Illinois homeowners are burdened with a combination of tax woes that are causing them to think twice about staying put. Illinois has the second-highest property taxes, beat only by New Jersey. And homeowners have also been hit with the largest permanent income tax hike in Illinois history.
Reasons for Illinois Housing Market Slack
Nearby states are benefitting from Illinois tax woes as homeowners look to nearby states where property taxes are lower. Experts are expecting the Illinois housing market to weaken in 2019. In fact, Illinois is one of three states where single-family homes are a worse investment now relative to the pre-housing bubble.
One of the main reasons the housing market is expected to weaken in 2019 is the impact of four years of a declining population as residents move to nearby states. And that isn’t due to retirees moving to warmer climates. The largest population group to decline is those aged 25-54. This exodus is going to have an effect on the workforce and it will eventually have an impact on the housing market as those most likely to buy homes in the future will leave the state with their parents.
In addition, property taxes in Illinois in the past decade have surpassed the rise in home values, growing 76 percent faster than home values in Cook County alone. Property tax increases are generally accepted when homeowners can see the dollars financing local services that enhance the neighborhood and cause home prices to appreciate. That has not been the case for the past 20 years in Illinois. In fact, fewer than 50 cents of every extra dollar of property tax has paid for the delivery of current services.
Property taxes in Illinois have been used to finance the public pension system in the state, which is at least $130 billion in debt. The Illinois Constitution contains a pension guarantee clause that was added in 1970.
The third item having an impact on Illinois is the 2017 income tax hike, which was the largest in state history. The income tax increased 32 percent, from 3.75 percent to 4.95 percent. At the same time, neighboring states have lowered income taxes, another reason Illinois homeowners are moving.
The impact of the tax burden imposed on Illinois residents has the potential of creating long-range consequences for the state.