Success Stories of LIHTC Projects

Among affordable housing programs in the country, the Low-income Housing Tax Credit (LIHTC) is the most successful. Since the late eighties, it has been the most impactful way for the Federal and State governments to increase the supply of affordable housing in the country. 

 

Combined with other government initiatives, like Section 8 rent-subsidy coupons, the LIHTC incentives have been a centerpiece of the country’s affordable housing policy. 

 

However, the LIHTC program does have its share of criticism. The LIHTC ecosystem is complex and often requires external consultants and specialized LIHTC software for developers to overcome the barriers to entry.  

 

Considering the bitter-sweet rap LIHTC has got, this article covers a few studies that explore specific positive impact LIHTC has had on communities. 

 

Georgia Sees an Improvement in Economic Activity 

The LIHTC initiative brings in investments into the local economy. By replacing the need for financing more debt for new constructions with equity which developers can sell to raise funds, LIHTC essentially subsidizes the construction of affordable housing. 

 

The increased construction activity obviously has a positive impact on the local economy, boosting job creation, indirect economic activity, boosting rural development, and the creation of new housing units.  

 

A study by the University of Georgia found that, even though LIHTC led to a decrease in the potential tax collected, LIHTC development has a net positive economic effect on the state. 

 

The study found that for every dollar the state economy potentially forfeits in taxes, it gains $5. Cumulatively, this means that over two decades, LIHTC contributed over $12 billion to the state’s economy. 

 

LIHTC Prompts Property Value Increases in New York City 

As your common sense would tell you, LIHTC developments usually come up in low-income neighborhoods.  

 

This is true in New York City where a majority of LIHTC construction took place in decrepit neighborhoods that have not seen any economic activity in a long time.  

 

As a result, the areas around these LIHTC developments were selling for a good discount to start with.  

 

But, as soon as a LIHTC development comes up in a neighborhood, property prices increase by more than 5%. And after 5 years, property prices in the neighborhood increased by a whopping 9.5%. Talk about an inflation-beating investment! 

 

All LIHTC Developments Have Spillover Impact in LA 

Homeowners generally have a negative view of LIHTC developments in and near their neighborhoods.  

 

There is a general perception that LIHTC developments cause an increase in crimes and that any increase in the surrounding property values is mostly due to factors independent of the LIHTC development.  

 

However, in a study, researchers found that in LA, regardless of external factors, the completion of a LIHTC development has a positive and long-lasting effect on the home prices in its surrounding areas.  

 

The researchers noted that the spillover increase in property values was true regardless of these location-specific characteristics of the LIHTC development: 

1. Size of the development 
2. The eligible basis or proportion of subsidized units  
3. Non-profit development 
4. Area median income levels 
5. Area demographics 
6. Existing LIHTC developments nearby 

 

The findings of the study indicate that whatever these specific attributes for a given LIHTC development in LA, the property prices in its immediate neighborhood increase between a range of 2% to as high as 8%. 

 

As you can see, developing LIHTC projects will benefit any neighborhood in LA. 

 

Texas Busts the Myth of Low School Performance Because of LIHTC 

An additional challenge that policy makers and legislature face in supporting LIHTC projects is backlash from communities that LIHTC developments affect school performance of the community. 

 

However, in a study that explores the impact of LIHTC developments on nearby schools in Texas, researchers found that this is a myth. So, school performance remains consistent in the long term near new LIHTC developments.  

 

Even though initially, children from neighborhoods that are predominately segregated and don’t have access to high-quality education tend to score lower, but with time, their performance catches up to their peers.  

 

In addition to maintaining school performance, the completion of LIHTC properties increases the diversity of a particular school.  

 

LIHTC Achieves a Great Mix of Incomes in Chicago Communities 

Another common misgiving associated with LIHTC developments is that they can only be successful in neighborhoods that have a weak local economy. In affluent neighborhoods, LIHTC developments are actively opposed.  

 

However, a study in Chicago found that LIHTC developments have a positive impact on the income mix of a community. As a strategy for combating gentrification of neighborhoods and segregation of communities, LIHTC can be an effective tool. 

 

The study considered mixed income housing versus fully subsidized housing in neighborhoods with a variety of average household incomes.  

 

It found that regardless of the area’s median income levels, LIHTC projects that maximize subsidized rental housing units had a positive effect.  

 

As a social tool to depress inequality and improve social parity, LIHTC is successful.  

 

LIHTC Improves the Local Economy and Housing Market 

As we can see, on ground research across states point to the positive secondary effects that LIHTC developments have on communities. In fact, in a nationwide study, researchers found that LIHTC development increases property value of neighborhoods across the country. 

 

These benefits are in addition to the primary purpose of the LIHTC initiative—to create high-quality housing that is affordable to low-income families.