Research Shows LIHTC Developments Help Revitalize Low-Income Communities

Published by Michael Novogradac on Wednesday, November 4, 2015 - 12:00am

New research demonstrates that low-income housing tax credit (LIHTC) financed developments are an effective tool to help revitalize low-income communities, improving the welfare of both renters and homeowners, with aggregate benefits to society of $116 million or more per LIHTC development.

The study by Stanford Graduate School of Business professors Rebecca Diamond and Tim McQuade examined the effects of affordable housing developments on surrounding neighborhoods over a 10-year span. Diamond and McQuade analyzed this impact by analyzing data on housing transactions, as well as homebuyer race and income information, studying approximately 16 million home sale transactions within 1 ½ miles of a LIHTC site. The approximately 16 million home sale transactions were within 129 counties in 15 states that contained 7,098 LIHTC properties.

The findings: LIHTC development helps revitalize low-income neighborhoods by driving up house prices 6.5 percent, lowering crime rates, and attracting a more racially and income-diverse population. The authors’ estimates indicate that an affordable housing development in a low-income area provides a benefit of $23,000 per local homeowner and $6,500 per local renter.

A post about the study on Insights by Stanford Business notes that Diamond and McQuade were able to determine how much an LIHTC development was worth to the surrounding neighborhood, meaning “how much more people were willing to pay to live close to the site, or conversely, how much they’d be willing to lose to move away from it.” The analysis found that an LIHTC property in a low-income, low-minority community was worth about $116 million to the immediate surrounding neighborhood and an even higher $211 million in a low-income, high-minority area.

As such, the authors suggested that “viewed as a place-based policy, affordable housing appears to be a desirable way to invest in and revitalize low-income communities.” Such a conclusion also rebuts the assertion from some fair housing advocates that LIHTC developments do not help revitalize or otherwise improve concentrated areas of poverty.