Comparative Study Finds LIHTC Has Strong Positive Effect on Housing Supply

Published by Michael Novogradac on Friday, July 19, 2013 - 12:00am

In “Will Tax Credit Increase Housing Supply? Experience from US and Prospect for Australia,” the United States’ low-income housing tax credit program (LIHTC) is analyzed, along with the national rental affordability scheme (NRAS) in Australia.

Both programs aim to increase the supply of affordable rental housing for low-income families, but they are considerably different. The more than 25-year old LIHTC finances the development of affordable rental housing through tax credits, and the four-year-old NRAS provides an annual tax-free incentive for investors to purchase new affordable dwellings and rent them at 20 percent below market rents to low-income families.

After examining 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., the authors find that the LIHTC “has strong positive effect on overall housing supply.” In addition, they note that the empirical data shows that the supply of LIHTC units has greatly compensated the decline of other types of supply-side housing subsidy.

The comparative study is important because, as the study notes, tax incentive programs have been under criticism because many advocates of public housing argue that these policies merely “crowd out” other low-income rental housing units, and do not really increase the overall supply of housing. The results of the study are counter to that criticism.