Increasing Opportunity in LIHTC

Increasing Opportunity in LIHTC

Katherine O’Regan, Assistant Secretary for Policy Development and Research.

In honor of the passage of the Fair Housing Act of 1968, April of each year is Fair Housing Month. This is a time to recommit to the goals of this act: to eliminate housing discrimination and to create communities of equal opportunity for all. These goals are at the heart of HUD’s mission and embody values this country holds dear, yet most of us would agree that we have far to go to achieve them. Achieving these goals takes at least two things: the collective will to do so and effective tools for getting there. This Edge piece will focus on the latter, building evidence for one potentially effective tool for increasing our ability to create communities of (somewhat more) equal opportunity. This is only one small lever in a big endeavor, but one that is within policymakers’ control — specifically, the Qualified Allocation Plans (QAPs) that state housing agencies use to make their low-income housing tax credit (LIHTC) allocations.

Apart from a number of federal requirements, states have considerable discretion in the selection criteria they set in their QAPs, which ultimately determine which proposed LIHTC developments receive credits. Several features of QAPs have been criticized for encouraging the siting of tax-credit developments in high-poverty neighborhoods, and considerable empirical work has been done on the siting and neighborhood characteristics of LIHTC projects. But there has been essentially no work that connects the two, linking priorities used in state QAPs to siting outcomes for tax-credit properties — until now. Given the potential implications of QAPs on our ability to create communities of equal opportunity, it is fitting that HUD’s study, “The Effect of QAP Incentives on the Location of LIHTC Properties,” was released during Fair Housing Month.

The study is a quantitative assessment of the relationship between specific features of QAPs that would likely affect siting in low- or high-poverty census tracts and the actual siting outcomes. The researchers examined changes in QAPs in 21 states between 2002 and 2010, a particularly strong feature of the empirical work because it essentially permits within-state analysis. The study focused on five types of changes in QAP priorities, considered separately and in a composite index: prioritization of opportunity neighborhoods; proximity to amenities; importance of community approval; investing in high-poverty neighborhoods; and avoiding concentration of assisted housing.

The study provides very useful descriptions of specific actions taken by states in each of these areas. It also documents how some states have defined Concerted Community Revitalization Plans for the purpose of receiving QCT priority points in the absence of federal guidance. It is worth a thorough read. Here I provide a CliffsNotes version of some key findings.

Overall trends are toward opportunity. From 2002 to 2010, most of the 21 state QAPs increased their prioritizations toward opportunity, with some changes quite large and with only a few states exhibiting large changes away from opportunity. There was also a trend away from credits actually being allocated in high-poverty tracts (those with poverty rates of 30% or more). During the 2003–2005 period, 35 percent of units were located in high-poverty neighborhoods; 8 years later, that rate had fallen to 27 percent.

Increasing overall prioritization of opportunity in QAPs improves siting outcomes. With only 21 states in the sample, not all of which experienced changes over the time period, we would expect to see little of statistical significance in regression models. In fact, using composite measures of changes in QAPs, states that increased priorities for higher-opportunity areas did experience statistically significant increases in the share of tax credits allocated in low-poverty areas, decreases in the share of tax credits allocated in high-poverty areas, and decreases in the overall exposure to poverty of projects allocated tax credits. States that wish to increase the siting of LIHTC developments in higher-opportunity areas have some tools within the QAP that do appear to work.

Which tools work, and exactly how, is less clear. But there are some suggestive results in this study worth considering. Although none of the separate components of the composite index had effects that meet common tests of significance, three were close (marginally significant at a 15% probability). Prioritizing high-opportunity neighborhoods directly and avoiding the concentration of assisted housing appear to matter the most for increasing the share of tax-credit units in low-poverty neighborhoods. Stronger community approval measures were marginally and positively related to overall poverty rates of LIHTC neighborhoods. It would be worth learning more about the experience of states who made changes in these types of priorities and what they learned firsthand.

The study also noted that the QCT basis boost may be becoming less relevant. The Housing and Economic Recovery Act of 2008 provided states with the flexibility to apply up to a 30 percent basis boost for developments outside of QCTs. This may counter the effects of the QCT basis boost, and some states have used that flexibility explicitly to reward projects in high-opportunity neighborhoods. In addition, many states have done away with explicit prioritizing of developments in QCTs beyond the basis boost.

Of course, there are limits to what can be learned through such a quantitative analysis, due in part to data and sample size constraints. The work is also unable to distinguish between new construction and rehabilitation or family and senior developments to assess more targeted effects. There are also limits to what can be accomplished simply through siting of LIHTC developments. This study does, however, provide evidence on one tool that states who have the will to do so can use to improve equal access to opportunity in our communities.