Kirk McClure

The low‐income housing tax credit program goes mainstream and moves to the suburbs

Abstract The Low‐Income Housing Tax Credit (LIHTC) program is now 20 years old. With the maturing of the program, the use of tax credits has become commonplace in the development of rental housing across the nation. This article examines how the program has changed both financially and spatially. Specifically, the article asks whether it provides a mechanism that can help deconcentrate impoverished renters by providing access to low‐poverty neighborhoods. This research finds that as the price for tax credits rises, the program becomes increasingly popular with developers who are helping it make inroads in low‐poverty suburbs. By entering the suburbs, the LIHTC program is meeting and even exceeding the performance of the Housing Choice Voucher Program in terms of offering opportunities to live in low‐poverty settings.

Deconcentrating Poverty With Housing Programs

Problem: Housing programs of the past have exacerbated the problems of concentrated poverty. Current housing programs serving very low-income households, including homebuyers as well as renters, should be examined to determine the extent to which they help households make entry into neighborhoods with low concentrations of poverty. Purpose: This research is designed to assist planners in understanding how well various approaches to resolving housing affordability problems can facilitate the poverty deconcentration process. Methods: Administrative data from the Department of Housing and Urban Development are used to assess the degree to which federal housing programs help lowincome homebuyers and renters locate in neighborhoods where less than 10% of the population is below poverty. Results and conclusions: Subsidizing households ought to be more effective than subsidizing housing units at helping lowincome households locate in low-poverty areas, and whether a household rents or buys should not matter to whether a program succeeds at deconcentration of the poor. Yet, analysis of national datasets across several housing programs finds neither of the previous propositions to be true. Housing vouchers suppliedto households are not helping renters locate in low-poverty areas any more effectively than are current project-based subsidies. It also turns out that tenure matters; a disproportionately higher share of low-income homebuyers are locating in low-poverty neighborhoods than are lowincome renters. Takeaway for practice: I recommend that housing planners seeking to make poverty deconcentration more effective use housing placement counselors, administer programs at the metropolitan scale, lease and broker market-rate housing directly, promote mixed-income LIHTC developments, practice inclusionary zoning, and monitor the impacts of these efforts. Research support: U.S. Department of Housing and Urban Development.

The low‐income housing tax credit as an aid to housing finance: How well has it worked?

Abstract The Low‐Income Housing Tax Credit program has been operating for over 10 years and has helped finance thousands of developments with units set aside for low‐ or moderate‐income households. However, the program has been criticized for requiring additional layers of subsidy to leverage investment and for providing benefits to developers in excess of the amount necessary to induce them to invest. An analysis of a sample of developments from Missouri finds that the tax credits are syndicated, with virtually all of the syndication proceeds (about 33 percent of the financing) used to pay for development costs. Conventional lending provides another 44 percent of the financing. Unfortunately, because these sources do not cover all of the costs, developers enter into a complex, costly process of layering additional subsidies, one on top of another, to fully finance the development.

Rethinking Federal Housing Policy

Problem: Federal housing policy is made up of disparate programs that a) promote homeownership; b) assist low-income renters’ access to good-quality, affordable housing; and c) enforce the Fair Housing Act by combating residential discrimination. Some of these programs are ineffective, others have drifted from their initial purpose, and none are well coordinated with each other. Purpose: We examine the trends, summarize the research evaluating the performance of these programs, and suggest steps to make them more effective and connected to each other. Methods: We review the history of housing policy and programs and empirical studies of program effectiveness to identify a set of best principles and practices. Results and conclusions: In the area of homeownership, we recommend that the federal government help the nations housing markets quickly find bottom, privatize aspects of the secondary mortgage market, and move to eliminate the mortgage interest deduction and replace it with a 10-year homeownership tax credit. In the area of subsidized rental housing, we recommend that the current system of vouchers be regionalized (or alternatively, converted into an entitlement program that works through the income tax system), sell public housing projects to nonprofit sponsors where appropriate, and eliminate some of the rigidities in the Low Income Housing Tax Credit program. In the area of fair housing, we recommend that communities receiving Community Development Block Grants be required to implement inclusionary zoning programs. Takeaway for practice: In general, we recommend that federal policy build on proven programs; focus on providing affordable housing for low- and moderate-income families and provide the funding to meet that goal; avoid grandiose and ideological ambitions and programs; use fewer and more coordinated programs; offer tax credits, not tax deductions; and promote residential filtering. Research support: Partial funding support was provided by the National Science Foundation.

Housing Choice Voucher Location Patterns a Decade Later

In 2003, the U.S. Department of Housing and Urban Development (HUD) prepared a study of the location patterns of the Housing Choice Voucher (HCV) program. This study became an important baseline for the evaluation of the HCV program and its ability to serve the goal of poverty deconcentration. The study examined the ability of HCV households in the 50 largest metropolitan areas to make entry to a broad array of neighborhoods and to locate in high-opportunity neighborhoods with low levels of poverty. New data from HUD and the American Community Survey permit the study to be replicated. We find that vouchers continue to consume only a small portion of the housing stock, with relatively small amounts of spatial concentration. Unfortunately, only about one in five voucher households locate in low-poverty neighborhoods, and this share is rising only very slowly. If the nation wants to pursue poverty deconcentration through the HCV program, we cannot rely on the program, as it is now structured, to accomplish this goal. Additional incentives and constraints will be needed, similar to those that were part of the Gautreaux and Moving to Opportunity programs.

Housing vouchers versus housing production: Assessing long‐term costs

Abstract Possibly the single largest debate in the field of affordable rental housing concerns the use of tenant‐based assistance versus project‐based assistance. The accepted wisdom is that project‐based assistance costs anywhere from 50 to 100 percent more than tenant‐based assistance. This premium for project‐based housing is based on a comparison of subsidy costs at the start of a projects life rather than on a comparison of the discounted present value of the costs over the long term. The subsidy costs of samples of Section 8 new construction projects have been compared to those of Section 8 certificates over a long period of time. The results indicate that the cost premium associated with project‐based assistance may be lower than conventionally believed, around 40 percent, and may get even lower if the cost comparison could extend to longer time periods and could control for the quality of the housing units.

Section 8 and Movement to Job Opportunity: Experience after Welfare Reform in Kansas City

Abstract This research addresses the extent to which tenant‐based rental assistance, before and after welfare reform, helps households move to areas with greater opportunities for employment. It was thought that the threat of losing their welfare benefits would encourage participants in the Section 8 program to use the mobility it offers to move to neighborhoods with greater opportunities for employment. Two samples of Section 8 program participants, one taken before welfare reform and the other taken after it was enacted, have been examined. With the strong economy after welfare reform, more Section 8 households are employed and fewer are on welfare. However, the analysis finds that, independent of welfare reform, households did not use their housing subsidy to move to areas with greater opportunities for employment. Program participants typically remained in racially concentrated areas of the central city, away from those neighborhoods with job growth or large numbers of jobs.

Are low-income housing tax credit developments locating where there is a shortage of affordable units?

Low-Income Housing Tax Credit (LIHTC) developments serve renter households with incomes between 30% and 60% of Area Median Family Income. Ideally, the program places units into neighborhoods where there is a shortage of units serving this cohort. LIHTC units are allocated to developers by state agencies through their Qualified Allocation Plans which should direct units to areas of need. Using a national database, this research examines where LIHTC developments were placed in service to determine whether these developments enter tracts experiencing shortages. The LIHTC program is not directing units to those census tracts where there is a latent demand for units in this rent range. Rather, it is placing units into tracts that have surpluses. Equally, the program is not placing units in tracts with little or no affordable housing. This suggests that the program is not breaking down the income separation that exists in the nations housing markets.

Comment on Victoria Basolo and Mai Thi Nguyen's “Does mobility matter? The neighborhood conditions of housing voucher holders by race and ethnicity”

Abstract Basolo and Nguyen examine the variation in the quality of neighborhoods where households in the Santa Ana, CA, Housing Choice Voucher Program reside. They find that the program is not helping most participating households move to significantly better neighborhoods. The authors identify obstacles confronted by participating households—obstacles indicating that it may be time to rethink the workings of the program. For the voucher program to address the goals of deconcentrating poverty and racial minorities, intensive housing placement assistance is needed. Such assistance would guide households out of their impoverished neighborhoods and into neighborhoods where an influx of poor households would do no harm. While this may mean some reduction in the freedom of choice participating households enjoy, it could greatly improve the capacity of the program to serve the national goals of deconcentration of poverty and minorities.

Low and Moderate Income Housing Tax Credits Calculating Their Value

Abstract The low and moderate income housing tax credit program, created by the Tax Reform Act of 1986, has placed new demands upon cities. While the credits are of considerable value to a development in helping it achieve financial feasibility, this value is limited. Most rental housing developments making use of these credits require additional subsidies in order to become financially feasible. These additional subsidies generally take the form of grants or loans provided by the city. In order to determine the appropriate amount of public funds to be allocated to a development, a city must be able to gauge the value of the credits to investors. This article provides guidelines for the estimation of this value and illustrates the calculations with a sample development.