Report: Illinois’ high taxes make homeownership less affordable

September 18, 2018

Illinois Policy Institute analysis reveals owning a home in Illinois is a worse deal today than during the pre-housing bubble period

Owning a home in Illinois is a worse deal now than it was prior to the housing bubble, according to a new report released today from the Illinois Policy Institute.

The new report, “House hunters: How high taxes hurt home investment in Illinois,found that housing in Illinois has become a worst investment relative to housing in 47 other states, meaning potential home buyers may be less likely to purchase a home in Illinois. Homeownership has fallen across the nation, but even more sharply in Illinois.

Nationwide, the cost of homeownership has declined by 19 percent since the pre-housing bubble period. But in Illinois, the cost of homeownership actually went up .04 percent. And while homeowners in states across the nation are taking advantage of record low interest rates and rising home values, homeowners in Illinois have been hit by increases to their income taxes and property taxes.

Prior to the burst of the housing bubble, Illinois ranked in the middle of the nation in terms of costs associated with owning a home, such as maintenance, property taxes and mortgage interest. But today its homeownership costs are among the worst in the nation.

“The decision to own a home in Illinois is becoming less attractive than owning a home in other states. High taxes in Illinois have slowed Illinois’ housing market recovery. When home values don’t appreciate quickly, people are less likely to invest or spend, which has negative effects on the state’s economy as a whole,” said Orphe Divounguy, chief economist at the Illinois Policy Institute. “To make Illinois competitive again, lawmakers will need to tackle what’s driving Illinois’ homeownership costs, which have grown primarily due to sky-high property taxes. That will mean bringing down the cost of public pensions.”

Highlights from the report:

  • Illinois ranked 48 out of all 50 states in terms of improvements in the user cost of homeownership.
  • This is due to tax policies that took place over the past decade. Illinois experienced a 38 percent hike in effective property tax rates between the 2002-2004 and 2013- 2015 periods – nearly 5 times the increase in the rest of the nation.
  • Illinois also saw a 19 percent increase in income tax rates over the past decade, despite a 4 percent fall throughout the rest of the nation, which reduces the benefit of deducting mortgage interest and property taxes from federal and state income taxes.
  • The other two states where homeowners saw a decline in their return on investment are Michigan and New Jersey. Michigan’s ranking is due primarily to a 14 percent loss in home values, which meant homeowners there felt the pain of maintenance costs and property tax hikes more acutely. In New Jersey, residents experienced the largest increase in the cost of homeownership in the nation due to steep property tax hikes and the increase in maintenance costs.
  • Renters in Illinois now pay higher rents for less housing compared with renters in other parts of the nation. In the post-recession period, the median rent increased 24 percent in Illinois, despite virtually no change in home values.
  • Though they followed national trends, homeownership rates fell more sharply in Illinois than the rest of the nation, falling 10.2 percent from their peak in 2004 through 2016, compared to falling 8.1 percent nationally.

To read the full report, visit http://illin.is/homeownership.