The LIHTC Program
Raphael Bostic, Assistant Secretary for Policy Development and Research Among the various programs the federal government uses to provide decent and affordable housing to low-income households, the Low-Income Housing Tax Credit (LIHTC) program has become the most important, both in terms of units placed in service each year and as a means of stretching the funds of other subsidy programs. For a program that now produces over 100,000 affordable units each year, it is hard to believe that the program was a last minute addition to the 1986 Tax Reform Act and only after Congress realized that it had eliminated parts of the tax code that encouraged the development of affordable rental housing.
Despite this near oversight, the program Congress established has proven quite resilient, thanks in large part to the flexibility it affords the state housing finance agencies (HFAs) to set priorities according to their own particular needs. With the overriding goal of providing decent affordable rental housing, the LIHTC program addresses the rental needs for different types of communities. For example, in older communities that may already have low rents but also substandard units, the program has financed the rehabilitation of buildings to provide quality rental housing. However, in more expensive markets where affordability, not quality, is the overriding concern, the program has increased the number of units for which low-income households can qualify.
The program’s flexibility and multioutcome nature, while no doubt beneficial for tenants, has proven difficult for researchers examining the program’s efficacy. As mentioned, in smaller and older communities, which are already affordable, program rents are similar to unsubsidized rents. Some might interpret this as a sign that the program has failed to provide benefits in exchange for the public expenditure. However, one should not overlook the quality effect — new LIHTC units are often of higher quality than the existing stock. Although this is difficult to discern from the information contained in most data sets, it is an important tangible benefit.
A larger issue the program faces is concern over its effect on certain communities. One of the most robust debates about LIHTC program impact is about how the program influences the sifting of affordable housing, which is a particular concern for those working in the fair housing and community development fields. Critics argue that program rules encourage, some might even say dictate, the location of properties in economically depressed areas rather than communities with more employment and educational opportunities. Recent research, including a PD&R-sponsored study by Casey Dawkins,1 provides some empirical support for these claims. Others counter with an observation that LIHTC projects are more distributed than public housing and units associated with other forms of housing assistance. In this view, the tax credit program is serving an important function. Future research can potentially help tease out the relationships in a clearer way to shed light on whether and how each of these views comports with experiences on the ground.
On March 22, PD&R will be convening a panel that focuses on these issues. Part of our regular Quarterly Housing Market and Research Update, which you can watch via the webcast, the panel will feature a lively exchange and work through many of the prevailing opinions and perspectives around the impacts of the LIHTC program and its potential.
Aside from this ongoing debate, gaps in our knowledge about the LIHTC program provide other opportunities for research. For example, questions remain about how the tax credit program fits into the broad menu of housing subsidy programs. While it is clear that tax credits are an important source of low-cost capital, meaning they can help stretch the funds of other federal subsidy and loan programs, exactly how and in what circumstances this support occurs is not fully understood. Similarly, there are questions about how the tax credit program serves families. The tax credit program is often used to support certain targeted populations, such as families, the elderly, and the disabled. Yet, the extent that these populations are served by the program is not well-documented.
Hopefully, this will soon change. In 2008, Congress mandated that HUD start collecting detailed data on program tenants. HUD staff have been working hard to compile this information and transform it into a database that will complement the existing LIHTC database on properties placed into service, which provides basic information on financing and property characteristics. This new database represents an excellent opportunity for researchers to expand our understanding of how this important program serves American families.
As the tax credit program celebrates its twenty-fifth anniversary, the time is ripe to reflect upon not only the achievements of the program — including its current place as the preeminent vehicle for the production of affordable and rental housing — but also ways to strengthen it. PD&R hopes to catalyze research and conversations about how to improve the program and tailor it, so that the housing produced through it matters to even more families and communities.
Dawkins, Casey J. “Exploring the Spatial Distribution of Low Income Housing Tax Credit Properties” Prepared for U.S. Department of Housing and Urban Development Office of Policy Development and Research, February 2011.