotage recovery in the real estate market, which has been beset by high interest rates and an office market stunted by the pandemic.

“Some people say, ‘it’s just high-value properties,’ and therefore, it’s OK to increase taxes on them,” said Illinois Realtors CEO Jeffrey Baker. “But it will slow the entire real estate market, and the entire real estate market is in a precarious position.”

The debate comes as a growing number of local governments are using ballot referendums to raise real estate or other business taxes, often to fund progressive goals such as building supportive housing for homeless people. Voters in San Francisco, Santa Fe, New Mexico, and Silicon Valley’s Mountain View recently backed various tax hikes to fund homeless services, or to develop affordable housing. And Evanston recently decided to use its transfer taxes to fund a reparations program for Black residents.

“This has become a bit of a fad or trend, especially in California,” said Christopher Berry, faculty director of the University of Chicago’s Mansueto Institute for Urban Innovation. “Partly it’s that with the election of more progressive mayors, cities are looking for options to implement progressive taxes.”

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