Blogs| LIHTC Program Evaluation: Assessing Effectiveness and Efficiency
Written by
Priya Gupta
Published
August 29, 2024
Topics
LIHTC
The Low-Income Housing Tax Credit (LIHTC) program has overall been successful in meeting its program objectives. However, each individual project must be measured separately to understand its local impact and whether the implementation needs improvement at the project level.
This blog post tries to provide a framework for analyzing individual projects and outlines the relative success of the LIHTC program.
To gauge the success of a LIHTC project, several key metrics must be considered, including the number of affordable housing units it has created, the occupancy rates of these units, and the longevity of affordability.
Additionally, it is crucial to analyze the project’s ability to serve the lowest-income households in its geographic target. To approximate the demographics a LIHTC project can serve, researchers must document tenant income levels and household compositions. These metrics can easily help policymakers understand how well the project meets its intended goals.
Good indicators to measure the efficiency of a LIHTC project are its cost-effectiveness, the time taken from planning to completion, and the administrative overhead involved.
Analyzing the ratio of tax credits allocated to the actual housing units produced and assessing the leverage of private investment generated by each dollar of tax credit can be a barometer for the cost-effectiveness of the project.
Moreover, evaluating how streamlined the processes for LIHTC application and compliance are and the extent of public-private partnership in the project can help researchers understand the impact of the affordable housing project they are studying.
Program evaluation methodologies for LIHTC projects must include both quantitative and qualitative approaches.
Quantitative methods involve data analysis of housing production, financial metrics, and tenant demographics.
Surveys and interviews with stakeholders such as developers, residents, and policymakers contribute to qualitative insights about the project.
Comparative studies with other housing programs and longitudinal studies tracking long-term outcomes provide a comprehensive evaluation. Geographic Information System (GIS) mapping is also used to visualize the spatial distribution and impact of LIHTC projects.
Overall, LIHTC has been successful in meeting its primary goal, i.e., deploying private capital in building affordable housing projects. However, critics point to some failings in its implementation.
So now that I’ve given you a quick primer on the Parameters and Methodologies researchers can use to measure the success of a LIHTC project, I will explain how well the LIHTC program has been performing overall.
Since this is a broad topic, I’ll speak in general terms about the effectiveness of the program in meeting its goals (which it has) and the dollar efficiency of the program (which the jury is out on).
LIHTC has been instrumental in creating millions of affordable rental units across the country. The Tax Reform Act of 1986, or the inception of LIHTC, has enabled the construction and rehabilitation of housing in both urban and rural areas, addressing a wide range of housing needs.
The LIHTC is flexible, within reason. Its flexibility has allowed the program to help private investors contribute to the community by developing diverse housing types, from multi-family apartments to single-family homes to mixed-use housing.
This flexibility has ensured that different community needs are met, and public policy does not take a sledgehammer approach to solving diverse housing issues.
Several studies have shown that LIHTC has significantly improved the living conditions and high-school performance of low-income families. Infact, a study in Texas showed that LIHTC developments allowed high-performing students from poor households to access better housing and living conditions.
The Bipartisan Policy Center states that LIHTC developments allow families to allocate more resources to other essential needs such as healthcare, education, and savings.
Plus, LIHTC projects often act as catalysts for neighborhood revitalization with the influx of new residents, which can play a part in stimulating local businesses and services.
Overall, the LIHTC program has been efficient, i.e., it has produced considerable impact at an acceptable cost. And because of the competitive allocation process of tax credits, LIHTC ensures that only the most viable and efficient projects receive funding.
However, critics point to the comparatively higher cost per unit in LIHTC developments and the barriers to entry for small developers and new players into the LIHTC ecosystem.
So LIHTC’s efficiency is a mixed bag, but there are some parts of the affordable housing development lifecycle it does optimize.
By attracting private capital, LIHTC reduces the burden on government budgets while still achieving significant affordable housing production.
The LIHTC program leverages private investment to maximize the impact of federal tax credits, giving a high return on public investment without the upfront fiscal burden on the Treasury.
LIHTC has streamlined many administrative processes to enhance efficiency.
When the Federal Government developed affordable housing, it was a bureaucratic behemoth which was never nimble enough to address the critical shortage of rent controlled homes.
However, if low-cost housing development were left to individual states, it would cause an undue burden on the state budget. Plus, there would be a shortage of resources that could handle these projects because of the red tape that out-of-state stakeholders would face.
In LIHTC, the tax credit is Federally managed, but the credit allocation and compliance processes are locally managed. So, it brings together the best of both worlds to create a system of affordable housing creation that is more efficient than its predecessors.
The LIHTC program has had a positive impact on Georgia, as this case study by the University of Georgia shows.
From 2001 to 2019, LIHTC developments have generated substantial economic benefits across Georgia. The program has produced a total economic impact of over $12 billion (not considering inflation). Additionally, these developments have created an average of 4,284 jobs annually through their construction and related activities.
LIHTC developments in Georgia have consistently demonstrated significant economic benefits. On average, each project during construction created a direct economic impact of approximately $16.8 million, with a total economic impact reaching $26.8 million.
These projects have also shown a direct annual operational impact of around $5.7 million, contributing consistently to local economies.
One of the most notable benefits of LIHTC projects is job creation. Each development has resulted in the creation of an average of 172.2 construction jobs, leading to an overall employment increase of 240.5 jobs.
The LIHTC projects have a ripple effect on the economy, often referred to as the economic multiplier.
For every dollar invested in these developments, there is a significant return in terms of economic activity.
The average total economic impact is about 1.7 times the total development cost spending on construction, meaning that an initial investment of $10 million can result in an economic impact of approximately $17 million over the life of the development.
The LIHTC program has created a virtual sub-system for itself. It has prompted the involvement of experienced tax syndicators and financial institutions. This expansion in the program stakeholders has led to the influx of more investors and ensured that projects are managed professionally and effectively.
Despite its successes, LIHTC faces several challenges. The high cost of development and the complexity of implementing the program can be a barrier for entry for small developers.
However, LIHTC is the nodal program for developing affordable housing across the country. And, without new legislation or a costly overhaul of the present system, it will remain the centerpiece of the Federal government’s affordable housing policy.
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