According to a report done by Illinois Policy Institute, “House Hunters: How high taxes hurt home investment in Illinois,” poor public policy has made buying a home in this state unattractive relative to the rest of the country.
What the Report Found
The report examines the attractiveness of homeownership over time, comparing the cost of owning a home across all 50 states before the housing bubble and after. It considered the following user costs:
- Out-of-pocket costs, such as mortgage payments, maintenance and report costs, insurance costs and real estate taxes
- Cost to consumers not seen in monetary transactions, such as depreciation and forgone earnings on the owner’s equity in the house
- Appreciation in the value in the home
- Deductibility of mortgage interest and property taxes for federal and some state income taxes
According to the Institute, this user cost concept provides a good estimate of the real cost of owning a home as well as emphasizes the investment dimension of homeownership.
Unfortunately, for Illinois, it also shows that it is one of only three states where real estate became the worst investment, with only Michigan and New Jersey performing worse. For every $100 in home value in Illinois, homeowners are paying $10.15 in annual costs associated with owning their home. Illinois homeowners have experienced a double whammy, with the Great Recession causing a steeper decline in home values in Illinois and a slow-paced housing market recovery in this state.
Nationwide, the user cost of homeowners declined by 19 percent relative to the pre-housing bubble period. In Illinois, that user cost hasn’t declined at all, primarily due to the increases in both income and property taxes.
And homeowners are not the only ones impacted by the state’s public policy choices. Renters are also experiencing negative effects, with the median rent increasing 24 percent in Illinois. Potential homeowners, discouraged by the property taxes and low home price appreciation, are instead renting, which could be contributing to the increase in rental prices.
With the increase in rents despite stagnant property values, renters are paying more rent as a proportion of home value when compared to the rest of the country (Illinois ranks 48th). Renters in this state now pay higher rents for less housing compared to renters nationwide.
In the four years since the Great Recession, Illinois has seen population decline, driven mostly by younger families leaving the state.