The market price of Low-Income Housing Tax Credits
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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- 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.
- 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.
- 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.
- 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.
- 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.
- Edgar O. Olsen, 2003.
"Housing Programs for Low-Income Households,"
in: Means-Tested Transfer Programs in the United States, pages 365-442
National Bureau of Economic Research, Inc.
- 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.
- Edgar O. Olsen, 2000. "The Cost-Effectiveness of Alternative Methods of Delivering Housing Subsidies," Virginia Economics Online Papers 351, University of Virginia, Department of Economics.
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