Adan Villafranca never thought about buying a home.
Not until he got engaged, that is.
Born and raised near Chicago to parents who immigrated to the United States from Mexico in the 1960s, he began looking for suitable soil to plant roots and start a family of his own. Adan’s house hunt started in the city’s southwest suburbs: Oak Lawn, Oak Forest, Crestwood, Tinley Park and the like.
But then he saw the property tax bills. There was no way his budding family could afford to pay $6,000 to $8,000 each year, on top of their mortgage, for the kind of home they wanted.
One of Adan’s coworkers jokingly suggested he look for a home in Indiana. The joke landed.
Adan, his wife Cynthia and their two children now call Highland, Indiana, home.
“Property taxes here are $1,000 to $2,000. I was like ‘wow, this is a big difference’ [compared] to Illinois,” Adan said. “That’s a big deal when you’re starting a family.”
And it wasn’t just that bill – it was the bang for the Villafrancas’ buck. Adan’s commute to work in Tinley Park actually got shorter. His children will be enrolled in blue-ribbon public schools. And he has extra money to pay for gymnastics and swimming lessons for his eldest daughter.
Adan’s story is not atypical. He knew what his family could afford and the amenities they wanted, so what ultimately moved the needle was not the price of the home, per se, but what could more accurately be described as “the cost of homeownership.” The total cost of homeownership is more than just a mortgage payment. It also includes tax deductibility, maintenance costs, the opportunity cost of investing in a home versus something else – and of course, the tax bill.
If the cost of homeownership goes down over time, the likelihood that your home was a good investment goes up.
A new report from the Illinois Policy Institute shows why this concept is so important in explaining why the state has struggled to attract residents like the Villafrancas. The research compiles the cost of homeownership across all 50 states, comparing the pre-housing bubble period (2002-2004) to the post-recession period (2013-2015).
The good news? Americans in 47 states saw a decline in the cost of homeownership over that time, meaning buyers likely made good bets if they moved in before the housing bubble. This decline was driven mostly by record-low interest rates.
The bad news? Illinois joined Michigan and New Jersey as the only three states where the cost of homeownership went up, which means owning a home is a worse deal now than it was prior to the housing bubble.
Here’s why: In Illinois, the benefits of lower borrowing costs were completely canceled out by tax hikes.
First, the median Illinois household saw a 38 percent hike in its effective property tax rate between the 2002-2004 and 2013-2015 periods. That’s close to 5 times the increase in the rest of the nation.
Many Illinois politicians hitting the campaign trail parrot a catch-all solution to those rising property tax bills chasing families like the Villafrancas out of state: hike income taxes.
But while the rest of the U.S. saw income tax rates fall, Illinoisans saw exactly what those politicians promise would lower their property tax burden: a 19 percent increase in the effective income tax rate. It was the third-largest hike in the nation.
There was no relief.
And it wasn’t just homeowners who got whacked. Renters were not immune to the effects of severe tax hikes. From the pre-bubble to post-recession period, rent as a share of home values climbed faster in Illinois than all but two other states. Rents in Illinois rose by nearly 25 percent, but home values were stagnant, meaning renters started getting much less house for their money compared with other states.
The silver lining here is that making Illinois a more attractive state in which to plant roots is entirely within lawmakers’ control. Ending the tax hike habit would make a big difference. Two changes are key:
First, a state spending cap tied to economic growth would end runaway spending, which has grown 25 percent faster than taxpayers’ incomes over the past decade. Second, to ensure budget stability in the long term, Illinois lawmakers must deal with the pension monster. A constitutional amendment to protect the pension benefits government employees have already earned, but allowing for reforms to future, not-yet-earned benefits is a compromise that defends retirees, taxpayers and Illinoisans reliant on government aid.
“It’s a win-win for us,” Adan Villafranca said of his Indiana move. It’s about time people planting roots in Illinois felt the same.