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Illinois: An anomaly amid a national housing boom – Crain’s Chicago Business

As a managing broker in the North Shore at Sotheby’s International Realty, Chris Stephens knows well that Illinois’ high tax burden has historically tempered home sale prices – especially in the Chicago suburbs long coveted for their luxury homes, attractive amenities, and high-ranking schools.

One of the areas where the tax burden has an extreme impact is new construction.

“You cannot build new construction right now because the taxes are so high and buyers and investors afford it,” Stephens said. “There’s a lot of national investors that I know who will not invest in Illinois.”

A new report by the nonpartisan Illinois Policy Institute found that Illinois currently ranks 48th in the nation in home construction by population.

The state built only 102,010 new single-family homes from 2010-2020, or about eight homes per 1,000 families. Meanwhile, Illinois’ population shrank by nearly 20,000 residents over the decade, according to U.S. Census Bureau data, causing the state to suffer the second largest raw decline of any state in the 2010s.

It hasn’t always been this way.

Before the 2008 housing crisis, Illinois averaged more than 40,000 permits for single-family homes annually. Now, fewer than 10,000 new homes are built in Illinois per year.

“Prior to ’08, you used to see new construction was probably 80% for sale – like condos, single-family homes – and 20% was apartment buildings. Now you’re seeing the opposite,” Stephens said.

But with decades of bad state-level policy, growing pension debts, skyscraping property taxes, and harsh business restrictions, people are flocking out of Illinois.

Following the financial crisis, Illinois faced some of the highest homeownership costs in the nation. While nationally the cost to own a home has declined 19 percent from numbers before the housing bubble burst, in Illinois, the costs have increased. Property taxes are now so high in Illinois that recent homebuyers pay equivalent to nearly seven additional mortgage payments — per year — for the typical home.

This means many homeowners in Illinois can’t be certain their home is worth the investment, especially as the growth of property taxes outpaces the growth of home values.

Not only is Chicago constructing new homes at one of the slowest rates among major metropolitan areas but also it is showing virtually no population growth over the decade.

Meanwhile, major metro areas that are growing their populations rapidly have been building new homes at a much faster pace. Houston, Dallas, Phoenix and Atlanta have all built more than 35 new homes per 1,000 residents from 2010-2020.

As a result, Illinois manages to flop amid a national housing boom as Utah, Idaho, Texas and North Dakota lead the nation in homes built. They grow in population every year, welcoming new residents and businesses.

During the pandemic, Illinois saw a temporary surge in real estate prices, created by low interest rates, increased federal stimulus money, and low housing inventory; however, the trend did not last.

Without business-friendly policies there is no reason to expect housing inventory to increase or shrinking population trends to reverse.

“We need to get our pensions and infrastructure fixed in order for it to really prosper and be a viable place where people want to buy, live and invest again,” Stephens said of the state.

Illinois’ real estate market will not turn around until the state puts its economic house in order. Tough policy decisions must be made for the long-term health of Illinois and its residents.

The state government must make planting roots in Illinois a smart decision for individuals and businesses.

Bryce Hill is the senior research analyst at the Illinois Policy Institute, a nonpartisan research organization.

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