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The market price of Low-Income Housing Tax Credits

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  • Eriksen, Michael D.

Abstract

The Low-Income Housing Tax Credit (LIHTC) program awards a subsidy to private developers who construct and operate housing units with income-targeted rent controls for at least 15 years. The program allocated $6.6 billion to developers in 2006, and over 1.6 million units have been subsidized under the program since its inception in 1987. A historical literature suggests place-based housing subsidies, such as the LIHTC program, will be more expensive in providing the same level of housing support to the poor than tenant-based strategies (i.e., housing vouchers). This paper uses an administrative data series of LIHTC subsidized properties in California to show the program encourages developers to construct housing units that are an estimated 20% more expensive per square foot than average industry estimates. It is additionally shown that due to liquidity constraints faced by LIHTC primary developers in how the subsidy is allocated, virtually all developers sell the tax credits at a substantial discount below their statutory value immediately after construction. This price is estimated to be $0.73 per $1 of tax credit, or $1.8 billion annually, as compared to alternatively allocating a lump sum grant to developers.

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Bibliographic Info

Article provided by Elsevier in its journal Journal of Urban Economics.

Volume (Year): 66 (2009)
Issue (Month): 2 (September)
Pages: 141-149

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Handle: RePEc:eee:juecon:v:66:y:2009:i:2:p:141-149

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Web page: http://www.elsevier.com/locate/inca/622905

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Keywords: Housing policy Tax expenditures Housing supply;

References

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  1. Quigley, John M., 2002. "A Decent Home: Housing Policy in Perspective," Berkeley Program on Housing and Urban Policy, Working Paper Series qt8f57x42q, Berkeley Program on Housing and Urban Policy.
  2. Rosenthal, Stuart S., 2008. "Old homes, externalities, and poor neighborhoods. A model of urban decline and renewal," Journal of Urban Economics, Elsevier, vol. 63(3), pages 816-840, May.
  3. Eriksen, Michael D. & Rosenthal, Stuart S., 2010. "Crowd out effects of place-based subsidized rental housing: New evidence from the LIHTC program," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 953-966, December.
  4. Malpezzi, Stephen & Vandell, Kerry, 2002. "Does the low-income housing tax credit increase the supply of housing?," Journal of Housing Economics, Elsevier, vol. 11(4), pages 360-380, December.
  5. Edgar O. Olsen, 2003. "Housing Programs for Low-Income Households," NBER Chapters, in: Means-Tested Transfer Programs in the United States, pages 365-442 National Bureau of Economic Research, Inc.
  6. Sinai, Todd & Waldfogel, Joel, 2005. "Do low-income housing subsidies increase the occupied housing stock?," Journal of Public Economics, Elsevier, vol. 89(11-12), pages 2137-2164, December.
  7. Denise DiPasquale & Dennis Fricke & Daniel Garcia-Diez, 2003. "Comparing the costs of federal housing assistance programs," Economic Policy Review, Federal Reserve Bank of New York, issue Jun, pages 147-166.
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Citations

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Cited by:
  1. Marion Steele & Francois Des Rosiers, 2009. "Building Affordable Rental Housing in Unaffordable Cities: A Canadian Low-Income Housing Tax Credit," C.D. Howe Institute Commentary, C.D. Howe Institute, issue 289, May.
  2. Singhal, Monica & Dharmapala, Dhammika & Desai, Mihir A., 2010. "Tax Incentives for Affordable Housing: The Low Income Housing Tax Credit," Scholarly Articles 10611680, Harvard Kennedy School of Government.
  3. Mihir Desai & Dhammika Dharmapala & Monica Singhal, 2010. "Tax Incentives for Affordable Housing: The Low Income Housing Tax Credit," NBER Chapters, in: Tax Policy and the Economy, Volume 24, pages 181-205 National Bureau of Economic Research, Inc.
  4. Lang, Bree J., 2012. "Location incentives in the low-income housing tax credit: Are qualified census tracts necessary?," Journal of Housing Economics, Elsevier, vol. 21(2), pages 142-150.
  5. Robert Haveman & Barbara Wolfe, 2012. "Long-Term Effects of Public Low-Income Housing Vouchers: Work, Neighborhood, Family Composition and Childcare Usage," CEPR Discussion Papers 667, Centre for Economic Policy Research, Research School of Economics, Australian National University.
  6. Carlson, Deven & Haveman, Robert & Kaplan, Tom & Wolfe, Barbara, 2012. "Long-term earnings and employment effects of housing voucher receipt," Journal of Urban Economics, Elsevier, vol. 71(1), pages 128-150.
  7. Desai, Mihir & Dharmapala, Dhammika & Singhal, Monica, 2008. "Investable Tax Credits: The Case of the Low Income Housing Tax Credit," Working Paper Series rwp08-035, Harvard University, John F. Kennedy School of Government.
  8. Freedman, Matthew & Owens, Emily G., 2011. "Low-income housing development and crime," Journal of Urban Economics, Elsevier, vol. 70(2), pages 115-131.
  9. Matthew Klesta & Frank Manzo & Francisca G-C Richter & Mark S Sniderman, 2013. "Low-income-rental-housing programs in the Fourth District," Working Paper 1311, Federal Reserve Bank of Cleveland.
  10. Eriksen, Michael D. & Rosenthal, Stuart S., 2010. "Crowd out effects of place-based subsidized rental housing: New evidence from the LIHTC program," Journal of Public Economics, Elsevier, vol. 94(11-12), pages 953-966, December.

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