House Budget Committee War on Poverty Report Mischaracterizes LIHTC

Published by Michael Novogradac on Thursday, March 13, 2014 - 12:00am

Recently, House Budget Committee Chairman Paul Ryan, R-Wis., released a report “The War on Poverty: 50 Years Later,” evaluating America’s War on Poverty and the programs that fall under that umbrella. Unfortunately, the portion of the document that summarizes research on the low-income housing tax credit (LIHTC) can leave the reader with an inaccurate impression of some of the findings of previously published research on the program’s results.

For example, the document cites the paper, “What Can We Learn about the Low Income Housing Tax Credit Program by Looking at the Tenants?” (O’Regan and Horn (2012)) to support the assertion that the LIHTC is less effective than Section 8 at serving households with the greatest need by noting that about 40 percent of LIHTC units serve extremely low-income households compared to 75 percent of HUD’s Tenant-Based Section 8 and Public Housing units. But this exaggerates the distance between the LIHTC program and the HUD programs; citing only the extremely low-income household number is misleading, because it is a narrow category that only accounts for those making at or below 30 percent of area median income. HUD still considers those who make 40 percent of area median income to be within the “very low income” category, for example, and a wider lens of analysis reveals that “62 percent of [LIHTC] tenants have incomes at or below 40 percent of AMI.” Moreover, this point overlooks the congressionally-intended goals of the LIHTC program. The LIHTC was intentionally designed to assist a broader range of low-income families, because affordable housing remains out of reach for more than just the poorest. According to the Joint Center for Housing Studies at Harvard University, 50 percent of Americans pay more than 30 percent of their income for rent, which is the standard measure for rental affordability. This suggests we need both programs like vouchers and public housing to target the very poorest and LIHTC to target a broader ranges of low-income Americans struggling to pay their rent.

The report also mistakenly states that the LIHTC is more expensive than some other housing programs in “many metropolitan areas” but this assertion is misinformed. The paper Ryan cites on this point actually indicates that there is tremendous variety in relative costs, depending on the type of housing, the state of the housing market, and other factors. The broad statement of cost doesn’t really mean much because of the sheer variety of variables that are difficult to control for. In addition, in the report “Comparing the Costs of Federal Housing Assistance Programs," DiPasquale, D., D. Fricke, and D. Garcia-Diaz of the Federal Reserve Bank of New York find that there may be areas where LIHTC is less costly than vouchers. Furthermore, there are many difficulties associated with the voucher program. Finkel, M. and L. Buron, from Abt Associates, in “Study on Section 8 Voucher Success Rates” find that specific demographics, such as bigger than average households, single non-elderly individuals, and the elderly in general, have much less success when they try to use vouchers. Finally, a purely cost driven approach fails to take into account the many unique benefits of the LIHTC program. Deng wrote a follow up paper in 2007, titled “Comparing the Effects of Housing Vouchers and Low-Income Housing Tax Credits on Neighborhood Integration and School Quality,” in which she found that LIHTC developments actually performed better when it came to benefits such as neighborhood integration and school quality.

Ryan’s document also cites research based on analysis of HUD’s national database of LIHTC units and HUD’s Multifamily Tenant Characteristics System that states that LIHTC units are more likely than Section 8 units to be located in lower-poverty neighborhoods. Without context, this could be interpreted to portray the LIHTC program in a negative light. This would represent gross misreading of the paper. In “The Low-Income Housing Tax Credit Program Goes Mainstream and Moves to the Suburbs,” the fact that LIHTC properties have a higher presence in suburbs with low-poverty rates is hailed as a success by the author. Kirk McClure writes, “By entering the suburbs, the LIHTC program is meeting and even exceeding the performance of the Housing Choice Voucher Program in terms of offering opportunities to live in low-poverty settings.” As a 2011 report from the Russell Sage foundation titled “Comparing the Effects of Housing Vouchers and Low-Income Housing Tax Credits on Neighborhood Integration and School Quality,” found, programs that help low-income individuals move to higher income neighborhoods improve the lives of those individuals in many ways, including the reduction of extreme obesity, diabetes, psychological distress, and major depression.

The LIHTC program is a successful and effective weapon in the War on Poverty. The previously mentioned Joint Center for Housing study found that LIHTC was key to preserving more than 2.2 million affordable housing units since its inception in 1986. The research presented in the War on Poverty report can leave the reader with an inaccurate impression of the academic literature. For a more accurate selection of LIHTC research, take a look at the research portion of our website.