How to Create Affordable Housing for 27 Years
By Ethan Handelman
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 federal government has tried many different ways to create homes and meet the need for affordable housing: direct grants, loans, rental assistance, block grants, and more. Among these, the Low Income Housing Tax Credit, or Housing Credit, stands out as uniquely effective. Simply put, the Low Income Housing Tax Credit has proven itself over the past 27 years in ways unmatched by any other affordable housing program. The Housing Credit:
- Survives politically. That’s no small feat over 27 years. Bipartisan support, repeatedly affirmed, has allowed the Housing Credit to create and preserve affordable homes year after year. Some of its apparent inefficiencies, such as distribution according to population, contribute to this political durability.
- Harnesses the private sector. Private investors oversee every development and ensure that properties fulfill their affordable housing mission, and private capital is at risk if the properties fail. That’s why the Housing Credit has a singularly low default rate. Although the syndication process does create some additional costs, these are more than offset by the consistent property performance.
- Adapts to local need. States are uniquely suited to allocate Housing Credits to areas of greatest need depending on local conditions. Whether that is supportive housing with services attached, transit-oriented development in areas of growth, redevelopment to restore neighborhoods, affordable homes for returning veterans, or other needs, states can decide every year how to focus the federal subsidy. Although this leaves allocating agencies open to pressure from many interests within each state, that is hardly unique to the Housing Credit, and agencies on the whole have been able to manage the process through transparency in allocation decisions and constructive engagement when revising allocation plans.
- Improves over time. State agencies revise their allocation plans every year, allowing them to improve the process each time. Developers and investors respond quickly to changes in allocation plans, such that states can attract property applications quite precisely. In times of crisis, states can pivot quickly to ensure that needs are meet—something I saw first-hand helping the State of Michigan create a new QAP during a brief but severe drop in Housing Credit demand. Quick action by the state brought new investors to the table even as it helped create new supportive housing units and preserve essential affordable housing properties.
The Housing Credit is far from perfect, but it outperforms any other capital subsidy for housing we have tried thus far and integrates well with other forms of assistance to meet specific needs. Capital subsidy is inherently limited in how far down the income scale it can go on its own, but when coupled with rental assistance, for example, the Housing Credit can help extremely low-income households. Indeed, most new supportive housing relies on the Housing Credit as an essential capital source. Let’s continue to build on this proven program.
Ethan Handelman is Vice President for Policy and Advocacy for the National Housing Conference
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