A combination of high property taxes, a sluggish local jobs market and people leaving the state could spell trouble for your home’s value.
A new report by the nonprofit Illinois Policy Institute warns that the state’s homeowners could see their home values take a turn for the worse in the coming years, saying high property taxes are keeping potential buyers from buying homes without a lower-than-market price. The report showed homeowners’ property tax bills grew six times faster than household incomes in the last decade.
This, coupled with record numbers of people leaving the state and a lagging economy, could depress home values in the coming years.
“We don’t expect the rise [in home values] to continue,” Institute chief economist Orphe Divounguy said. “We expect prices to start falling.”
Illinois households, on average, pay nearly 15 percent of a combined effective state and local tax rate, according to a recent WalletHub study. That’s higher than any other state.
The problem, he said, could worsen over the years as potential homebuyers continue to leave Illinois and further depress housing costs. More than 275,000 families left Illinois from 2006 to 2016, according to the IRS.
Studies have also shown that homeowners tighten their belts when their home values are lowered.
“When housing prices fall, homeowners begin to tighten up their budgets,” Divounguy said. “And when they stop spending, the economy slows down even more.”
The Illinois Association of Realtors said the average home sale in the state last year was $235,000, up slightly from 2016.
When asked what to do about the issue last weekend, Democratic gubernatorial front-runner J.B. Pritzker said he wants to lessen property taxes by shifting local school costs to the state and then making high-earners pay for it with a progressive income tax.
“We will lower the property tax burden on people and make it less regressive and make the entire system more attractive for people to stay in Illinois,” the billionaire Hyatt heir said.
Divounguy warned that election-cycle political promises should be looked at with a skeptical eye, adding, “It’s very difficult to raise the kind of revenues that are needed right now with a progressive income tax.”
Pritzker has said that he would propose tax hike rates if voters allow a progressive income tax, but not before. Illinois' constitution currently bans a progressive tax, so voters would have to amend the constitution to allow it.
Divounguy said that fellow Democratic gubernatorial candidate Bob Daiber’s proposed rates (6 percent for income above $1 million scaling down to 1 percent for less than $25,000) would require tax hikes on nearly every household in Illinois to balance the state’s budget.