In the last episode, we introduced you to the pathways in which we might think about improving housing for low-income individuals. Today, we're going to get specific. One policy, which focuses on affordability, is the Low Income Housing Tax Credit. T.R. Goldman wrote a great policy brief about it in Health Affairs. It's also the topic of this week's Healthcare Triage.

[Intro]

The Low-Income Housing Tax Credit is the biggest federal program which leads to building new affordable housing. It's been called the most successful social program that nobody's ever heard of. It costs about 9 billion dollars a year in tax expenditures. We don't lay out money for it. The federal government just losses tax revenue because of it.

The Bipartisan Policy Center reports that since 1986, the Low-Income Housing Tax Credit has resulted in the development or preservation of more than 3 million affordable rental homes. It's served about 7 million low-income households.

Here's how it works. If a development project meets criteria set by the state for affordable housing, then the developers can apply for a tax credit. There are two kinds: the first applies to new construction and is pretty competitive. It's a 9% tax credit, which allows one to claim about 9% of a project's qualified cost basis every year for 10 years. Such credits can usually cover about 60 to 70 percent of new housing construction or renovation costs. If they're in special areas in dire need of housing, the credit can increase by 30%. The second credit is less competitive, and is about 4%.

In addition to the credits, investors can also claim some tax deductions based on depreciation and losses on projects. These can be used to reduce the burden of their income taxes even further.

They can sell this tax credit to investors, like banks, for cash that they can then use to build housing. About 100 billion dollars in private capital has been leveraged through the credit since 1986.

Housing constructed using the Low-Income Housing Tax Credit has to remain affordable for at least 30 years, and even longer in some states. Further, at least 40% of the rental units must be reserved for households making 60% or less of the AMI, or 20% of the units must be reserved for households earning 50% or less of the AMI. 

That's not to say it doesn't need some fixes. For instance, states have discretion in how they choose which developers qualify for the Low-Income Housing Tax Credit. Some may prioritize projects near schools. Others may give preference to how appliances are provided, or by how green the projects are.

Some believe that it encourages additional rental units even when there are already enough. This clearly depends on the market. New properties often aren't in high opportunity neighborhoods, though there is progress in that area. 

It also focuses exclusively on lower income housing, and not on mixed income housing, which offers more health benefits. Even so, it also can leave some of the lowest income renters out of reach.

Perhaps the biggest issue, though, is that the current Low-Income Housing Tax Credit may not be meeting demand. During the Great Recession, the use of the tax credits to build and maintain housing fell by almost 50%, from more than 116,000 units in 2004 to just over 61,000 units to 2010. It's recovered, but it's still behind.

The Tax Cuts and Jobs Act, passed last year, didn't help in this respect. You may remember that the law that passed cut the corporate tax rate from 35% to 21%. As the Urban Institute pointed out in a recent brief, reducing corporate income taxes reduced the incentive to invest in tax credits like the Low-Income Housing Tax Credit. It's possible the law could reduce the value of the tax credit program by 14% or 1.7 billion dollars a year. Over a decade, this could result in more than 200,000 fewer homes built. 

There is some hope that things could get better for the Low-Income Housing Tax Credit. The Omnibus Bill, passed last year, the Consolidated Appropriations Act of 2018, contained a 12.5% increase in the annual per capita tax credit allocation ceiling from 2018 to 2021. It also expanded the definitions of what types of projects could qualify for the credit.

There's more. Senate bill 548, the Affordable Housing Credit Improvement Act of 2017, had 38 co-sponsors from both sides of the aisle. It's an impressive list, because you don't see that much cooperation across party lines on many issues these days. It would increase the Low-Income Housing Tax Credit given to states by 50%. There's no reason to think it might not pass in the future.

There are few programs that has worked as well, and for so long, as the Low-Income Housing Tax Credit. But, there are other ways to help people afford housing besides production incentives. There are vouchers. Those are the topic of next week's Healthcare Triage. 

[Outro]

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