How Do LIHTC Properties Affect their Surroundings?

Published by Mark Shelburne on Friday, March 24, 2017 - 12:00am

A recent analysis of academic research contains valuable observations for housing practitioners. In “The What, Where, and When of Place-Based Housing Policy’s Neighborhood Effects,” Keri-Nicole Dillman, Keren Mertens Horn and Ann Verrilli reviewed 16 studies examining low-income housing tax credit (LIHTC) properties’ impacts on property values, neighborhood demographics, crime and education. In other words, how do developments affect their surroundings? The answers are important for program administrators and other interested parties when designing policies.

The researchers begin by noting two overall objectives applied to LIHTCs: “strengthening distressed communities and increasing access to higher opportunity neighborhoods.” Both of these are informed by knowing what developments mean for property values, poverty rates or income composition, racial composition, crime and school quality.

A first step in looking at impacts is to classify types of areas, as in what is a high versus low (or other) opportunity area. The authors found no consistent standard for defining neighborhood context across the studies. For example, they report that some papers used income and wealth or majority white as proxies for opportunity. The authors settled on three categories: distressed, high opportunity, and moderate poverty, but acknowledged “this categorization scheme is as much art as science.”

The review says an important reason to subsidize housing in distressed neighborhoods is “the idea that these investments have the potential to improve their surrounding communities” by removing “boarded-up buildings or vacant lots” and promoting commercial investment to meet growing demand. As such, the primary way to measure resulting improvements would be through examining impacts on property values. The reviewed research found property value increases when LIHTC developments are built in low-income areas. One large study determined housing within 0.1 miles increased in value by 6.5 percent after a development was placed in service. Five additional studies found modest impacts.

Another related motivation for placing LIHTC developments in distressed areas is promoting neighborhood safety. The literature review said this outcome may be the result of removing blight and vacant lots, and a more nuanced concept is that “stability of neighborhood residents may also increase due to housing subsidies, indirectly decreasing crime through the greater social organization.” The research shows LIHTC properties are associated with declines in crime. One of the studies even examined impacts at the county level, and suggested that reductions in crime were not the result of displacing crime to other areas.

The findings in high-opportunity areas were similarly positive, for the most part. Initially noteworthy is the fact that almost one in four newly constructed LIHTC developments has been built in neighborhoods where poverty rates are lower than 10 percent. One study did find small property value decreases in majority white neighborhoods. The authors suggest that the racially specific nature of this outcome suggests it is “driven more by the diversity of tenants coming into the neighborhood than by the physical structure of the development.”

As for other areas, two studies found no increase in crime and one determined the addition of new LIHTC rental homes had “a positive impact on performance ratings of nearby elementary schools.”

The third neighborhood category, moderate poverty, was considered in only three of the 16 studies reviewed. Although more than one in four LIHTC developments are located in vicinities with poverty rates between 10 and 20 percent, none of these three studies had conclusive results for property values, crime or other considerations.

The paper concludes with guidance on how to maximize hoped-for neighborhood improvements. One of the most clear improvements is described “removal effects,” such as replacing dilapidated housing and vacant land; and the results are not only real but can be considerable. In New York City, for example, the authors note that “assisted projects afforded immediate property value improvements up to 12 percentage points.” Another, more surprising conclusion is that larger LIHTC developments at higher concentrations “make a greater relative contribution to the resident population and housing stock.”

The authors will continue to work on these questions and are interested in feedback.