Is the Biggest Producer of Reduced-Cost Housing “Better Than Nothing”?
Image by by Nick Youngson CC BY-SA 3.0 Pix4free
This originally appears in Fran Quigley’s blog Housing Is A Human Right
The wonderful non-profit publication Shelterforce has once again performed a real service, this time by providing a multi-part, accessible guide to the Low-Income Housing Tax Credit program, warts and all: “LIHTC: The Good, the Bad, and the Very Complicated.”
LIHTC, usually pronounced lie-tek, is far and away the largest U.S. financer of “affordable” housing. (More later on why “affordable” needs to be placed in quotes.) Since its creation in the mid-1980’s, the program has produced three million units, Each year, it churns out tens of thousands of reduced-cost housing units in exchange for about $9 billion in tax credits.
Shelterforce’s use of the “Very Complicated” series sub-head is well-justified. But, boiled down, LIHTC operates via state housing finance agencies awarding coveted IRS tax credits—a subtraction from tax owed—to developers and investors. In return, Shelterforce editor-in-chief Miriam Axel-Lute and writers Shelby R. King, Sandra Larson, and Andrea R. Ponsor explain, the credit recipients promise to build and/or maintain housing that meets certain guidelines, including affordability for persons with lower-than-average income.
As for the “Good” designation for LIHTC, Shelterforce rightly points out that the program’s rewards for wealthy investors has created a base of bipartisan political support that public housing and even housing choice vouchers don’t enjoy. As Axel-Lute writes, “LIHTC is the one housing construction program that doesn’t have to fight for its very existence and appropriation every budget year.” A more pointed description of the LIHTC trade-off was voiced a few years ago by housing researcher Alyssa Katz in the American Prospect: “a better-than-nothing gimmick that helps the poor by rewarding the rich.”
So Shelterforce does not shy away from covering LIHTC’s “Bad,” even as it acknowledges that some housing advocates discourage truth-telling about the “better-than-nothing” program.
For one thing, there is a dearth of data about who LIHTC developers are, especially how many are for-profit, and whether they fulfill their promises after they pocket the tax credits. Enforcement of compliance with those promises is spotty at best, partly relying on developers’ self-reporting. And there are no real consequences if developers violate program rules during the second half of their 30-year commitment to maintain reduced housing costs. LIHTC tenants do not have the same level of protections that tenants in other federally-funded housing programs do.
““LIHTC is doing nothing to address homelessness and housing poverty””
The most fundamental problem with LIHTC is that the program could be more accurately known as an expensive tax credit that only produces “Somewhat”-Low-Income Housing. Federally-subsidized housing via public housing, housing choice vouchers, or Section 8 subsidies tied to the units all limit maximum allowable rents by reference to the tenants’ income. That means if a tenant makes only $914 in a Supplemental Security Income check, their rent is less than $300. A voucher holder with a low-wage income of $1200 a month pays rent that is less than $400.
But LIHTC rents are usually calculated as affordable for tenants who earn 50-60% of the area median income. That justifies a rent bill that is far outside the range of those most in need, generally summarized as people living at 30% of the area median income or lower. When a very low-income tenant does live in LIHTC housing, usually they can only do so because they are also using a housing choice voucher to help cover the rent. “LIHTC is doing nothing to address homelessness and housing poverty,” Larson quotes Kayla Laywell from the National Low-Income Housing Coalition.
That lack of deep affordability calls into question the value taxpayers get in return for the $9 billion in tax revenue the program swallows up every year. Even the Congressional Budget Office has admitted that the LIHTC program is “more suited to the needs of investors than poor renters.” The overall return on U.S. taxpayer investment is unjustifiable, housing researcher Amee Chew has written. “Because of LIHTC, billions of dollars in public funding are wasted annually on subsidizing the profits of wealthy investors. Direct investment of public funds in social and public housing would more efficiently target public money to generate the kind of deep affordability we need.”
Housing experts like University of Kansas professor Kirk McClure agree. McClure has proposed that states should be allowed to swap out their LIHTC allotment and instead use the funds to issue more vouchers, which do a far better job of responding to our housing crisis. But reform of LIHTC—or replacing it with better-targeted programs-- starts with understanding how it works and how it doesn’t. Thanks to Shelterforce for this important tutorial.
