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Making Best Use of Your LIHTC Dollars: A Planning Paper for State Policy Makers

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HUD's Office of Policy Development and Research is pleased
to announce the release of Making Best Use of Your LIHTC
Dollars: A Planning Paper for State Policy Makers. Using
Low-Income Housing Tax Credit (LIHTC) dollars has become
the primary source of funding for building and
rehabilitating affordable rental housing. This planning
paper is grounded in a thorough review of the research
literature, but it is written for practitioners, and
should prove an invaluable resource for state policy
makers looking for sound advice on using their LIHTC
dollars wisely.

The paper begins with an introduction that discusses the
ways in which states make decisions about the LIHTC and
follows with three additional sections that address: 1)
The geographical allocation of the LIHTC resource among
metropolitan housing markets within a state; 2) The
targeting of LIHTC to housing developments designed for
occupancy by different types of households; and 3) The use
of LIHTC developments as part of a strategy for individual
metropolitan areas within the state.

1. Sub-State LIHTC Allocations and Housing Needs

The research suggests that, in general, states should use
severe rent burden (a very high percentage of income spent
for rent and utilities) rather than poverty as a proxy for
need for affordable rental housing among both geographic
areas and types of households. Therefore, some combination
of needs among low-income renters and an indication that
there is a shortage of rental housing in the area is
better than simply targeting areas within the state where
many people have high rent burdens.

Although there is no simple, foolproof way of identifying
places within a state that have housing shortages, the
authors present several options. Among these are to:

o Use Census vacancy rates as an indicator of low supply
response;
o Encourage the development of LIHTC units in difficult
development areas; and
o Make LIHTC allocations part of a state housing strategy
that also reduces regulatory barriers to affordable
housing.

2. Targeting LIHTC to Particular Types of Households

In this section the authors encourage states to
concentrate tax credit developments on households that
are well served by dedicated rental developments.

All groups of low-income renters do not have the same
levels of need for subsidized housing. Housing needs differ
both by the severity of the household's income problem and
by household characteristics, such as presence of children
or adults with disabilities. At the same time, some types
of families and individuals have more difficulty using
tenant-based vouchers or can benefit from the special
housing features and services that may be associated with a
development dedicated to serve as affordable rental
housing. This section discusses four types of households:

o Households with Extremely Low Incomes;
o Large Families;
o Frail Elderly; and
o People with Disabilities.

Large families, for example, often have difficulty using
vouchers. This may be due in part to the fact that three
bedroom rental units are relatively rare, and in part
because owners of single-family homes that have multiple
bedrooms are reluctant to rent them to families with
children. Discrimination on the basis of race or
ethnicity is undoubtedly present in some cases. Research
suggests that this is an area in which state housing
officials could make stronger efforts to encourage the
development of a type of rental housing that is
insufficiently addressed by the private market.

3. Using LIHTC as a Tool for Metropolitan-Wide Housing
Strategies

The authors suggest that states would do well to target
LIHTC developments to achieve the best possible
opportunities for low-income families. They discuss using
LIHTC to preserve and create affordable housing that
enhances economic opportunity and for neighborhood
revitalization purposes. The authors believe that The
LIHTC gives states a powerful tool for overcoming the
barriers to locating housing while supporting economic
development objectives. And while barriers to locating
affordable housing in particular jurisdictions or
neighborhoods may still exist, offering a resource such
as the tax credit can be a powerful impetus for
overcoming those barriers and for finding good locations
for rental developments in growth areas where market-rate
housing development is also occurring.

The authors caution states to be skeptical about claims
that an LIHTC project will revitalize a neighborhood.
Reviving distressed neighborhoods and stabilizing
neighborhoods in danger of becoming distressed are
important policy goals for affordable housing. By itself,
however, construction of affordable housing may not be
enough to bring about lasting change. Therefore, skepticism
about claims that a development will serve a neighborhood
revitalization purpose should be factored into a state's
selection process for the LIHTC.

The authors' present the following lessons that should be
useful for state housing policy makers trying to use the
LIHTC for neighborhood revitalization, or to respond to
proposals from local governments, advocates, and housing
developers.

o Where housing subsidies are the only intervention,
target neighborhoods should be relatively strong.
o Plans to revitalize distressed neighborhoods should be
comprehensive and the LIHTC development part of a
critical mass of resources.
o The state should not use the identification of
qualified Census tracts by HUD as a substitute for its
own careful analysis of neighborhood characteristics.

Making Best Use of Your LIHTC Dollars: A Planning Paper
for State Policy Makers is available as a free download
from HUD USER at
https://www.huduser.gov/portal/publications/polleg/lihtcDollars.html
or by calling 1-800-245-2691.
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P.O. Box 23268
Washington, DC 20026-3268
1-800-245-2691
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202-708-9981 (fax)
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