By Nathan Hertzberg, NLIHC Research Intern
An Urban Institute article, “LIHTC at 40: How Much Affordable Housing Has Been Built in Your State?” explores the distribution of housing supported by the federal Low-Income Housing Tax Credit (LIHTC) since 1987. The report shows significant variation across states and metro areas in the number of homes per capita that have been produced by LIHTC. The variation is partly explained by minimum allocations that provide small states with a larger per capita allocation, state incentives paired with LIHTC that can make development more feasible, and development costs. The authors discuss tradeoffs between building fewer units in high-cost areas versus more units in low-cost areas.
The LIHTC program subsidizes the production of housing for low-income renters. The federal government allocates tax credits typically to state housing finance agencies who grant the credits to private developers through competitive processes. Developers must ensure a federally required share of the property’s units are occupied by low-income renters. To maintain their tax credit, developers must comply with these rent restrictions for 15 years, with an extended compliance period of another 15 years. Some states require longer affordability periods. The LIHTC program is the largest federal rental housing subsidy in the US, responsible for one-fifth of all new multifamily rental units in the country from 1987 to 2022.
The number of LIHTC units produced per resident varies by state. Between 1987 and 2022, Mississippi and Washington tied for second-most units per capita with 132 units per 10,000 citizens. Washington, DC ranked number one with 402 units per 10,000 people. Pennsylvania, Arizona, and Connecticut ranked the lowest, with 49, 53, and 56 units per 10,000 citizens respectively. The authors categorize two groups of states where the most LIHTC units per capita were produced. One group is made up of states like Washington, which have strong financing pipelines that support large-scale development. The other, made up of states like Mississippi, have low construction costs allowing each tax credit dollar to go further in terms of unit production. DC produced a high number of LIHTC units per capita at least partly because it receives the minimum small-state credit allocation which is a higher amount of tax credits per capita than larger states.
The federal government allocates LIHTC funding to states based on population size, but the number of homes produced depends largely on choices made at the state and local levels. While the authors argue the LIHTC program should be expanded, they also suggest that policymakers should consider the tensions of location, cost, and need when deciding on how to use the tax credits. For example, incentives to build in high-opportunity areas have potential to improve job access but may reduce the number of units that can be financed. The authors contend that further research could clarify how these trade-offs affect whether the volume of new housing the program produces properly serves those who need it, and how policymakers can ensure LIHTC’s effectiveness.
Read the report here.