EXPLAINING ILLINOIS’ SLOW HOME PRICE APPRECIATION By Drake Divounguy, Suman Chattopadhyay, Bryce Hill from Illinois Policy Institute The costs faced by homeowners can help explain outcomes in the housing market. Previous research finds a significant and negative relationship between the user cost of homeownership and housing prices. That is, when the user cost of owner-occupied housing increases, house price appreciation decreases. Changes in the real user costs of owner-occupied housing contributed heavily to the rise in house prices in 1970s and to the decline in house prices in 1980s. This report compares the change in the user cost of owner-occupied housing in Illinois and the rest of the U.S before and after the housing crisis. This model is based on the existing excerpt literature on the topic. The findings suggest that while user cost of owner-occupied housing has decreased across the country after the recession, predominately due to lower interest rates, it has remained virtually unchanged in Illinois “For every $100 in home value in Illinois, homeowners are now paying $10.15 in annual costs associated with homeownership—more than 42 other states” A LOSE—LOSE SITUATION FOR ILLINOISANS Measuring homeownership costs points to one simple face: Housing in Illinois has become less attractive relative to housing in other U.S. states. This has been driven largely by increases in income taxes and property taxes. There is no reprieve to be found for Illinoisans. With greater housing costs, it is not surprising that the post-recession growth in home values has been suppressed in Illinois relative to the rest of the U.S. This is more painful when you consider home appreciation has yet to match the pre-housing bubble period. We stress, with out property and income tax relief, housing in Illinois will continue to be less attractive, Illinois’ population is likely to continue its decline and housing appreciation can be expected to continue to lag the rest of the nation. With spending caps both proposed by the 12 The word “by” needs to be added in there
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