Low-Income Housing Tax Credit Program Research Articles

Overview and proposed reforms of the low-income housing tax credit program

•The Low-Income Housing Tax Credit (LIHTC) cost US taxpayers $8.4 billion in 2017.•The LIHTC subsidizes up to 103% of non-land development cost of rent-restricted units.•States receive equal per-capita allocations regardless of whether housing is affordable.•Future allocations should be made refundable and targeted to markets with greatest need.

Comparing Opportunity Metrics and Locational Outcomes in the Low-Income Housing Tax Credit Program

The Low-Income Housing Tax Credit (LIHTC) has been criticized for concentrating units in poor minority neighborhoods. This study analyzes the distribution of LIHTC units in San Antonio and assesses the opportunity provision in Texas’s 2016 Qualified Allocation Plan (QAP). Results indicate that since the incorporation of the opportunity provision in 2009, more tax credits have been allocated to neighborhoods with lower poverty and higher racial diversity. Maximum scoring neighborhoods in the current QAP are located in low-poverty communities that perform above average in socioeconomic conditions, but below average in accessibility and sustainable healthy environments.

Overview and Proposed Reforms of the Low-Income Housing Tax Credit Program

The Low-Income Housing Tax Credit (LIHTC) program provides a subsidy to developers who construct or rehabilitate rent-restricted housing units for 30 years. The program cost the US Government over $8.4 billion in lost tax revenue in 2017 and there is bipartisan support to expand future allocations by up to 50%. We provide an overview of the program and merits of the proposed increase in allocations. The analysis concludes by offering two alternative policy proposals that would increase the annual number of units subsidized under the program without increasing the aggregate dollar amount of allocations.

A Room for One’s Own? The Partisan Allocation of Affordable Housing

Millions of Americans live in communities without an adequate supply of affordable housing. The governmental response to the crisis has focused on subsidies to private developers who build below-market housing, with the Low-Income Housing Tax Credit (LIHTC) at the center of this effort. Although federally funded, the LIHTC program grants states wide latitude in distributing billions of dollars of tax credits annually. Do state officials exploit this discretion to channel housing subsidies to geographic constituencies for political ends? Drawing on 20 years of LIHTC administrative data, I test whether electoral support for the state’s governing party predicts the level of tax credit investment directed to an area. The analysis reveals a modest relationship between partisan loyalty and housing investment, conditional on the partisan and institutional contexts. Democratic governors steer tax credits to areas of core support, but only where the governor exercises a high level of control over the state’s LIHTC-allocating agency.

Unpacking the impacts of the Low-Income Housing Tax Credit program on nearby property values

Most existing research on the impacts of the Low-Income Housing Tax Credit (LIHTC) on neighbouring property values is limited in terms of providing causal attribution and uncovering nuances in the role of housing market and neighbourhood composition. This article addresses these shortcomings by investigating the impacts of the LIHTC program in Charlotte, North Carolina and Cleveland, Ohio. Levels and trends in housing prices before and after LIHTC developments in neighbourhoods are examined based on parcel-level housing sales data from 1996 to 2007. The Adjusted Interrupted Time Series-Difference in Differences (AITS-DID) model is used to clarify the causal direction of impacts of LIHTC developments. The results show that LIHTC developments have negative impacts in Charlotte, while having upgrading effects in Cleveland. Also, these impacts vary across neighbourhoods’ income heterogeneity. Thus, care should be taken when siting LIHTC developments to minimise negative impacts and enhance its use for community revitalisation across different housing market conditions.

Book Reviews

Joshua D. Gottlieb of University of British Columbia and NBER reviews “Housing Markets and the Economy: Risk, Regulation, and Policy: Essays in Honor of Karl E. Case”, edited by Edward L. Glaeser and John M. Quigley. The Econlit abstract of this book begins: “Ten papers, plus commentary, collected in honor of Karl Case, examine topics in housing markets and the economy. Papers discuss Case, housing, and the economy; derivatives markets for home prices; home equity insurance—a pilot project; spatial variation in the risk of home owning; arbitrage in housing markets; subprime mortgages—what, where, and to whom?; government-sponsored enterprises, the Community Reinvestment Act, and home ownership in targeted undeserved neighborhoods; siting, spillovers, and segregation—a reexamination of the low-income housing tax credit program; measuring land use regulations and their effects in the housing market; whether real estate agents compete on price— evidence from seven metropolitan areas; and the role of job creation and job destruction dynamics. Glaeser is Fred and Eleanor Glimp Professor of Economics at Harvard University. Quigley is I. Donald Terner Distinguished Professor at the University of California at Berkeley.”

Spatial location of place-based subsidized households and uneven geography of opportunities: case of Austin, Texas in the US

As an alternative to traditional public housing programs, the Low-Income Housing Tax Credit (LIHTC) program has been the dominant federal affordable housing program in the US. However, we have empirically limited understanding as to whether the LIHTC program promotes locational options that offer better socioeconomic opportunities for low-income families. This paper examines the relationships between the spatial location of public housing and LIHTC households and sociodemographic characteristics of neighborhoods in Austin, Texas. We find that both public housing and LIHTC households are located in disadvantaged neighborhoods, especially in terms of higher minority populations, poverty, unemployment, female-headed family, welfare receipt, teenage school dropouts, and lower income. Furthermore, our study shows that the location of public housing and LIHTC households is associated with concentrated crime. However, after accounting for the geographic and sociodemographic characteristics of neighborhoods, only neighborhoods where LIHTC households are located are significantly related to concentrated crime incidents.

Understanding Whom the LIHTC Program Serves: Tenants in LIHTC Units as of December 31, 2012

The Low­-Income Housing Tax Credit (LIHTC) Program provides tax credits to developers of affordable rental housing. The tax credits are provided during the first 10 years of a minimum 30-year compliance period during which rent and income restrictions apply. The LIHTC Program, although established in the U.S. Internal Revenue Code (IRC), is structured such that state-allocating agencies administer most aspects of the program, including income and rent compliance, with the Internal Revenue Service (IRS) providing oversight and guidance. Local administration allows states to address affordable housing needs specific to their populations.

Impacts of the Low-Income Housing Tax Credit Program on Neighborhood Housing Turnover

Although the Low-Income Housing Tax Credit (LIHTC) program has grown into the largest subsidized housing program in the United States, we have limited understanding of how these units affect the neighborhoods in which they are located. This article examines impacts of the LIHTC program on neighborhood stability in the cities of Charlotte and Cleveland. We examine housing turnover before and after the introduction of LIHTC developments into the neighborhood, based on housing sales data from 1996 to 2007. Location data on LIHTC units are merged with parcel-level sales data from Mecklenburg and Cuyahoga Counties. We estimate an extended Cox hazard model with the difference-in-difference specification to determine whether LIHTC units are causing increased turnover of neighborhood housing. We also explore impacts on neighborhood stability from LIHTC developments citywide and in neighborhoods stratified by income. We find significant impacts on the stability of LIHTC developments in both cities. Particularly, in higher-income submarkets, strong spillover effects were observed in Charlotte. Our results suggest that the stability of neighborhoods may be an important factor when considering the siting of LIHTC developments.

Housing Programs Fail to Deliver on Neighborhood Quality, Reexamined

This article revisits the relative performance of housing programs in terms of delivering on neighborhood quality. Newman and Schnare examined this issue in 1997, and this article updates their work more than a decade later. Both efforts examine the neighborhood characteristics surrounding assisted rental housing and assess the direction of assisted-housing policy. The analysis is performed by exploring census data at the tract level for the tenant-based Housing Choice Voucher program plus a set of project-based programs, including public housing, the Low-Income Housing Tax Credit program, and other HUD multifamily programs. We conclude that Newman and Schnare remain correct that rental housing assistance does little to improve the quality of the recipients' neighborhoods relative to those of welfare households and can make things worse. However, things have improved. The Housing Choice Voucher and Low-Income Housing Tax Credit programs have grown in importance over the intervening years and have improved their performance by moving more households into low-poverty, less distressed areas. Importantly, these active programs for assisted housing are beginning to find ways to overcome the barriers preventing entry into the suburbs, although more needs to be done.

Will Tax Credit Increase Housing Supply? Experience from U.S. and Prospect for Australia

While the world went through rapid urbanization in the last half century, house prices in many densely populated metropolitan regions are becoming increasingly unaffordable. As a result, many families turn to rental housing. However, the high rents in some markets also place significant burdens on low-income households. Thus, a lot of housing policies and strategies have been introduced by national and local governments to subsidize low-income families to improve their rental housing affordability. The low-income housing tax credit program (LIHTC) in the USA and the national rental affordability scheme (NRAS) in Australia are such examples. Both policies aim to increase supply of affordable rental housing for low-income families. LIHTC finances the development of affordable rental housing through a tax credit system, whereas NRAS provides an annual tax-free incentive for investors to purchase new affordable dwellings and rent them at 20% below market rents to low-income families. LIHTC has been implemented in US for more than a quarter century since 1986, while NARS has relatively short history since 2008. However, whether these programs will increase the long-term housing supply, or will they simply “crowd out” other type of affordable rental housing remains an open question.This paper first studies the long-term impact of LIHTC on housing supply, using the property level LIHTC data from 1986 to 2011, as well as other housing subsidy and housing supply data, including non-LIHTC rental subsidy programs, housing vouchers, housing permits, etc. An empirical linear OLS model is estimated to find the long-run sensitivity of housing supply to LIHTC program, controlling for other supply/demand variables. We find LIHTC has strong positive effect on overall housing supply.Then we compare LIHTC to NRAS program and try to forecast the effectiveness of implementing NARS for increasing affordable rental housing supply, with limited historical data. Similar results show that NRAS has fully compensated for traditional public rental units decline. The comparative study is important because it makes it possible to evaluate the effectiveness of such different approaches, and would enable decision makers to put the tax payers’ money for better use. The research results will also be useful for national and local governments when designing low-income housing subsidy programs.

What Can We Learn About the Low-Income Housing Tax Credit Program by Looking at the Tenants?

Using tenant-level data from 18 states that represent almost 40% of all Low-Income Housing Tax Credit units, this article examines tenant incomes, rental assistance, and rent burdens to shed light on key questions about our largest federal supply-side affordable housing program. Specifically, what are the incomes of the tenants, and does this program reach those with extremely low incomes? What rent burdens are experienced, and is economic diversity within developments achieved? We find that approximately 45% of tenants have extremely low incomes, and the overwhelming majority of such tenants also receive some form of rental assistance. Rent burdens are lower than that for renters with similar incomes nationally but generally higher than that presumed for housing programs of the U.S. Department of Housing and Urban Development. Rent burdens vary greatly by income level and are lowered by the sizable share of owners who charge below federal maximum rents. Finally, we find evidence of both economically diverse developments and those with concentrations of households with extremely low incomes.

The Nuances of NIMBY

This research investigates the nuances of local not-in-my-backyard (NIMBY) attitudes and actions, asking why some communities support publicly assisted affordable rental housing development, while others do not. Six case studies within New York State explore local acceptance and avoidance of affordable rental housing development through the low-income housing tax credit program. Findings inform future marketing, planning, and programming toencourage local participation in affordable rental housing development. More research is needed on the contextualized nature of NIMBY, how NIMBYattitudes and actions can be effectively reduced, and whether this increases the supply of affordable rental housing.

Location incentives in the low-income housing tax credit: Are qualified census tracts necessary?

The low-income housing tax credit (LIHTC) is the largest project-based housing subsidy in the United States. Within the program, private developers receive a subsidy in exchange for constructing apartment units that rent for a predetermined affordable rate. Because the subsidy requires apartment buildings to charge a lower rental rate, the opportunity cost of developing subsidized housing in a location is the market rent that a developer could have charged if he had not received the subsidy. This study characterizes how profit incentives motivate location decisions within the LIHTC program by showing that opportunity cost causes more LIHTC development in locations with low market rent. This result implies that additional financial incentives, like the qualified census tract, may not be necessary to promote construction of subsidized housing in low-rent areas.

Addressing the Dichotomy of Federal Affordable Housing Policy and Program Implementation

Two of the most popular Affordable Housing initiatives administered by the Federal Government are the Housing Choice Voucher (Section 8) Program administered by The Department of Housing and Urban Development (HUD) and the Low-Income Housing Tax Credit (LIHTC) Program administered by the Treasury Department. Although the two programs have significant programmatic differences, they both serve the same end. They provide affordable housing opportunities for low-income Americans. However, there is a distinct divergence in the Federal Government’s policy regarding affordable housing and the concentration of poverty. In the last few decades, HUD has been ushering in a subtle, yet pervasive, change in affordable housing policy with the near-wholesale transition from Public Housing (typified by the ‘Housing Project’ or Developments) to Housing Choice Voucher which permits participants to select any rental unit in the private market. Unlike Public Housing which is predominantly located in areas of high-poverty, the HCV program works, not only by HUD’s design but by effect, to deconcentrate affordable housing options. Conversely the LIHTC program provides a substantial incentive in the construction of affordable housing options in areas that are designated by HUD to be either a Difficult Development Area or Qualified Census Tract. These areas often represent areas of extreme poverty, high crime, delinquency, psychological distress, various health problems, low property values, poor schools, and few employment or transportation options. The LIHTC approach seems, in effect, to provide affordable housing to areas where those who need it the most currently live, rather than rewarding development that would serve to draw those individuals from impoverished areas. While the QCT/DDAs were determined solely by HUD, the Housing and Economic Recovery Act of 2008 now permits the state housing finance agency to determine which areas are considered DDAs. This has led to a disparate application of standards throughout the country.

Low-income housing development and crime

This paper examines the effect of rental housing development subsidized by the federal government’s Low-Income Housing Tax Credit (LIHTC) program on local crime. Under the LIHTC program, certain high-poverty census tracts receive Qualified Census Tract (QCT) status, which affects the size of the tax credits developers receive for building low-income housing. Changes in federal rules determining QCT status generate quasi-experimental variation in the location of LIHTC projects. Exploiting this variation, we find that low-income housing development in the poorest neighborhoods brings with it significant reductions in violent crime that are measurable at the county level. There are no detectable effects on property crime.

Living in Affordable Housing and Duration of Tenure: Do Older Adults Stay in Low-Income Housing Tax Credit Projects as They Age?

Compliance data for the low-income housing tax credit program in Ohio was examined to identify factors associated with affordable housing tenure. Residents aged 55 and older reported a median tenure duration of 2.7 years. Cox regression was used to explore time until exiting housing, controlling for demographic factors, and the date the housing project was placed into service. Results suggest that duration of tenure was predicted by age and race. Modifications to the state Qualified Allocation Plan guiding development under the low-income housing tax credit program should be considered to promote aging in place in affordable housing. Reasons for exiting and subsequent housing choice should be explored.

Do Tenants Capture the Benefits from the Low‐Income Housing Tax Credit Program?

This article compares the rent savings accrued by recipient households over the life cycle of Low‐Income Housing Tax Credit (LIHTC) projects to their allocated tax credits. A simple two‐stage empirical procedure is developed and implemented for a selected medium‐sized metropolitan statistical area. Using hedonic pricing parameters estimated in the first stage, LIHTC ceiling rents are compared to predicted market rents. The findings indicate rent savings constitute a relatively small fraction of the programs costs, suggesting developers and investors may capture some of the program's benefits. As this finding characterizes only one potential source of benefits of the LIHTC program, a brief discussion of other potential benefits to low‐income households supplements the analysis.

Crowd out effects of place-based subsidized rental housing: New evidence from the LIHTC program

Since its inception in 1987, the Low Income Housing Tax Credit (LIHTC) program has ballooned into the largest ever source of subsidized construction of low-income housing in the United States, accounting for one-third of all recent multi-family rental construction. This paper examines the crowd out effects of this increasingly important source of low-moderate income housing. To do so, we analyze the impact of LIHTC construction at three different levels of geography, MSA, county, and 10-mile radius circles. This allows us to employ increasingly extensive geographic fixed effects that help to difference away unobserved factors. Political variables are also used as instruments to further facilitate identification. In all of our models, IV estimates yield substantially greater crowd out than OLS, confirming the endogenous attraction of LIHTC development to areas ripe for new construction. Our most robust IV estimates indicate that nearly 100% of LIHTC development is offset by a reduction in the number of newly built unsubsidized rental units, although the confidence band around this point estimate allows for less dramatic assessments. Additional estimates suggest that LIHTC development has a much more moderate impact on construction of owner-occupied housing, but these estimates are imprecise. Overall, while LIHTC development may well affect the location of low-moderate income rental housing opportunities, our estimates suggest that the impact of the program on the number of newly developed rental housing units appears to be small.

Are low-income housing tax credit developments locating where there is a shortage of affordable units?

Low-Income Housing Tax Credit (LIHTC) developments serve renter households with incomes between 30% and 60% of Area Median Family Income. Ideally, the program places units into neighborhoods where there is a shortage of units serving this cohort. LIHTC units are allocated to developers by state agencies through their Qualified Allocation Plans which should direct units to areas of need. Using a national database, this research examines where LIHTC developments were placed in service to determine whether these developments enter tracts experiencing shortages. The LIHTC program is not directing units to those census tracts where there is a latent demand for units in this rent range. Rather, it is placing units into tracts that have surpluses. Equally, the program is not placing units in tracts with little or no affordable housing. This suggests that the program is not breaking down the income separation that exists in the nation's housing markets.