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

Abstract

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 nation's housing markets.

Keywords:

• low-income housing
• tax credit
• rental housing
• affordability

Notes

¹The US Department of Housing and Urban Development publishes the Area Median Family Income and the resulting income limits for the LIHTC program for each metropolitan area and non-metropolitan county in the nation. These can be found at: http://www.huduser.org/datasets/il.html.

²At present, there are no regulations as to the maximum or minimum size of a household for a particular units by bedroom size (Guggenheim 2003, 21).

³Each housing authority administering the Housing Choice Voucher program must provide 75% of its vouchers to applicants whose incomes do not exceed 30% of the area median family income (US Department of Housing and Urban Development 2008a).

⁴These figures correspond to 30% and 60% of the national median family income. The estimated number of households is approximate because adjustments could not be made for household size.

⁵Tracts have been criticized as too large as they are larger than common perceptions of neighborhoods (Coulton, Krobin, Chan, and Su 2001). They may also have too much variation within their boundaries making it hard to determine the true level of market need with a neighborhood (Goodman and Thibodeau 2003). Tracts have been criticized as too small as they may be smaller than the area containing a submarket of housing type that can define a household's search area (Clapp and Wang 2006). However, Census tracts are used here as they approximate a city district within which a surplus, shortage, or balanced supply of rental housing in one price range can be identified. While the larger market area could be balanced, any imbalance at the tract level demonstrates that a surplus condition is being made worse with the addition of LIHTC units. This condition could be missed if the areal unit is larger. Similarly, a smaller areal unit could give a false indication of a surplus as the addition of a single LIHTC project could create the surplus condition.