Do “Low Income Housing Tax Credits” (LIHTC) Maintain Segregation?

Composed by Smith Young “:)”  Following are two opposing views on the insidious effect of subsidies and non-market based policies, first is the biased reporting from 1) Report on the Distribution of Low Income Housing Tax Credits in the New York City Region, and 2) unbiased empirical analysis by NYU’s Furman Center for Real Estate and Urban Policy.

Since 1986, the Department of Treasury has allocated tax credits to states for the acquisition, rehabilitation, and construction of affordable rental housing under the Low Income Housing Tax Credit (LIHTC) program. In turn, housing finance agencies have awarded the tax credits to housing developers through a competitive application process. Property owners who receive the tax credits can use them to offset taxes on other income or, more typically, sell the credits to investors to raise funds for the initial development costs of a project. The LIHTC allocation process is governed by selection criteria contained in each housing finance agency’s Qualified Allocation Plan (QAP). Tax credits are provided for a period of 10 years, and LIHTC-subsidized units must be rented to low-income households at restricted rent levels for at least 30 years.

State tax credit allocation, or housing finance agencies are governed by the Fair Housing Act’s duty to “affirmatively further fair housing” (AFFH), which obligates them to (1) evaluate the impact of LIHTC siting decisions on residential segregation and (2) adopt policies to ensure that LIHTC developments do not create or maintain segregation.   However, an analysis by NYU’s Furman Center for Real Estate and Urban Policy and its Moelis Institute for Affordable Housing Policy stops short of concluding that the program actually had a desegregative impact in these areas, its findings seem to suggest that LIHTC developments have, in fact, contributed to maintaining existing racial segregation serving a substantial number of households with incomes far lower than the program requires.

Forty percent of LIHTC units house extremely low-income (ELI) households with incomes below 30 percent of the area median income, even though program rules allow the developments to serve households with incomes up to 60 percent of the area median income.

“What Can We Learn about the Low Income Housing Tax Credit Program by Looking at the Tenants?” finds that tenants experience a lower rent burden—pay less of their income for rent—than renters with similar incomes living in private housing. At the same time though, LIHTC tenants experience higher rent burdens than households with similar incomes living in HUD-subsidized units.

Overall, the report finds that ELI households living in LIHTC properties without receiving additional subsidies tend to have significant rent burdens.  Among the 30 percent of ELI households who do not have rental assistance, more than half pay over 50 percent of their income as rent, which is defined as “severe rent burden.”

In the final section of the report opportunities are discussed for preserving affordability by identifying properties across portfolios with subsidies that will expire.  When the owner of a property chooses not to renew, for example, an expiring project-based Section 8 contract HUD offers tenants who wish to stay in their units enhanced vouchers, provided they are income-eligible. Tenants who choose to move receive a tenant-based voucher that they can use to defray the rental costs of a market rate apartment elsewhere. New tenants that move into the property, though, will not receive a voucher.

Click here to read the full report