LIHTC's Effect on Neighborhoods, Poverty Concentrations

A report recently published in the Journal of Housing Economics entitled “Poverty Concentration and the Low Income Housing Tax Credit: Effects of Siting and Tenant Composition” found that the LIHTC program could play a critical role in shaping the distribution of poverty in America. Using data from HUD, census data, and two newly constructed supplemental datasets containing information on tenants of LIHTC developments and LIHTC applications from developers, the authors examined two central questions.

The first, using tenant income data, considers how the income of the tenants compares with tract poverty rates to determine if tenants are better or worse off than their neighbors. The second question examines whether building LIHTC developments is associated with changes in the neighborhood poverty rate over time. In addition to finding little evidence that the LIHTC is associated with increased concentrated poverty, the authors found a link between LIHTC developments and poverty reduction.

Here are the key findings:

• Although LIHTC developments are concentrated in higher poverty neighborhoods, tenants moving into LIHTC developments tend to be comparatively more impoverished than the other residents in their neighborhood. This could be because of higher rental assistance rates in higher poverty neighborhoods and nonprofit developers tending to aid unassisted residents in poor neighborhoods;
• Additional LIHTC units in higher poverty neighborhoods (over 30 percent poor) are associated with a 2 percentage point decline in the neighborhood poverty rate, largely because of spillovers; and
• Within metropolitan statistical areas, poverty concentration is lower in years when more units have been placed in service, which suggests that building LIHTC units does not increase concentrated poverty.