Flexibility for States and Localities Key to Success
By Michael Bodaken and Laura Abernathy
This month marks the 27th anniversary of the federal Low Income Housing Tax Credit (LIHTC) program. Throughout the program’s tenure, what lessons have we learned? What key components continue to make it a successful program?
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The Low Income Housing Tax Credit (LIHTC) remains the nation’s largest and most successful affordable rental housing production tool, accounting for the vast majority of all affordable rental housing acquired, rehabilitated, or constructed for lower-income households in the United States today. Twenty-seven years after its inception, LIHTC has created over 2.6 million rental homes throughout the nation.
Part of what makes the LIHTC a unique and successful program is that states and localities have the flexibility to administer the funds. While the federal government sets general affordability and other rules applicable to all 50 states when allocating tax credits, the responsibility for administering the program is properly delegated to state housing agencies, giving each state the autonomy to address its unique housing needs. This intentional devolution provides a crucial opportunity to best serve the differing and various housing needs throughout a nation as large and diverse as the U.S.
Michigan, for example, has an abundance of existing housing in need of preservation and substantial rehabilitation. Accordingly, Michigan targets a full 25% of its allocation of 9% tax credits specifically to affordable housing preservation. In Colorado, the City of Denver is working to expand rail around the metro region. Because affordable housing is often at risk due to increasing land prices near transit, the state has prioritized the preservation and development of affordable housing within ½ mile of transit through its Qualified Allocation Plan (QAP). And in Iowa, a largely rural state, the most recent draft QAP proposes a 15% set-aside of its credits to preserve affordable rural housing. This interaction between federal funds and state and local policies remains crucial to appropriately house low-income populations. Over the past decade, over 40 states have adopted some sort of priority for the allocation of their competitive 9% tax credits for the preservation of existing housing.
Granting states and localities the authority to administer federal funds according to their own priorities ensures that states’ housing needs are met, while also resulting in tangible economic benefits. LIHTC is a job creator. The National Association of Home Builders estimates that the tax credit supports approximately 95,000 jobs and generates $1.7 billion in income for businesses and as wages. Meanwhile, approximately $2.8 billion in federal, state and local taxes are generated annually. Over the past 27 years, LIHTC has leveraged over $75 billion in private investment, fostering a relationship between the private sector and the government and creating a joint partnership in affordable housing.
By providing the decision-making authority to individual states, the LIHTC program can – and does – address the nation’s diverse housing needs, while simultaneously creating jobs, generating taxes, and leveraging private investment. After 27 years, the LIHTC has proven to be a critical tool for creating and preserving affordable housing.
Michael Bodaken is president of the National Housing Trust and Laura Abernathy is a public policy associate for the National Housing Trust.
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