Longer Periods Living in LIHTC Housing as Children Associated with Better Long-Term Income and Educational Outcomes

A paper written for the staff of the Joint Committee on Taxation, “Does Growing Up in Tax-Subsidized Housing Lead to Higher Earnings and Educational Attainment?,” analyzes the impact of growing up in Low Income Housing Tax Credit (LIHTC) housing on enrollment in post-secondary education programs and earnings. The author, Elena Derby at Georgetown University, found that each additional year spent in a LIHTC home as child was associated a 3.5% increase in the likelihood of attending a higher education program for four years or more, as well as a 3.2% increase in future earnings. The study also found that children in families that moved multiple times prior to entering LIHTC housing were even more likely to obtain four or more years of higher education, suggesting the LIHTC program might promote housing stability, reduce financial stress, and allow parents to invest more in the education of their children.

Ms. Derby created a database of families with children under age 18 who lived in LIHTC homes between 1999 and 2012. These data were drawn from tax returns filed by individuals, information returns filed by employers, and HUD’s database of buildings constructed under the LIHTC program. The fully merged data set contains 540,839 individuals born between 1982 and 1994 who lived in LIHTC homes. Information on enrollment in higher education was drawn from 1098-T tuition statements. These individuals were between the ages of 24 and 36 in 2018, when the author observed their earnings as adults.

To estimate the impact of growing up in LIHTC homes on educational achievement and adult earnings, Ms. Derby compared individuals who spent different amounts of time in these homes as children. Instead of measuring the overall impact of growing up in LIHTC homes generally, this approach measured the effect of spending one additional year in such housing. The methodology also avoids a concern about comparing children growing up in LIHTC housing to children growing up in non-LIHTC housing—namely, potential differences in parenting approaches between parents who seek LIHTC housing and those who do not.

To eliminate bias arising from the varying reasons why families might leave LIHTC housing (e.g., eviction or moving to better neighborhoods), Ms. Derby restricted the sample to 179,356 individuals who remained in LIHTC housing through age 18. To eliminate any bias arising from families strategically moving into LIHTC housing when their child was a specific age, Ms. Derby restricted the sample further, looking only at the 41,989 individuals who moved into LIHTC housing the same year or one year after the building was put into commission.

Ms. Derby finds that for every additional year spent in LIHTC housing as a child, individuals are 3.5% more likely to enroll in a higher education program for four or more years and 2.7% more likely to enroll in two or more years of higher education, and they have 3.2% higher incomes as adults. These results can have a large cumulative effect: an individual who moves into LIHTC housing at age 11 is 24.4% more likely to attend a college for four years than an individual who moves in at age 18. Even after controlling for several variables, including location and family characteristics, and using stratified sampling techniques to control for unobserved correlates, the estimated effect of living in LIHTC housing is positive, significant, and large.

To determine if the effect of growing up in LIHTC housing is more positive in certain neighborhoods than in others, Ms. Derby looked at differences in the effect across neighborhoods with different characteristics. Variations in the poverty levels, median household incomes, and high school graduation rates of the neighborhoods did not produce statistically significant differences in the LIHTC effect. In contrast, the racial composition of the neighborhood and the neighborhood’s score on an opportunity measure designed by Raj Chetty did make a significant difference in the estimated LIHTC effect. In neighborhoods that were 0%-11.3% white, individuals who spent one additional year in LIHTC housing were 1.1% more likely to enroll in higher education for four or more years. In neighborhoods that were 70.6%-79.0% white, individuals were 4.7% more likely to do so. Since race and ethnicity are not reported to the IRS or Social Security Administration, Ms. Derby could not control for race in the regression. Differences in the LIHTC effect may be capturing differences in the benefit white people got from moving into LIHTC housing for a longer period of time, compared to black or Hispanic people.

While the location of LIHTC housing matters to the size of the LIHTC effect, differences between neighborhoods do not fully explain the positive estimated effect of growing up in LIHTC homes. Ms. Derby argues that there is strong evidence that the effect is in large part a measure of the effect of housing stability. The more times families changed addresses prior to moving into a LIHTC building, the more positive the effect of LIHTC housing was on their children’s education outcomes. For a family who did not change addresses prior to entering a LIHTC home, one additional year in LIHTC housing was associated with a 1.8% increase in the likelihood of their child attending four or more years of higher education. For a family who moved four or more times before entering LIHTC housing, the estimated effect was 11.7%. One of the main benefits of such housing, Ms. Derby concludes, may be that it provides a more stable living situation, reduces financial stress, and allows parents to invest more in the education of their children.

The full paper can be read at: https://bit.ly/35unrb9