Low Income Housing Tax Credits (LIHTCs)

Low Income Housing Tax Credits (LIHTCs) provide a federal tax credit equal to a large percentage of the cost incurred for developing or rehabilitating low income units in rental housing development (US HUD-LIHTC database). States distribute LIHTC funds through Qualified Allocation Plans (QAPs), competitive processes that prioritize projects that will serve the lowest income families and remain affordable for the longest period of time (US HUD-Ellen 2015). Units must remain affordable for 30 years and have pre-determined rent ceilings and rental rates that do not increase with growth in tenants’ incomes (US HUD-Khadduri 2012); most LIHTC developments include only rent-restricted units (Ellen 2009). Maximum rental rates are federally mandated, although states may select lower rates (O’Regan 2013*). Residents of LIHTC-funded units often receive other forms of housing support (NBER-Collinson 2015, O’Regan 2013*), such as funds from the HOME Investment Partnership Program, Community Development Block Grants (CDBGs), or housing trust funds (Urban-Scally 2018). LIHTC is the largest subsidy for place-based, low income housing in the US (Ellen 2018a*, Urban-Scally 2018).

Expected Beneficial Outcomes (Rated)

  • Increased access to affordable housing

  • Increased access to quality housing

Other Potential Beneficial Outcomes

  • Reduced crime

  • Increased neighborhood socio-economic diversity

  • Reduced blight

Evidence of Effectiveness

There is some evidence that Low Income Housing Tax Credits (LIHTCs) increase access to quality, affordable housing for low and moderate income families (Baum-Snow 2009*, Deng 2011a*, Deng 2007*) without negative effects on neighboring communities or property values (Deng 2011b*, Edmiston 2015, UW CULER-Green 2002, Freedman 2015*). LIHTCs are also a suggested strategy to minimize the displacement of low income residents that can follow neighborhood improvements such as new affordable housing options (Damewood 2011). Additional evidence is needed to confirm effects and understand the characteristics of successful LIHTC efforts (Urban-Scally 2018).

Small new construction (Jackson 2015, Edmiston 2015) and larger rehabilitation projects (Edmiston 2015) appear to modestly improve neighborhood quality. LIHTCs in high poverty areas are likely to generate greater benefits than LIHTCs in middle (Deng 2011a*) or high income neighborhoods (Diamond 2016); LIHTCs may also be associated with decreases in poverty rates in high poverty neighborhoods (Ellen 2016*). LIHTC developments in distressed neighborhoods can increase property values and reduce crime (Dillman 2017*) and violent crime rates (Diamond 2016, Freedman 2011*), and may also help eliminate dilapidated buildings, vacant lots, and other forms of blight (Woo 2016*). A study of LIHTC-supported housing rehabilitation in Texas suggests that LIHTCs in low income neighborhoods can increase students’ academic achievement (Di 2013*). LIHTC developments in higher income areas may reduce property crime and do not appear to increase crime overall (Diamond 2016), though may be associated with slight reductions in property value (Dillman 2017*).

LIHTCs have not been shown to displace new construction when credits are invested in stable or declining areas (Baum-Snow 2009*). Property values of nearby houses have remained stable, and in some cases, appreciated more rapidly than neighboring areas with the establishment of LIHTC sites (Freedman 2015*, Deng 2011b*, UW CULER-Green 2002). LIHTC developments can also positively influence nearby property upkeep (Edmiston 2015). A Polk County, IA-based study suggests that careful site planning and design as well as efforts to attract tenants with various income levels may avoid any potential negative consequences for nearby property values (Funderburg 2010*). LIHTCs may displace new construction in gentrifying neighborhoods (Baum-Snow 2009*, Freedman 2015*). Neighborhoods with LIHTC-funded units may have more low income households than surrounding neighborhoods, perhaps because income-eligible families move to pursue LIHTC-supported housing (Freedman 2015*, Ellen 2016*).

Overall, LIHTC use is associated with declines in racial segregation at the metropolitan level in low (McClure 2019*, Horn 2011) and high poverty neighborhoods (McClure 2019*, Diamond 2016), Horn 2011). However, a study of LIHTC tenants in 12 states suggests black and Hispanic low income LIHTC tenants continue to live in significantly more disadvantaged neighborhoods than other LIHTC tenants (Ellen 2018a*). Research suggests that state Qualified Allocation Plans (QAPs) may help shape LIHTC allocations to reduce poverty concentrations and racial segregation (Ellen 2018*).

Some experts suggest that LIHTCs could be adjusted to better benefit households with the lowest incomes (McClure 2019*); flat rate rents may still be unaffordable for many low income households (NBER-Collinson 2015). An examination of LIHTC tenants in 18 states indicates that approximately half of all LIHTC units are occupied by households with incomes below 30% of the area median (O’Regan 2013*).

A nationwide study suggests that state policy can affect transportation costs and access to everyday destinations (i.e., location efficiency) for new LIHTC development, improving access to public transportation and regional employment opportunities (Adkins 2017*).

Impact on Disparities

Likely to decrease disparities

Implementation Examples

Low Income Housing Tax Credits (LIHTCs) are available in all 50 states, Washington DC, and Puerto Rico. The federal government allocates roughly $8 billion per year to support LIHTCs (US HUD-LIHTC database); the total annual housing tax credit allocation to each state is limited to $2.25 per resident, adjusted for inflation (NBER-Collinson 2015). This funding has produced 3.05 million units of affordable rental housing between 1987 and 2016 (US HUD-LIHTC database) and about 236,000 housing units in nearly 1,600 rural counties. US Department of Agriculture (USDA) Rural Development data indicate that LIHTC preserved almost 200,000 units that house low income families, seniors, and people with disabilities, as of 2016 (Urban-Gerken 2018).

The Consolidated Appropriations Act of 2018 includes a 12.5% increase in allocations to LIHTC over the next four years, which may produce an estimated 28,400 additional affordable units (Urban-Scally 2018).

States utilize Qualified Allocation Plans (QAPs) to distribute LIHTC funds; Novogradac compiles state QAPs annually on its website (Novogradac AHRC-LIHTC Map).

Implementation Resources

US HUD-LIHTC database - US Department of Housing and Urban Development (US HUD). Low income housing tax credits: About the LIHTC database.

ChangeLab-Housing toolkit - ChangeLab Solutions. Preserving, protecting, and expanding affordable housing: A policy toolkit for public health. 2015.

AHIC - Affordable Housing Investors Council (AHIC). Investing in affordable housing through federal low-income housing tax credits (LIHTC).

AHTCC - The Affordable Housing Tax Credit Coalition (AHTCC). The housing credit: Transforming lives, strengthening communities, creating jobs.

NLIHC - National Low Income Housing Coalition (NLIHC). Dedicated to socially just public policy for affordable and decent homes.

US Treasury-LIHTC - US Department of the Treasury (US Treasury). Office of the Comptroller of the Currency. Low-Income Housing Tax Credit Program (LIHTC).

LHS - Local Housing Solutions (LHS). To enhance local affordability and foster inclusive communities. New York University, Furman Center and Abt Associates, Inc.

Furman Center-Affordable housing - Furman Center for Real Estate and Urban Policy. Research area: Affordable & subsidized housing. New York University, Furman Center.

Furman Center-Neighborhood conditions - Furman Center for Real Estate and Urban Policy. Research area: Neighborhood conditions. New York University, Furman Center.

LHS-COVID-19 response - Local Housing Solutions (LHS), NYU Furman Center, Abt Associates. COVID-19 Housing response plans.

Citations - Evidence

* Journal subscription may be required for access.

Baum-Snow 2009* - Baum-Snow N, Marion J. The effects of low income housing tax credit developments on neighborhoods. Journal of Public Economics. 2009;93(5-6):654-66.

Deng 2011a* - Deng L. Low-income housing tax credit developments and neighborhood change: A case study of Miami-Dade County. Housing Studies. 2011;26(6):867-95.

Deng 2007* - Deng L. Comparing the effects of housing vouchers and low-income housing tax credits on neighborhood integration and school quality. Journal of Planning Education and Research. 2007;27(1):20–35.

Deng 2011b* - Deng L. The external neighborhood effects of low-income housing tax credit projects built by three sectors. Journal of Urban Affairs. 2011;33(2):143-66.

Edmiston 2015 - Edmiston KD. Low-income housing tax credit developments and neighborhood property conditions. Social Science Research Network. 2015.

UW CULER-Green 2002 - Green RK, Malpezzi S, Seah KY. Low Income Housing Tax Credit housing developments and property values. Madison: Center for Urban Land Economics Research (CULER), University of Wisconsin–Madison; 2002.

Freedman 2015* - Freedman M, McGavock T. Low-income housing development, poverty concentration, and neighborhood inequality. Journal of Policy Analysis and Management. 2015;34(4):805-834.

Damewood 2011 - Damewood R, Young-Laing B. Strategies to prevent displacement of residents and businesses in Pittsburgh's Hill District. September 2011.

Urban-Scally 2018 - Scally CP, Gold A, Hedman C, Gerken M, DuBois N. The Low-Income Housing Tax Credit: Past achievements, future challenges. Washington, DC: Urban Institute; 2018.

Jackson 2015 - Jackson O, Kawano L. Do increases in subsidized housing reduce the incidence of homelessness? Evidence from the Low-Income Housing Tax Credit. Federal Reserve Bank of Boston. 2015: Working Paper No. 15-11.

Diamond 2016 - Diamond R, McQuade T. Who wants affordable housing in their backyard? An equilibrium analysis of low income property development. National Bureau of Economic Research (NBER). 2016: Working Paper 22204.

Ellen 2016* - Ellen IG, Horn KM, O'Regan KM. Poverty concentration and the Low Income Housing Tax Credit: Effects of siting and tenant composition. Journal of Housing Economics. 2016;34:49-59.

Dillman 2017* - Dillman K-N, Horn KM, Verrilli A. The what, where, and when of place-based housing policy's neighborhood effects. Housing Policy Debate. 2017;27(2):282-305.

Freedman 2011* - Freedman M, Owens EG. Low-income housing development and crime. Journal of Urban Economics. 2011;70(2-3):115–31.

Woo 2016* - Woo A, Joh K, Van Zandt S. Impacts of Low-Income Housing Tax Credit program on neighborhood housing turnover. Urban Affairs Review. 2016;52(2):247-279.

Di 2013* - Di W, Murdoch JC. The impact of the low income housing tax credit program on local schools. Journal of Housing Economics. 2013;22(4):308-320.

Funderburg 2010* - Funderburg R, MacDonald H. Neighbourhood valuation effects from new construction of low-income housing tax credit projects in Iowa: A natural experiment. Urban Studies. 2010;47(8):1745–71.

McClure 2019* - McClure K. What should be the future of the Low-Income Housing Tax Credit program? Housing Policy Debate. 2019;29(1):65-81.

Horn 2011 - Horn KM, O’Regan KM. The low income housing tax credit and racial segregation. Housing Policy Debate. 2011;21(3):443–73.

Ellen 2018a* - Ellen IG, Horn KM, Kuai Y. Gateway to opportunity? Disparities in neighborhood conditions among Low-Income Housing Tax Credit residents. Housing Policy Debate. 2018;28(4):572-591.

Ellen 2018* - Ellen IG, Horn KM. Points for place: Can state governments shape siting patterns of Low-Income Housing Tax Credit developments? Housing Policy Debate. 2018;28(5):727-745.

NBER-Collinson 2015 - Collinson R, Ellen IG, Ludwig J. Low-income housing policy. The National Bureau of Economic Research (NBER). 2015: Working Paper 21071.

O’Regan 2013* - O'Regan KM, Horn KM. What can we learn about the Low-Income Housing Tax Credit program by looking at the tenants? Housing Policy Debate. 2013;23(3):597-613.

Adkins 2017* - Adkins A, Sanderford A, Pivo G. How location efficient Is LIHTC? Measuring and explaining state-level achievement. Housing Policy Debate. 2017;27(3):335-355.

Citations - Implementation Examples

* Journal subscription may be required for access.

US HUD-LIHTC database - US Department of Housing and Urban Development (US HUD). Low income housing tax credits: About the LIHTC database.

NBER-Collinson 2015 - Collinson R, Ellen IG, Ludwig J. Low-income housing policy. The National Bureau of Economic Research (NBER). 2015: Working Paper 21071.

Urban-Gerken 2018 - Gerken M, Hedman C, Scally CP. Why the Low-Income Housing Tax Credit matters for rural communities. Washington, DC: Urban Institute; 2018.

Urban-Scally 2018 - Scally CP, Gold A, Hedman C, Gerken M, DuBois N. The Low-Income Housing Tax Credit: Past achievements, future challenges. Washington, DC: Urban Institute; 2018.

Novogradac AHRC-LIHTC Map - Novogradac Affordable Housing Resource Center (AHRC). Resources: LIHTC mapping tool.

Date Last Updated