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Time to Re-Think The Low Income Housing Tax Credit

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?

View the full forum here.

There may be no federal housing program with a greater disconnect between practitioners and researchers than the Low-Income Housing Tax Credit (LIHTC). Practitioners express almost universal support for the LIHTC, while a number of academic studies raise serious questions as to its effectiveness.

Practitioner support is not all the surprising. The LIHTC is designed in such a manner that a wide range of interests, from lawyers and developers to public housing agencies, get a “piece of the pie”. A recent paper in the journal Real Estate Economics estimates that the vast majority of the subsidy is captured by providers, with a small portion ultimately flowing to the tenants. Providers have traditionally displayed a strong preference for production programs, preferring they, rather than the tenant, control the subsidy. The LIHTC fits firmly into this pro-production bias. The tax code status of the LITHC is also preferred, as the appropriations process is viewed as difficult and unpredictable. Those of us who believe Congress has the responsibility (a Constitutional one at that) to set the annual budget are generally uncomfortable removing any programs from the oversight of (and the hard choices that come with) the appropriations process.

There is also evidence that the LIHTC “crowds-out” private production. That is the net effect on construction is actually much smaller than the observed due to the fact that many LIHTC units would have been constructed without the subsidy. Such a conclusion isn’t simply the view of production skeptics, but also shared by the Congressional Research Service and the Congressional Budget Office . Similar concerns have been expressed by the Tax Policy Center, jointed run by the Urban Institute and the Brookings Institute.

Another concern with the LIHTC is its relatively weak targeting. As the median renter household income is about 60 percent of the overall population median, a developer would meet the income requirements by doing no more than selecting renters at random, implying the income constraints simply are not binding in any real way.

After 27 years we should recognize the LIHTC has been a massive boon to developers, lawyers and syndicators. Renters have gotten crumbs. A clean solution would be to simply end the LIHTC and re-allocate those resources towards tenant based assistance.

Mark A. Calabria , Ph.D. is Director of Financial Regulation Studies at the Cato Institute.

Welcome to the BPC Housing Commission expert forum! This forum is intended to foster interactive and substantive discussion about pressing housing issues. Each month contributors from different parts of the housing sector will be invited to respond to a discussion topic. Guest posts will feature prominently on BPC’s website, as well as be shared regularly with Housing Commissioners to help inform their work.

Have a pressing question you’d like us to consider? Please leave it in the comments section. We encourage you and our expert bloggers to add comments, contributing to the national dialogue on solutions for the future of the housing sector.

Expert bloggers are not members of the BPC Housing Commission. Any views expressed on this forum do not necessarily represent the views of the Housing Commission, its Co-Chairs, or the Bipartisan Policy Center.


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