New LIHTC Research Refutes Common Misconceptions of the Program

Published by Peter Lawrence on Thursday, November 1, 2018 - 12:00am

Time and again, one of the criticisms of the low income housing tax credit (LIHTC) is that housing it finances is disproportionately located in high poverty and/or racially segregated communities.  Moreover, many of these critics claim that the LIHTC stakeholders are actively exacerbating the problem by purposely siting LIHTC developments in high poverty and racially segregated communities. However, Novogradac addressed this criticism, detailing the problems with the methodology used by those critics to come to some of these erroneous conclusions and providing counter-research that refutes the reports’ claims.  More research buttressing this view, Points in Place: Can State Governments Shape Siting Patterns of Low-Income Housing Tax Credit Developments provides the “first source of empirical evidence that state allocation plans can shape LIHTC siting patterns.”

There are many factors that influence where LIHTC financed housing is located—state qualified allocation plan (QAP) criteria, developer preferences and priorities, availability of land, other affordable housing subsidies, etc.—and the authors chose to examine what the impact of state decisions, particularly QAP criteria, would be on the siting of LIHTC housing. Focusing on the 9 percent credit, which provides a much higher level of subsidy than the 4 percent credit and where states have the most ability to affect siting decisions, the authors find that those states that gave higher priority to neighborhoods of opportunity, as evidenced by a change in the criteria of their QAPs, saw more LIHTC properties developed or rehabilitated in these areas.  Not only were more properties located in high-opportunity, low-poverty areas but there was also a decrease in the percentage of properties located in areas where minorities made up a majority of the residents. These findings should encourage more states to do their part to ensure affordable rental housing is located in areas of opportunities.

There can be no argument that the LIHTC has been the single largest funding source for affordable rental housing production in the past several decades.  Since its inception the LIHTC has produced over 3 million affordable rental homes. Still, there are those who while praising the program on some fronts continue to perpetuate misleading or incorrect information about the program. Recently, the Center on Budget and Policy Priorities (CBPP) released a report on how the LIHTC could be doing more to locate affordable housing in area of high-opportunity and make housing more accessible to households making less than 30 percent of the area median income (AMI). CBPP followed up this report with a webinar, “State and Local Policies to Access High-Opportunity Neighborhoods,” which included a section on expanding opportunity through the LIHTC. 

These are laudable goals, and the report and webinar contain many useful recommendations to state agencies, affordable rental housing developers and other LIHTC stakeholders.  There is no doubt that the LIHTC implementation can be improved to achieve these goals.

However, given the LIHTC critics among policymakers, it is concerning that the CBPP makes similar arguments about LIHTC siting concentrating poverty and/or racial segregation.  As noted previously, given that nearly half of all homes financed by the LIHTC were rehabilitated and their affordability preserved and extended, it is not appropriate to compare the siting of all LIHTC-financed homes on poverty rates and minority concentration with housing in general, or even all rental housing, given that 53 percent of rental housing is 1-4 unit family properties and local zoning/land use restrictions often prevent the development of any multifamily rental housing in many low poverty and majority non-minority communities nationwide.  Such a comparison should be based on newly constructed rental homes financed by LIHTC, especially those using the 9 percent credit, which provides a higher level of subsidy to enable it to access higher land cost communities.  CBPP admittedly does include a comparison of LIHTC housing with all homes housing renters at or below 60 percent of the AMI, which provides a more appropriate comparison, but it still does not focus on 9 percent new construction LIHTC properties, nor does it excludes 1-4 unit properties.

But even research that tries to cast the LIHTC in a slightly negative light believes the program can and should be improved, and program advocates should welcome any support. CBPP cites the Affordable Housing Credit Improvement Act, bills introduced by Senators Maria Cantwell, D-Wash., Orrin Hatch, R-Utah, Representatives Carlos Curbelo, R-Fla., and Richard Neal, D-Mass., which contain provisions that would enable the LIHTC to access higher opportunity areas and enable very low income households to access those areas. Provisions of the bills have already been incorporated into legislation that was passed earlier this year but there is more to be done. To that point, the CBPP report provides recommendations to policymakers to ensure LIHTC housing is located in high-opportunity areas, and should be passed:

  • Requiring states to develop criteria to determine if concerted community revitalization plans will truly lead to revitalization efforts in high-poverty areas and therefore make the best use of LIHTCs used in these areas;
  • Prohibiting states from exerting undue influence on the selection of affordable housing projects by removing local government approval requirements; and,
  • Providing a 50 percent basis boost for homes that target families with extremely low-incomes (e.g., below the higher of 30 percent of the AMI or the federal poverty line).

The webinar takes the opportunity to highlight another important sentiment raised in the CBPP report, that while we certainly want to encourage the placement of LIHTC housing in areas of opportunity, that doesn’t mean that these are the only jurisdictions units should be located in— LIHTC properties can improve conditions in poorer neighborhoods, tax credits work well when combined with other investments, and we should work to preserve existing LIHTC and other subsidized housing.

The Continued Fight to Improve the LIHTC

The LIHTC program’s housing production record is a testament to its success. But, even successful programs have room for improvement and the LIHTC is no different. With continued support the LIHTC can remain the driving force for affordable housing rehabilitation and creation.  Points in Place shows that with the proper state action the LIHTC can be used to provide affordable rental housing for households in high-opportunity areas. With the affordable housing crisis gripping the nation, steps should be taken to strengthen the program, particularly in light of the negative impact tax reform may have. The Cantwell-Hatch and Curbelo-Neal bills are indeed an important opportunity for policymakers to improve the program and build on the steps taken earlier this year.