Study Examines Rent Savings in the LIHTC Program

An article published in Housing Policy Debate, “The Low-Income Housing Tax Credit Program: A Multicity Rent Savings Analysis,” examines rent savings in the Low-Income Housing Tax Credit (LIHTC) program across 12 U.S. housing markets. The authors, Uche Oluku and Shaoming Cheng, find that new LIHTC developments offer rent savings relative to nearby market-rate rental housing, though the extent of these savings varies by market and declines as LIHTC developments age.

The authors utilized HUD’s LIHTC property database to identify LIHTC developments across the 12 housing markets included in the study: Albuquerque, NM; Billings, MT; Buffalo, NY; Chicago, IL; Indianapolis, IN; Louisville, KY; Manchester, NH; Miami, FL; Midland, TX; San Jose, CA; Sioux Falls, SD; and Washington, DC. After identifying LIHTC developments, the authors scanned online rental listings to collect rent data for vacant units in developments identified as LIHTC-financed. The authors then matched data for these units to units with the same number of bedrooms in nearby market-rate developments to conduct their rent savings analysis. Matching developments based on geographic proximity allowed the authors to control for locational characteristics that might have affected rents. Additional data on community, development-level, and unit-level characteristics were also collected for use as controls.  

New LIHTC units provided savings relative to similar, nearby market-rate units in all twelve housing markets even after controlling for other factors. Monthly rent savings were most significant in large cities with strong housing markets such as Chicago, Miami, San Jose, and Washington, DC. Estimated monthly savings for two-bedroom LIHTC units ranged from $949 in Chicago to $1,114 in San Jose. Meanwhile, rent savings were least significant in small cities with weak housing markets such as Sioux Falls and Billings, where estimated monthly savings for two-bedroom units were $326 and $285, respectively. Rent savings were greater for two- and three-bedroom units than for one-bedroom units in all 12 cities.

However, the authors also found that the rent savings for LIHTC units compared to market-rate units declined over time. For example, the authors observed an estimated 36% decrease in savings for a 30-year-old one-bedroom unit in Washington, DC compared to a new one. In Sioux Falls, Billings, Midland, and Louisville, LIHTC rent savings disappeared for one-bedroom units after nine, 10, 12, and 20 years, respectively.

The authors conclude that LIHTC produces the greatest benefit in larger cities with strong housing markets and for units with more than one bedroom. As a result, the authors suggest that state and local LIHTC administrators should prioritize tax credits for developments in larger cities with stronger housing markets and developments providing larger units. Similarly, the authors argue that federal administrators could use these findings in determining which states or jurisdictions should receive tax credits from the national pool of unallocated tax credits.  

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