The Low‐Income Housing Tax Credit An Analysis of the First Ten Years

Abstract

The Low‐Income Housing Tax Credit (LIHTC) has been the de facto federal rental housing production program since its creation in the Tax Reform Act of 1986. In this article, using a detailed database on 2,554 LIHTC projects, we analyze the costs of building these projects, where they are built, their financial viability, whom they serve, who finances them, and the size of the subsidies provided to them.

The LIHTC is a flexible program that has built different types of housing in various markets. While LIHTC projects serve low‐ and moderate‐income households, their rents are beyond the reach of many poor households without additional subsidy. Revenues just cover costs for many LIHTC projects. Over time, considerably more of each tax‐credit dollar has ended up in the projects, and returns to equity investors have dropped significantly, perhaps reflecting an increased understanding of project risks. We estimate that LIHTC projects developed by nonprofits are 20.3 percent more expensive than those developed by for‐profits.     

Comment on Michael A. Stegman,Walter R. Davis,and Roberto Quercia's “The Earned Income Tax Credit as an instrument of housing policy”

Abstract

The article by Stegman, Davis, and Quercia is a careful, comprehensive analysis of the current impact of the Earned Income Tax Credit (EITC) on the housing cost burdens of working families. Its major proposal, a graduated supplement to the EITC to reflect housing costs, is compared with my broader concept of addressing severe cost burdens through supplements to major income support programs. Criticisms of my concept, chiefly administrative difficulties and incompatibility with the EITC benefit structure, are discussed.

My primary concerns are that Stegman, Davis, and Quercia's proposal does not sufficiently target families with severe housing costs and that the formula for calculating the additional benefit does not reflect diverse housing costs throughout the country and provides the smallest increases to the recipients with the lowest incomes. However, it is more important to generate discussion of the reality that “income policy IS housing policy” than to argue about details.     

Comment on Elvin K. Wyly and Daniel J. Hammel's “Islands of Decay in Seas of Renewal: Housing Policy and the Resurgence of Gentrication”

Abstract

Wyly and Hammel raise a number of important issues regarding the role of low‐income housing assistance in the more recent resurgence of inner‐city capital investment. However, their methodologies are found to be limited, and their results only weakly support a number of the strong conclusions they draw. Despite these limitations, Wyly and Hammel do present some interesting findings, such as greater loan denial rates for higher‐income applicants in the inner cities than in the suburbs, and raise the possibility of a changing income mix of urban gentrifiers. Building on the article's main theme, the comment suggests strategies to improve low‐income housing policy outcomes and highlights the gentrification conundrum.     

Comment on Elvin K. Wyly and Daniel J. Hammel's “Islands of Decay in Seas of Renewal: Housing Policy and the Resurgence of Gentrification”

Abstract

Gentrification ought to be examined, for policy purposes, as part of a general restructuring of the space of cities resulting from broader changes in the nature, location, control, and effects of economic processes. However, even if it is narrowly seen as simply residential change, as in the article by Wyly and Hammel, the displacement of poor households by an upper‐income gentry ought not be confused with the effort to mix moderate with low incomes in public housing through the best of HOPE VI.

Despite this confusion, Wyly and Hammel provide some interesting data showing the extent to which investment in inner‐city areas has accelerated in recent years, paralleling changes in financial arrangements and contradicting any notion that degentrification is a continuous, long‐term process. Their data, although short on demographic detail, also implicitly highlight the role of government in pushing the market to respond rationally to economic demand and the continuing danger that gentrification will displace African‐American families.     

Comment on “Does the Likely Demographics of Affordable Housing Justify NIMBYism?”

Abstract

Automated underwriting (AU) systems have become the tool of choice in mortgage lending decisions. While these systems provide significant benefits to mortgage originators and investors, questions have been raised about their impact on underserved populations. The questions focus on the relative accuracy of AU compared with manual underwriting and whether AU has increased the flow of mortgage credit to underserved consumers.

Using information from Freddie Mac's Loan Prospector AU service, we provide statistics useful in examining these issues. The data strongly support our view that AU provides substantial benefits to consumers, particularly those at the margin of the underwriting decision. We find evidence that AU systems more accurately predict default than manual underwriters do. We also find evidence that this increased accuracy results in higher borrower approval rates, especially for underserved applicants.     

The Gautreaux Legacy: What Might Mixed‐Income and Dispersal Strategies Mean for the Poorest Public Housing Tenants?

Abstract

The current transformation of public and assisted housing reflects the legacy of the Gautreaux case, which created the first mobility and scattered‐site programs. Mixed‐income and dispersal strategies now dominate federal housing policy, although their focus has shifted. Drawing on evidence from two preliminary studies of public housing transformation in Chicago, we argue that these new strategies seem to offer benefits for distressed public housing communities but also involve risks for the most vulnerable current tenants. Increased screening and/or the need to compete with private market tenants may force these families out of the assisted housing market.

Addressing the complex needs of the most troubled public housing tenants will call for a more comprehensive solution. The intent of the Gautreaux case was to increase opportunity and enhance quality of life for public housing tenants; policy makers should take steps to ensure that current programs reflect these fundamental goals.     

Housing,Welfare Reform,and Self‐Sufficiency: An Assessment of the Family Self‐Sufficiency Program

Abstract

Recently passed welfare reform legislation may have adverse impacts on the incomes of public and assisted housing residents and hence on the rental income of housing authorities. One way to dampen these impacts is to help welfare‐reliant tenants find jobs. The Family Self‐Sufficiency (FSS) programs sponsored by many housing authorities may be an important means of doing this. This article presents the findings of an early study of the U.S. Department of Housing and Urban Development's FSS program and explores the program's potential for dampening the impacts of welfare reform. The study involved a mail survey of the coordinators of 564 FSS programs.

The survey results indicate a surprising lack of interest in the early FSS program among potential participants. The results also indicate that these programs are inadequately staffed, and that the programs’ potential to dampen the effects of welfare reform are limited by the relatively small percentage of welfare‐reliant residents enrolled.     

The Logic of the “Tutelary-Style” Monitoring System: An Assessment of State Policies on Social Organisations in the Past 30 Years

This article, concerning various state strategies in different periods since 1978, classifies the evolution of the government’s policy on administering social organisation into three phases. In particular, the state’s policy has gone through a series of shifts from laissez-faire to control, from a non-formal style of administration to using legal instruments as the main means, and with administrative focus from the central to the local level. The supervision mechanism thus formulated implies a totalitarian logic of exercising a “tutelary” style of monitoring—a logic that has to a certain extent revealed “opportunism” on the part of the state. Through an analysis of the state’s governance strategies on social organisations, this article argues that this “tutelary-style” monitoring system explains the interaction between the state and civil society in contemporary China.     

Comment on John T. Metzger's “planned abandonment: The neighborhood life‐cycle theory and national urban policy”

Abstract

I take strong exception to the idea that theories of neighborhood change, in and of themselves, caused the decline of inner cities. Rather, the demographic, social, and economic forces that existed in the postwar years caused some inner‐city neighborhoods to decline. The replacement of working‐class and middle‐income households by households with much lower incomes, on average, was the single biggest cause of neighborhood decline. Metzger ignores this fact as an alternative explanation for why some neighborhoods declined. It is highly implausible that my theories and those of other urban experts had such a strong impact on the public policy, building, and finance communities. Because people were responding to real conditions, it is likely that the same events would have occurred even if my model of neighborhood change had never been developed.     

Comment on Elvin K. Wyly and Daniel J. Hammel's “Islands of Decay in Seas of Renewal: Housing Policy and the Resurgence of Gentrification"—Gentrification resurgent?

Abstract

Gentrification is a procyclical process by which certain inner‐city neighborhoods are revitalized to meet the demands of professional households. It is confined to cities with substantial central business district office growth and with housing markets characterized by substantial suburb‐to‐inner city filtering. The process remains limited in scale, and available data do not permit a judgment as to whether changes in mortgage lending have changed the nature of the process.     

Comment on Donald R. Haurin and Hazel A. Morrow‐Jones's “the impact of Real Estate Market knowledge on tenure choice: A comparison of black and white households”

Abstract

Haurin and Morrow‐Jones analyze a sample of survey respondents from Columbus, OH, and find that additional knowledge about real estate markets increases the likelihood of homeownership. They conclude that differences in real estate knowledge contribute importantly to explaining some of the racial gap in homeownership rates; this finding leads to their conclusion that the racial gap can be addressed through public policy interventions, including financial counseling programs.

Their research broadly addresses three questions: Why does the racial gap in homeownership exist? Why does it persist? What can be done to reduce it? We compare their findings with those of other researchers and conclude that improved financial literacy may well be an important tool for reducing the gap, but that the causes for its existence and persistence are complex and that improving financial literacy alone may not be sufficient to have a significant and lasting impact.     

Comment on Andrew S. Carron and R. Dan Brumbaugh,Jr.’s “The viability of the thrift industry”

Abstract

Krueckeberg summarizes Hernando de Soto's premise on property rights and offers a critical interpretation of de Soto's work, arguing that it emphasizes efficiency over equity and, ultimately, that enhanced property rights alone are unlikely to significantly improve housing stability or access to capital for households living in informal arrangements. I clarify several of Krueckeberg's discussions of de Soto's ideas from the perspective of the Institute for Liberty and Democracy (ILD).

The ILD perspective, informed by de Soto's writings, contrasts with Krueckeberg's in the following five areas: access to utilities and services in squatter settlements, the criminal nature of these communities, the ability of the poor to fulfill the responsibilities of formal ownership, their ability to borrow against formally owned property, and the impact of formalizing property on rental housing. I close by considering how the ILD perspective on formalization might be brought to bear in the United States.     

Comment on Charles C. Bohl's “new urbanism and the city: Potential applications and implications for distressed inner‐city neighborhoods”

Abstract

This article argues that distressed neighborhoods greatly benefit from New Urbanist design. New Urbanists have been rebuilding distressed neighborhoods for years, and New Urbanism's mix of architecture, planning, and public policy offers inner‐city neighborhoods the best set of tools available to improve the quality of life for their residents. Principles based on flexibility and absolute rejection of formula allow New Urbanism to offer solutions for a broad range of situations.     

“The Mother of Reason and Revelation”: Benjamin on the Metaphysics of Language

This paper is a reconstruction of Walter Benjamin's philosophy of language, especially as it expressed in 1916's “On Language as Such and the Language of Man”. I read Benjamin's theory as a contribution to what Charles Taylor has called the “expressivist” tradition that includes eighteenth century thinkers like J.G. Herder and J.G. Hamann. Hamann's work and his interpretation of the theological concept of condescension are of particular importance. Although Benjamin's views are often regarded as impenetrable or mystical, they are relevant to and, in part, motivated by concerns of more mainstream twentieth century philosophy of language, in particular Russell's paradox. His “metaphysics of language” understands reference or designation, central to analytic theories of meaning, as derived from a more fundamental, aesthetic meaning.     

Comment on Charles C. Bohl's “New urbanism and the city: potential applications and implications for distressed inner‐city neighborhoods"—the politics of design: The new urbanists vs. the grass roots

Abstract

This article briefly reviews the origins of New Urbanism and its manifesto as emerging from the social change movements of the 1960s, which evolved out of ideas of a previous generation of American and European designers living through the rise of modern industrialization. Arising from the same turmoil of the 1960s, and parallel to the New Urbanists, evolved a more loosely affiliated network of progressive academic and practicing planners and architects who have aligned themselves with disenfranchised underclasses not benefiting from the wealth of the postwar era and who take direction not from a manifesto but from a body of thinking linked to a broader intellectual and political agenda. This group works primarily with grassroots organizations in lower‐income communities and intentionally stays out of the limelight to better serve its constituents. The article concludes with ideas for possible collaboration between these professional groups serving different ends of the socioeconomic spectrum.     

Comment on Kirk Mcclure's “The low‐income housing tax credit program goes mainstream and moves to the suburbs”

Abstract

As McClure's article notes, the Low‐Income Housing Tax Credit (LIHTC) program has indeed gone mainstream. Given the tarnished reputation of many other federal low‐income housing programs, this is good news. It is also surprising in some ways considering the many programmatic flaws inherent in the LIHTC program.

As a point of departure, I look at why McClure and others are able to describe the program in a positive light despite its many flaws. I attribute this to the unique political culture of the United States, for which the LIHTC program is well suited. In addition, it sidesteps one of the thorniest problems that have bedeviled low‐income housing programs—the spatial isolation of poor minorities. Until the LIHTC program explicitly addresses this issue, however, any praise must be tempered by a great deal of caution.     

Comment on Donald R. Haurin and Hazel A. Morrow‐Jones's “rhe impact of Real Estate Market knowledge on tenure choice: A comparison of black and white households”

Abstract

Racial differences in tenure have been large and persistent, with white householders much more likely to own their homes than blacks. Haurin and Morrow‐Jones surveyed a sample of 1,002 in metropolitan Columbus, OH, in 2005 to determine the causes of the tenure gap between blacks and whites.

Social and economic differences played a dominant role, but Haurin and Morrow‐Jones also identified a racial difference in real estate and financial knowledge, a difference they suggest could be reduced or eliminated with education. This comment raises questions about national homeownership goals and points out that Haurin and Morrow‐Jones overlook the consequences of pervasive racial residential segregation and the effects of both past and current discrimination.     

Comment on Chester Hartman and David Robinson's “evictions: The hidden housing problem”

Abstract

Evictions and involuntary moves negatively affecting poor renters present a significant problem. Creating a national database to comprehensively document the magnitude of the problem, however, presents serious difficulties. Most local courts do not publish data on court actions involving evictions. To do this on a national level and to obtain all of the data needed by the authors would require special funding and the cooperation of courts; these are unlikely to materialize. To obtain comprehensive data on involuntary moves beyond the court system would present even greater difficulty.

Improvements can be made in existing protections for tenants vulnerable to displacement without compiling comprehensive national data. Previous examples include the debates over displacement and homelessness. Since legislative and administrative reforms are more likely at the state and local levels, reform efforts, including any data collection, should be primarily focused there.