The Low-Income Housing Tax Credit (LIHTC) is the largest and most effective government program to finance new affordable housing in the United States, providing tax credits to private investors for the development of affordable rental homes. Since its creation in 1986, LIHTC has financed roughly 3 million affordable rental homes and served approximately 7 million low-income households.
BPC has written extensively about LIHTC and how its expansion would help address the nation’s critical shortage of affordable rental homes. For example, BPC’s Housing Commission proposed a 50 percent increase in federal support for LIHTC, estimating at the time that it would help finance the preservation and construction of up to 400,000 additional affordable rental homes over a 10-year period. BPC has since reaffirmed its support for LIHTC, noting its role in any consensus-driven affordable housing initiative and its effectiveness as a tool to support public health and wellness.
Unfortunately, the Tax Cuts and Jobs Act of 2017 had the unintended consequence of devaluing LIHTC by, among other provisions, lowering the corporate income tax rate from 35 percent to 21 percent, thereby weakening the tax relief that the credit offered. Notably, Congress expanded LIHTC in the omnibus appropriations bill for Fiscal Year 2018, providing a 12.5 percent increase in LIHTC allocations, starting in 2018 and lasting until 2021. While this increased support will boost affordable rental housing production and preservation, it will not fully offset the tax reforms that diminished LIHTC’s value. This gives the 116th Congress an opportunity to restore and expand LIHTC on a bipartisan basis and consider new options to improve the credit.
Importantly, LIHTC’s structure can support a broader set of policy goals than affordable housing development—namely supporting economic opportunity and improving health outcomes for low-income Americans. Yet the program hasn’t always lived up to its potential:
- A disproportionate share of developments has been situated in higher-poverty neighborhoods with fewer job and other opportunities.
- Developers face obstacles when considering innovative health-centered designs meant to improve residents’ long-term health outcomes.
Policymakers have tools at their disposal to elevate the use of LIHTC to help individuals move to opportunity, revitalize lower-income neighborhoods, and improve residents’ long-term health outcomes. We explore the unrealized potential of LIHTC in this two-part blog series:
KEYWORDS: LOW-INCOME HOUSING TAX CREDIT