Newly Released Report Offers Advice to States to More Effectively Target Housing Credit Allocations
By A. J. Johnson & Caitlin Jones
5 min read
Tax Credit Advisor August, 2006: A newly issued report advises how states might more effectively allocate their low-income housing tax credits, both geographically and to targeted population groups.
Prepared for the U.S. Department of Housing and Development (HUD) by consulting firm Abt Associates, Inc., the paper is based on research and theory about where and for whom development of subsidized rental housing is most effective. Dated July 2004 but just released, the paper draws on a review of past literature and empirical analysis conducted for HUD in 2003-2004, and makes implications from findings in numerous prior research studies on the LIHTC.
According to the report, “states have the most powerful tools and the greatest responsibilities for planning and implementing rental housing policy in the U.S.” In the LIHTC program, state housing finance agencies through the qualified allocation plans they craft and the housing projects they select for credit allocations determine where, how, and for what purposes the credit is to be used in their state. “State policy makers shape the way in which affordable rental housing is distributed geographically and to different types of families and individuals,” the paper says.
The report discusses the geographic allocation of housing credits among the state’s metropolitan housing markets, based on rental housing assistance needs; the targeting of credits to projects designed for particularly needy types of households; and the potential roles of credit projects to revitalize distressed neighborhoods and to help low-income families live in high-quality area.
Key Recommendations
The study’s key recommendations are that:
- States should target the housing credit to projects in housing markets with (1) large numbers of families with worst-case housing needs, and (2) a shortage of affordable rental housing.
- States should favor projects designed for the kinds of households who can most benefit from project-based subsidized rental housing: large families; the frail elderly; and people with disabilities.
- States should make housing policy part of a strategy that supports the economic development of metro areas within the state, and that provides opportunities that increase the “life chances” of low-income people.
- State policies for using the LICHTC to support neighborhood revitalization should be carefully crafted and administered. If housing resources are to be the only intervention resource, the targeted neighborhoods should either be in early decline or already showing some improvement. Also, credit allocations to projects in distressed neighborhoods only make sense if they are part of a critical mass of resources in support of a comprehensive strategy of neighborhood improvement.
The study favors severe rent burden (households paying a very high percentage of income for rent and utilities), rather than poverty, as the best proxy for determining worst-case need for affordable rental housing, either geographically or among household types. But it notes simply targeting credits to areas where many residents have high rent burdens isn’t the answer. Rather, it says there should also be indications that an area has a shortage of rental housing. The paper notes there isn’t a simple, foolproof way to identify such areas. But it outlines possible actions for states based on currently available information. These include to: use U.S. Census rental vacancy rates, as one indicator that should be supported by other indicators; use indicators of places where the private market isn’t responding to rent increases with new rental construction; encourage development of credit units in difficult development areas; identify areas where households have difficulty using federal housing choice vouchers (i.e. lower “success rates”); and, making LIHTC allocations part of a state housing strategy that reduces regulatory barriers to affordable housing.
Targeting to Specific Households
The paper suggests maximizing credit awards to projects designed for occupancy by the types of households who typically have greater difficulty finding an apartment they can rent with a federal housing voucher, or a unit with the features or services that they need. These include large families with children, the frail elderly, and persons with certain disabilities.
Regarding use of the LIHTC as a tool for metropolitan-wide housing strategies, the paper recommends that states seek to provide low-income families with access to economic and other opportunities, such as by targeting credits to developments near jobs and around transportation nodes. The paper cites the award of credits to preserve existing housing in “gentrifying” central cities and inner suburbs as a particular “target of opportunity.”
The paper cautions against relying on the LIHTC alone to try to shape development metropolitan-wide or to revitalize distressed neighborhoods. Rather, it suggests that the credit, to be most effective, should be part of a massive package of resources used together in support of a broad, comprehensive, and mixed-income strategy. It discourages allocation systems that automatically target credits to projects in distressed areas such as qualified census tracts. “The use of LIHTC developments in such areas should be made only when part of a well designed revitalization strategy for that neighborhood,” the paper says. “Where such strategies are not present, the LIHTC resource may be better used to expanding housing opportunities for low-income families in relatively higher-income parts of the metropolitan area.”
(Making the Best Use of Your LIHTC Dollars: A Planning Paper for State Policy Makers, is available online at http://www.huduser.org/periodicals/Researchworks/june_06/RW_vol3num6t4.html.)
