The Low-Income Housing Tax Credit (LIHTC – pronounced “lie-tech”, Housing Credit) is a dollar-for-dollar tax credit for affordable housing investments in the US. Created under the Tax Reform Act of 1986 (TRA86), it gives incentives for utilization of private equity investment in development of affordable housing aimed at low-income Americans. It is now the longest running national affordable housing rental program producing new housing units.
LIHTC’s longevity stems from bipartisan support, the homebuilding industry and a history of strong performance, compared to other federal housing programs. The program appeals to a progressive agenda and increasing the supply of affordable rental housing, but also the more fiscally conservative goal of minimizing the cost to government and leveraging private investment.
Despite success, LIHTC faces challenges. It’s the only major funding source for producing and preserving affordable rental housing. As such, it requires a higher level of scrutiny to ensure effectiveness and minimize abuse.
Norwalk is not immune to these challenges, with its long running history of the POKO LLC Project, in the downtown 61-65 Wall Street area. Fraught with challenges since conceived by the Redevelopment Agency in 2008, it has plagued three separate mayoral administrations. (See Hour story below.)
https://www.thehour.com/norwalk/article/POKO-Partners-has-36-months-to-build-Phase-One-8170640.php
LIHTC Top 10 Concerns & Challenges
A 2018 study by the Urban Institute, LIHTC: How It Works and Who It Serves highlighted top concerns associated with this sort of funding mechanism for affordable housing:
- Units are not required to be permanently affordable.
- States must balance the need for new property construction with preservation of older properties when allocating new credits.
- LIHTC does not serve the lowest-income households well on its own.
- LIHTC is an economically inefficient method for producing affordable rental housing.
- Costs are driven by the financial complexity of some LIHTC deals.
- Studies have found other programs, such as housing vouchers that pay a portion of a household’s rent are/can be cheaper per unit (or assisted household) over time than LIHTC.
- Program structure can promote unit concentration in poorer areas.
- Community opposition can stymie LIHTC development in places that need it.
- Many states formally or informally require local support of LIHTC
project applications before they will be considered for funding. - LIHTC can exacerbate racial segregation, a repeated legal problem for affordable rental housing developments over the years.
More solutions are needed for improving LIHTC, although few evidence-based solutions are available for improving the program. More research is needed to focus on long-term improvements to LIHTC, to address the following questions:
- What happens to properties after the 30-year period of affordability?
- What are the best practices for maintaining affordability long term?
- How can LIHTC be more efficient?
- What strategies could streamline LIHTC financing, shorten project timelines, and reduce costs?
- How can outcomes for communities and residents be improved?
- How can LIHTC reduce residential segregation and increase access to opportunity?
To read more about LITHC click on the report below: