Benefits of LIHTC: Impact on Affordable Housing and Communities

Since Congress created the LIHTC program, it has provided funding to develop more than 3 million affordable housing units. There has been criticism of LIHTC and how it is set up, however its important in the affordable housing environment is undeniable.  

This article talks about the benefits of LIHTC and its impact on the affordable housing landscape.  

LIHTC Has the Largest Share in Affordable Housing 

The Department of Housing and Urban Development calls LIHTC the “most important resource for creating affordable housing in the country today.” 

The federal government provides close to $9 billion in tax credit subsidies each year for the construction and renovation of affordable housing units. 

Although LIHTC is not the only federal subsidy program, it is one of the largest. According to some estimates, it funds 110,000 new or renovated apartments across the country or around 50,000 new apartments.  

LIHTC Provides Stable Housing to the Vulnerable 

There is a profound mismatch between the demand for housing and the supply of available rental housing in the country. LIHTC goes a long way in fulfilling this need, especially for people who need it the most.  

LIHTC housing is for low-income households that need help meeting consistent housing needs. HUD releases tenant-level data for LIHTC units across the country.  

Analyzing the data shows that:  

• More than half of households in LIHTC housing have an income of less than $20,000.  
• About half of households have less than 30% of the area median income (AMI).  
• 6% of tenants are disabled.  
• 11% of households reported at least one person as being disabled.  
• There is a relatively similar racial distribution.  
• 40% report receiving some additional form of rental housing assistance. 

The need for affordable housing is acute. To ensure that LIHTC serves those who need it most, state housing finance agencies (HFA) mandate rent restrictions.   

Asset managers who oversee these property investments often use LIHTC property management software to track and monitor these compliance requirements. 

LIHTC Helps Increase Disposable Incomes 

More than 12 million households spend more than 50% of their income on rent alone. And over 22 million spend close to 30% of their income on rent. 

Housing is one of the highest expenses for families. With increasing rental costs and lower supply available, renting places a higher burden on homeowners than mortgage payments.  

When people spend less on rental housing, they have more disposable income to spend and reinvest back into the community and local businesses.  

People tend to shop more locally and enjoy cultural and entertainment activities. In addition, with stable housing options, people tend to invest emotionally in their neighborhoods, which means that local businesses can also expect stability and invest for a longer time. 

LIHTC Enables Access to Better Schooling 

The quality of housing can have a positive impact on a child’s education and health outcomes. Improved child health that’s associated with subsidized housing can also help children maintain more consistent school attendance.  

LIHTC projects can provide stress-free, stable housing and ensure an uninterrupted school year without distractions and a better academic environment for children to perform academically.  

Housing is also one of the highest expenses for low-income households. Affordable housing solves this financial insecurity and can help improve academic outcomes for children.  

Better neighborhoods can also improve access to schooling for children and households, especially households that struggle with homelessness or have to move around a lot. 

LIHTC Enables Better Access to Public Transportation 

Transportation is the most often the second highest expense for low-income households after housing. When considering transportation costs, it gives a much more holistic view of how affordable subsidized housing is and the impact the LIHTC property can have. 

LIHTC developments are often multi-family housing. When located near population centers with access to public transit, they can improve the access of low-income families to public transport.  

In addition, many state HFAs allocate additional points in LIHTC applications for developments near mass transit locations. 

LIHTC Revitalizes Low-Income Neighborhoods 

LIHTC developments have been observed to breathe new life into low-income neighborhoods.  

LIHTC properties appreciate the housing prices in the area and push down the rates of violent crimes.   

Also, since the racial profiles of the tenants of LIHTC projects are not skewed towards any one demographic, they bring more economic diversity to an area, which in turn improves the local economy.  

Even though LIHTC programs are used to develop rental housing programs, innovative uses are also present. 

For example, in Colorado, the town of Castle Rock used LIHTC subsidies, coupled with other federal funds, to redevelop a decrepit downtown area.  

LIHTC Improves the Local Economy  

LIHTC development creates value for the entire community. Families who live in affordable homes can afford to spend more. A study in New York found that families doubled their spending power, and they tend to spend this money locally. 

In a report, the National Association of Home Builders (NAHB) states that LIHTC properties start accruing benefits for the local economy within one year. It generates tax revenue for the federal government, reinvigorates local income, and creates local jobs. 

And its effect is felt in the community long after the development.   

In addition, affordable housing developments also increase the supply of a local workforce, which is crucial for the development of any community, as Housing Forward Virginia notes. 

LIHTC’s Effect on Poverty and Crime 

Although critics point to the high concentrations of LIHTC development in poorer neighborhoods, overall, research finds that LIHTC development does not affect the concentration of poverty in an area. 

However, this study finds that the poorest tenants using the LIHTC program live in the poorest neighborhoods. So, at the program level, policymakers can, of course, do more to encourage social and economic mobility. 

At the same time, a study on LIHTC and crime found that LIHTC developments in an area reduce the rate of violent crimes by about 2%.  

Overall, LIHTC development positively impacts poverty and crime in a neighborhood. 

LIHTC Helps the Vulnerable and Whole Communities 

The LIHTC program’s history is one of success. Over the last 40 years, LIHTC has helped the most vulnerable people in our society and our communities grow and prosper.  

Its impact is clear. Since it’s the most extensive affordable housing development program, most federal housing uses LIHTC findings. It’s safe to say that LIHTC stands for affordable housing.  

Through stable, reliable housing, LIHTC helps families and communities gain better access to schools, health, transport, and a safe environment.