Ideas. Action. Results.

By Barbara Sard

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 has worked well as a means to finance affordable housing development and rehabilitation. Going forward, federal housing policy will depend on LIHTC to promote goals from ending homelessness to facilitating independent living for a growing low-income elderly population.

But like most successful programs, LIHTC has room for improvement. Here are three steps federal and state policymakers could take to make LIHTC even more effective:

  1. Create a renters’ credit to help serve the neediest families. LIHTC relies heavily on rental assistance programs like Housing Choice Vouchers to achieve mixed-income occupancy, including families with incomes close to or below the poverty line, who have by far the greatest need for help affording housing. New LIHTC developments will struggle to reach this population unless the number of families with rental assistance grows over time. But funding constraints make a major expansion of existing rental assistance programs unlikely in the near term, and this year’s sequestration cut is expected to reduce the number of families with vouchers by up to 140,000. As part of tax reform, Congress should create a new renters’ tax credit to make housing (in both LIHTC developments and other buildings) affordable to the poorest families.
  2. Increase use of LIHTC in high-opportunity neighborhoods. LIHTC is a potentially powerful tool to provide low-income families access to high-opportunity neighborhoods with strong schools. But LIHTC has performed inadequately in this area. A recent analysis found that, on average, LIHTC units large enough for families with children were near schools that scored at the 31st percentile on standardized tests — barely better than the average for schools near the homes of poor families, even though many LIHTC tenants have incomes above the poverty line. States could do much more through their Qualified Allocation Plans and other policies to encourage LIHTC development in high-opportunity neighborhoods.
  3. Gather and publish data on LIHTC tenants. No national data are available on the families assisted by LIHTC, a striking omission for a program that has operated for 27 years and funded more than 2 million units. In 2008, Congress directed state agencies to submit data on LIHTC tenants (including race and ethnicity, income, family composition, and rental assistance receipt) and HUD to publish the data annually. There have been some data collection efforts, but five years later HUD has neither released data nor provided a timeline for doing so. HUD and the states should invest the modest resources needed to meet their legal obligations, so that policymakers and the public have the data they need to understand who the properties serve.

As Congress considers tax reform, it should recognize the important role LIHTC plays and keep it in the tax code. But policymakers should also look for ways to strengthen LIHTC further and make sure that LIHTC-financed properties continue to provide affordable housing opportunities for the lowest-income families even if additional housing vouchers are unavailable.

Barbara Sard is the vice president for housing policy for the Center on Budget and Policy Priorities.

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