Housing Quality and Neighborhood Effects of Illinois Housing Tax Credit

By Esther Y. Colon-Bermudez, NLIHC Research Analyst 

An article recently published in the journal Housing Policy Debate, “State Affordable Housing Tax Credits and Renter Outcomes: Evidence from Illinois,” examines how state-level affordable housing tax credits can affect rents and housing quality using the Illinois Affordable Housing Tax Credit (IATHC) as a case study. The study finds that the program increased the share of low-income households living in newer rental units and was associated with neighborhood level rent increases, particularly at the upper end of the rent distribution. These findings suggest that development with state housing tax credits like the IAHTC, which is allocated mostly to not-for-profit organizations, may correspond to additional private investment in neighborhoods and the removal of neighborhood disamenities through the redevelopment of vacant or abandoned buildings. Programs like IAHTC, as a result, appear to work better for revitalizing neighborhoods than for reducing housing costs. 

Tax credits are a key policy tool for promoting affordable housing in the United States. At the federal level, the Low-Income Housing Tax Credit (LIHTC) supports affordable housing development by allowing developers to raise equity and reduce financing costs. This allows building owners to charge below-market rents without operating at a loss. Many states complement this program with their own tax incentives. Illinois’s Affordable Housing Tax Credit (IAHTC), for example, allows the Illinois Housing Development Authority (IHDA) and the City of Chicago to award credits in exchange for qualified donations to not-for-profit sponsors of affordable housing projects. These credits are often sold to investors to generate additional project equity and are commonly combined with LIHTC funding. 

Previous research shows that federal affordable housing tax credits can help revitalize low-income neighborhoods, with improvements in neighborhood quality and amenities often reflected in higher rents, while low-income households may benefit through access to newer or higher-quality housing. However, little is known about whether similar effects occur under state-level affordable housing tax credit programs such as Illinois’s IAHTC. This paper addresses this gap by examining the IAHTC’s impact on neighborhood rental prices and housing quality for targeted renter households. 

After controlling for census tract (i.e., “neighborhood”) factors, the authors found that IAHTC-financed development is associated with increases in neighborhood rent levels. Rent levels rose by 4.8%, 8.6%, and 10.2% at the 25th, 50th, and 75th percentiles, respectively, with the largest effects occurring at the higher end of the rent distribution. These rent increases likely reflect neighborhood improvements, as IAHTC developments often replace vacant or dilapidated buildings, remove local disamenities, and attract additional private investment, which can raise surrounding property values. In terms of housing quality, after controlling for household and property-level factors, the only statistically significant effect is improved access for low-income renters to newer units, as the program increased the likelihood of them living in housing ten years old or newer by 1.6 percentage points.  

Overall, this analysis helps clarify how state affordable housing tax credits like IAHTC can affect neighborhood-level rents and housing quality. This information can support states in evaluating whether tax credit programs like IAHTC align with their housing priorities and justify their continued role in housing policy. Programs like IAHTC may be well-suited for states looking to stimulate local economic activity in distressed neighborhoods. For states aiming to directly increase rental affordability for low-income renters, housing policies such as vouchers may be more effective. 

Read the article here.