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How Can States Use Their Housing Tax Credits to Connect Low-Income Families to High-Opportunity Neighborhoods?

Federally-subsidized housing is not often built in neighborhoods with good schools, quality jobs, and transportation options. Therefore, residents in subsidized housing face significant obstacles to living in these otherwise unaffordable, high-opportunity neighborhoods. 

However, states have the power to change this by amending their distribution of Low Income Housing Tax Credits (LIHTC). This program, administered by the Treasury Department, subsidizes the development of rental housing projects for low-income households by providing tax credits that low-income housing developers can sell to raise funding.  LIHTC has developed about 2.4 million units since it was created by the Tax Reform Act of 1986.

LIHTC is most effective when it operates in neighborhoods not available to the Housing Choice Voucher program, which provides subsidies to low-income families to rent private housing units. However, this housing often is built in neighborhoods already accessible to voucher holders. In fact, voucher holders frequently rent LIHTC housing, said Abt Global Senior Fellow Jill Khadduri, author of a new paper on the issue, “Creating Balance in the Locations of LIHTC Developments.”

“Federal law sets a number of preferences for state and local housing agencies to use when awarding LIHTCs, such as serving the lowest-income people for long periods. But states have significant leeway to customize their LIHTC distribution guidelines,” Khadduri said.

These state LIHTC guidelines, known as Qualified Allocation Plans (QAP), often award points to low-income housing proposals in neighborhoods that currently have such housing. “In many states this array of QAP preferences, when combined with other federal funding opportunities available only to low-income neighborhoods, effectively prevents LIHTC housing from being built in high-opportunity neighborhoods,” Khadduri said.

Some states have taken action to create opportunities to build affordable housing. Of the 36 states with QAPs, a dozen have QAP preferences for projects located in high-opportunity neighborhoods.

For example, Pennsylvania changed its guidelines to give points to LIHTC projects in high-opportunity neighborhoods as judged by income, housing market characteristics, and proximity to employment. Ohio changed its standards to give points for LIHTC projects in neighborhoods without such projects in the last 10 years. North Carolina prohibits LIHTC developments in “areas of minority and low-income concentration,” with some exceptions.

“Some of these QAP changes are recent, so more time is needed to judge their effectiveness. But they are steps toward a more balanced approach to LIHTC distribution,” Khadduri said.

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