Research on How QAPs Affect the Location of LIHTC Properties More Significant in Light of Recent Events

Published by Mark Shelburne on Tuesday, July 14, 2015 - 12:00am

Three recent events have brought new focus and attention to the location of affordable rental housing. The industry’s most watched development was the U.S. Supreme Court’s decision in Texas Department of Housing and Community Affairs v. Inclusive Communities Project Inc. The plaintiffs alleged the state’s qualified allocation plans’ (QAPs) distribution of low-income housing tax credits (LIHTCs) had a disparate impact on minorities in violation of the Fair Housing Act. The Court agreed such claims are allowed but remanded for further review. (For more information see our post about the decision.)

Another came less than two weeks afterwards. On July 8, HUD issued its final rule on Affirmatively Furthering Fair Housing (AFFH). The rule applies to public housing authorities and agencies receiving certain federal subsidies, which includes some LIHTC allocating agencies that also administer HUD programs. The requirements mandate these state and local governments use their resources to actively promote desegregation. (The AFFH rule will be addressed in a future post, check back later or subscribe by clicking the Follow button in the lower right hand corner of your browser.)

The third event actually came before either the decision or rule, and because of these two its significance has grown. On May 5 HUD’s Office of Policy Development and Research posted a report entitled “Effect of QAP Incentives on the Location of LIHTC Properties.” The authors describe it as the first ever “empirical exploration of how QAPs shape siting patterns of LIHTC developments.”

As such, the report contains the only research of its kind assessing what agencies’ policies have done. This unique evaluation, conducted by fair minded, even handed experts, sought to answer two questions:

  • Are changes in QAP priorities between 2002 and 2010 associated with changes in the poverty rates of the neighborhoods where LIHTC developments are built?
  • Do different priority structures appear to be more effective in driving the location of LIHTC developments?

Methodology

The authors looked for five different types of criteria in the 2002 and 2010 QAPs for 21 states: Arizona, California, Colorado, Connecticut, Florida, Georgia, Indiana, Kentucky, Maryland, Massachusetts, Mississippi, Nevada, New Jersey, New Mexico, North Carolina, Pennsylvania, South Carolina, Tennessee, Texas, Washington, and Wisconsin.

The five categories of criteria were:

  1. incentives for sites in high-opportunity neighborhoods,
  2. proximity to different kinds of amenities (e.g., shopping),
  3. indicators of approval by the community/jurisdiction,
  4. furthering investment in blighted neighborhoods, and
  5. avoiding concentrations of affordable housing.

The report considered at least 210 different data points, although this figure is understated because many QAPs have multiple criteria in the five categories. The review included not only point scoring but also LIHTC set-asides, project threshold requirements, underwriting standards, and the agency-designated 30 percent eligible basis boost. Thus the work is not only unique but comprehensive.

The next step was coding changes from 2002 to 2010 in each factor based on the authors’ interpretation of its consequence/importance in shaping outcomes. The more consequential/important, the further the number was from zero. Criteria that contributed to being in a high-income area were assessed a 1, 2 or 3, whereas those leading to LIHTC allocations in low-income communities would be a -1, -2 or -3.

For example, a change to award substantial bonus points for being in a comparatively wealthy census tract would be coded a 3. In other words, the a policy had the maximum effect on increasing, from the 2002 to 2010 allocation cycles, the amount of LIHTCs going into low-poverty neighborhoods. Conversely, a negative number would apply to criteria encouraging public housing redevelopment.

The authors then conducted a statistical analysis (known as multivariate regression) of the criteria changes relative to the poverty levels of neighborhoods where the states’ 2002 and 2010 QAPs allocated LIHTCs.

Conclusions, Limitations and Consequences

Members of the affordable housing community can attest to the importance of agencies’ policies. However, even a well-informed professional observation isn’t the same as empirical proof. Therefore the outcome of this report is significant. Not surprisingly, the report found statistically significant evidence “suggesting that QAPs matter.”

Specifically, the authors noted overall trends in QAPs to favor LIHTC allocations in opportunity neighborhoods:

“states which increased priorities towards higher opportunity areas exhibited [1] increases in the share of tax credits allocated for projects in low poverty areas, [2] decreases in the share of tax credits allocated for projects in high poverty areas as well as [3] decreases in the overall exposure to poverty of projects allocated tax credits”

One unfortunate limitation of the report is that due to data restrictions, it didn’t distinguish between new construction and acquisition/rehabilitation. The activities as are not the same when evaluating locational criteria. When allocating LIHTCs for purchase and repair, a QAP is not siting a project. The report expressly recognizes how this distinction can be significant.

Nor does the analysis fully reflect the complexities involved in the application and allocation process, such as how a factor’s percent of the overall score does not matter as much as developers’ relative ability to earn it. In other words, a two point category is more important than one with 100 if only some proposals are awarded the former and all receive the latter. Of course not capturing such nuance is understandable considering the report’s large-scale scope.

What does the report mean for the LIHTC community? The Supreme Court decision and AFFH rule will increase scrutiny on the siting of new affordable housing; as the nation’s largest production program, LIHTCs will attract a large share of such attention. Those interested in more federally subsidized apartments being built in high-income communities now can point mathematical proof of how QAPs are a mechanism to do so.

To hear more about the significance of these developments for the future of LIHTC development, join affordable housing experts for the Consequences of Disparate Impact for Multifamily Housing Webinar July 22 at 1 p.m. (ET).