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the Home Builders Association of Greater Southwest Illinois.
The first phase of the study, conducted for IAR by RCF Economic & Financial Consulting Inc. of Chicago, calculated the
pyramid effect of five stages of construction and marketing of a new home in Illinois based on a 1.95 percent GRT on
services and a 0.85 percent tax on construction contracts and materials, as proposed in the governor's budget. The stages
are: wholesaler, subcontractor, general contractor, developer and finally, consumer. RCF calculated an overall 2.84 percent
increase in the cost of a new home as a result of this layering on of new taxes at different steps in the homebuilding and
selling process.
Using the average cost of a home in the Chicago Primary Metropolitan Statistical Area last year of $311,734, the new tax
would add at least $8,853 to the cost of a new home, according to the study. Using a standard 30-year, fixed-rate mortgage
with a 20 percent down payment and a 6 percent interest rate, the consumer's down payment required to obtain the mortgage
for that home would increase $1,771. The homeowner would make an additional $15,000 in monthly payments including $8,204 in
additional interest paid over the life of the loan.
"This study shows that the governor's new tax will have a significant impact on people's ability to purchase a new home,
and further stall an already sluggish housing market in Illinois," said Gary Clayton, chief executive officer of the
Illinois Association of Realtors. "That hurts the economy and costs jobs."
Clayton described the impact of the proposed gross receipts tax as a hidden tax on construction and associated services.
The IAR board of directors voted to oppose the gross receipts tax in a meeting in March.
"People really need to understand how this tax adds up to impact their lives and businesses," said Clayton. "This study
really sheds light on the hidden tax lurking in the governor's proposal."
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Rombach said the Home Builders Association of Greater Southwest Illinois as well as the Home Builders Association of
Illinois has gone on record opposing the tax. He said that the HBAI has done its own analysis and has come up with figures
similar to the IAR. Using an average home price of $250,000 would add about $8,000 to the cost of the home due to the tax,
Rombach said.
And Rombach said that it's necessary to also look at the cumulative effect of not just the GRT, but other fees and
assessments on housing development as well.
"We're beginning to approach the collar counties of Chicago, where fees and assessments that often times are little more
than revenue generators are in the $35,000 to $50,000 range," said Rombach. "This GRT will put them close to $60,000 in the
Chicago area and put us close to $20,000 to $22,000 in a couple of communities for fees, assessments, taxes, etc."
Rombach says he expects the GRT will impact practically every homebuilder plus remodeling contractors as well.
Increased housing costs will also increase annual property tax payments by purchasers of new homes, according to the IAR
report. Based on an effective tax rate of 2.2 percent typical in the collar counties, the GRT would add nearly $200 in
annual property taxes to the bill of a typical homebuyer.
Based on Illinois construction costs of $16 billion for single-family residences in 2002, the proposed new gross receipts
tax would cost Illinois homebuyer and homebuilders nearly $500 million each year.
"I think he (the governor) is really playing with fire," said Rombach. "Is it a bargaining chip for something he really
wants or something more acceptable to the business community? It's hard to say. He's certainly not talking to us and he's
apparently not talking to legislators to a great extent - maybe his inner circle, but not widespread. That's the impression
I get."
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