This post is the first in a series aimed at highlighting the benefits and unrealized potential of using the Low Income Housing Tax Credit program to boost economic opportunity and improve health outcomes for low-income Americans.
When it comes to moving up the economic ladder, research shows that where you live matters.
Living in stable, affordable housing in low-poverty neighborhoods has been associated with higher employment and earnings among adults, as well as improved mental and physical health. Studies have shown how neighborhoods of concentrated poverty are often disconnected from valuable resources and networks. For example, the probability that a baby born in the bottom 20 percent of the income scale in Detroit will make it to the top 20 percent as an adult is half that of a similar child in San Francisco. The same principle is evident within cities. When a child in a low-income family, living in a neighborhood with below average social mobility, moves within the same county, but to an area with greater than average mobility, that child can be expected to earn $200,000 more over their lifetime.
Because neighborhood and community so directly impact one’s life trajectory, the location of Low Income Housing Tax Credit (LIHTC) developments is a critically important determinant of economic mobility and opportunity. While LIHTC has successfully served about 7 million low-income households since 1986, developments have been disproportionately concentrated in poorer, minority neighborhoods, with lower labor market engagement, higher pollution, and poorly performing schools. Nationally, 34 percent of LIHTC units are in high-poverty neighborhoods, compared to 18 percent of all rental units.
Federal, state, and local governments can use LIHTC to give low-income households greater access to economic opportunities. Building additional LIHTC-financed units in low-poverty neighborhoods is an obvious solution, though there are many practical challenges to overcome. In fact, many factors influence where LIHTC-financed housing is sited—e.g., state qualified allocation plan (QAP) criteria, land availability, developer preferences and priorities, and other affordable housing subsidies. Yet some steps can clearly be taken. And for LIHTC units located in higher-poverty areas, pairing these developments with employment and educational programs can create a bridge to more opportunities.
Siting LIHTC Developments in Neighborhoods of Opportunity
Moving from a high-poverty to low-poverty neighborhood has been associated with:
- Improved college attendance rates and earnings for children who were young when their families moved; and
- Lower risks of hospitalizations and hospital spending among children. (A 10 percent increase in neighborhood poverty has been associated with 15 percent increased risk of hospitalization and a $144 increase in hospital spending per year.)
To realize such benefits, federal, state, and local governments can encourage increased placement of LIHTC developments in low-poverty areas by:
Using qualified allocation plans to incentivize developments in high-opportunity areas. States receive a fixed dollar amount of LIHTCs each year that they award to developers through qualified allocation plans or QAPs. A QAP lists a state’s priorities and the criteria that will be used to award tax credits to housing developments. With the QAP, states can set aside a fixed minimum share of credits to be allocated to developments in high-opportunity areas or allocate extra points in the scoring system used to select LIHTC developments. For example, in 2018, California’s Tax Credit Allocation Committee took a bold step in revising its QAP to incorporate fair housing goals. Large family developments located in census tracts designated by the committee as “highest” or “high resource” received extra points on their applications.
Seeking basis boosts for projects in high-opportunity areas. In the LIHTC program, states receive a 30 percent increase in the amount of credits an affordable housing development is eligible for, known as “basis boosts,” if the project is located in either a qualified census tract or a “difficult development area.” States also have some flexibility in awarding basis boosts to projects that meet state-determined criteria, and therefore can award basis boosts to projects in high-opportunity neighborhoods. In 2016, the Government Accountability Office found insufficient regulatory oversight of basis boosts awarded and the QAPs that states adopted. As the Treasury Department and HUD work to address such concerns, they can also press states to prioritize developments in high-opportunity neighborhoods.
Preventing local officials from excluding affordable housing. Many states have required approvals from local governments for LIHTC allocations, although the Treasury Department has made clear that state agencies are not required to do so and that this practice conflicts with fair housing goals. In addition, states are required to notify local governments about proposed LIHTC projects, which can trigger local opposition. NIMBY, or “not-in-my-back-yard,” opposition to affordable housing projects has helped steer LIHTC properties to higher-poverty neighborhoods. While some local governments are taking action to address local barriers to building affordable homes in low-poverty neighborhoods (e.g., the plan to end single-family zoning citywide in Minneapolis), the federal government can also do more to ensure that states do not require or give preference to local approvals that might exclude affordable housing.
Connecting LIHTC with Community Revitalization Plans
While evidence has shown the benefits of moving to low-poverty neighborhoods, all neighborhoods can be neighborhoods of opportunity. Policymakers cannot singularly focus on helping low-income Americans move to access better opportunities. They must also address the uneven geography of opportunity and its resulting externalities—concentrated poverty, racial segregation, and health disparities.
Fortunately, LIHTC can also be a tool to help revitalize struggling neighborhoods. LIHTC developments have positive neighborhood spillover effects in low-income areas and generate aggregate benefits: increased house prices, lower crime rates, and increased racial and income diverse populations. Majority Black and high-poverty neighborhoods receiving LIHTC investment have been found to experience the most positive changes, including decreased poverty rates.
LIHTC can act as an important tool for place-based reinvestment, primarily through (1) rehabilitating the aging stock of housing; and (2) being part of community revitalization plans that connect individuals to better opportunities. While LIHTC has successfully facilitated rehabilitation, governments can do better on the second by:
Reviewing targeting incentives within LIHTC to ensure that developments are sited in neighborhoods with clear revitalization plans. States are required by federal law to give preference in LIHTC allocations to projects that are located in federally designated high-poverty neighborhoods referred to as qualified census tracts and that contribute to a concerted community revitalization plan (CCRP). However, the federal government has not provided a definition of what constitutes a CCRP or provided sufficient guidance on what specific characteristics a plan must have to qualify, leaving states with broad flexibility. The federal government could remedy this and prioritize clear implementation goals for achieving better education and job opportunities for the residents of LIHTC-financed homes, while outlining what federal planning requirements could be used or adapted for the CCRP requirement so as to keep administrative burdens low.
LIHTC possesses huge potential to act as both a place-based policy that can contribute to the revitalization of low-income neighborhoods and as a tool to facilitate movement to higher-opportunity neighborhoods. All levels of government can take concrete steps to strike this balance and ensure LIHTC-financed housing facilitates educational attainment, connects residents to job prospects, and improves health outcomes among other advancements in quality of life.