Over the past 30 years, federally subsidized housing programs have faced increased scrutiny for where they locate units for low-income families. From the focus on poverty deconcentration in the 1990s to a broader emphasis on the geography of opportunity today, policymakers are charged not just with providing decent, safe, and affordable housing but also with ensuring that the location of subsidized units provides access to neighborhood opportunity and does not perpetuate segregation. Approaches to these locational goals are often assessed as either “people-based”—facilitating the mobility of low-income people to lower-poverty neighborhoods—or “place-based”—investing in high-poverty places to promote increased income mixing.
The Low-Income Housing Tax Credit (LIHTC) program, the largest federal subsidized housing production program, engages both strategies. Historically, LIHTC was regarded as a place-based policy, aimed at directing much-needed housing investment to historically disadvantaged and disinvested areas. The intent was not only to provide more affordable housing for residents, but also to catalyze additional investment and foster mixed-income communities.
However, over the past two decades, LIHTC has incorporated people-based goals. States have adjusted their Qualified Allocation Plans (QAPs) to incentivize the development of LIHTC-financed housing in neighborhoods that offer greater access to opportunities. This shift reflects a growing awareness of the critical role neighborhoods play in children’s development and follows a 2015 Supreme Court ruling, which determined that concentrating LIHTC development in high-poverty, predominantly-Black neighborhoods violates fair housing law.
Although LIHTC is a federally financed program, states establish their own regulations through their QAPs that govern program features including locational goals. This grants state policymakers significant power to shape where affordable housing is built. In this brief, I review research on the changing and complex locational goals of the LIHTC program.
Do incentives to locate LIHTC in high-opportunity areas work?
In a recent study with Rebecca Brooks Smith, I analyzed whether new regulations in California’s QAP that incentivized LIHTC in higher-opportunity neighborhoods were effective—whether developers became more likely to propose and build LIHTC units in higher-resource areas.
In 2018, California introduced an Opportunity Map that categorizes all neighborhoods in the state into five resource categories based on educational, economic, and environmental opportunities. Forty percent of Census tracts (or, in rural areas, block groups) in each county are classified as “Highest” or “High” resource. LIHTC developments proposed in these areas earn additional application points, making it more likely they will get funded, and a basis boost, providing more tax credit funding. These incentives are only available for applications for the 9% tax credit program that propose new construction projects intended for large families—those with children, a policy choice made given the particular importance of neighborhoods for children’s development. (LIHTC comprises two separate funding programs– the “9%” program provides a deeper subsidy covering about 70% of construction costs, while the “4%” program covers about 30% of construction costs and requires additional funding.)
In our analysis of applications submitted before and after California adopted these program changes, we found that the share of large-family, new construction projects proposed and built in higher-resource areas increased. The probability that funded large-family, new construction projects were located in higher-resource areas doubled from 0.15 to 0.30, comparing the four-year periods before and after 2018. In contrast, we observed no increase in the share of other types of projects—those ineligible for these incentives—in higher-resource areas. We confirmed our conclusion that the opportunity incentives were effective by interviewing developers who submitted applications during our study period.
While not all developers planned to or did pursue building in high-opportunity areas, all were keenly aware of the policy change and many accordingly planned to shift their portfolios in the future. These developers–primarily larger firms with more financial resources–reported “selecting deals because they’re in high-resource areas”; “all of the stuff we were looking at for our pipeline definitely did change” to focus on high-resource areas; “our new strategy is to be in these areas”; and “we pivoted immediately to only make offers on properties that are located in highest-resource areas.”
Our findings are consistent with past studies. A study of 21 states found that the share of LIHTC credits in lower-poverty and racially-diverse neighborhoods increased modestly when QAPs promoted development in higher-opportunity areas. After Texas revised its QAP to prioritize higher-opportunity areas, a notable increase occurred in the development of projects in lower- poverty and more racially diverse areas.
Creating a balanced LIHTC portfolio to promote access to opportunity
Given the multiple and sometimes competing goals of federal subsidized housing programs, state policymakers face challenges in developing QAP regulations that balance both investing in place and providing opportunities for families to move to neighborhoods they cannot otherwise afford. States have varied populations, housing markets, and neighborhood contexts, so there is no one-size-fits-all solution.
With that in mind, here are some guidelines for state policymakers:
1. Start by assessing current LIHTC projects. To develop a holistic plan and address tradeoffs among priorities, policymakers could start with an analysis of their current LIHTC portfolio. Where are the state’s current LIHTC units, in terms of neighborhood socioeconomic and demographic features like poverty rates or metrics like HUD’s Affirmatively Furthering Fair Housing (AFFH) Opportunity Indices? How geographically clustered is the LIHTC stock? How does location vary by project type—i.e., do senior, family, and permanent supportive housing developments end up in different sorts of neighborhoods? Are higher- and lower-rent units within the LIHTC portfolio distributed evenly across, e.g., neighborhoods of different poverty rates? How have the neighborhoods where LIHTC projects are located changed over time? These sorts of analyses can inform the orientation of a state’s LIHTC program toward locational goals.
2. Intentionally measure neighborhood opportunity. Opportunity incentives adopted in QAPs shape where LIHTC units are proposed and built—so it is imperative that they are designed carefully to ensure the intended outcomes. States measure “opportunity” in a variety of ways and use different language to describe these areas. Some states use one indicator (e.g., median family income (AL), unemployment rate (AK), or poverty rate (ID)) while others classify areas based on their scores on complex multivariate indices (e.g., CA, DE, WA), which most often include measures of poverty rate, unemployment rate, job proximity, and school performance.
Social science research provides some guidance on the indicators most predictive of residents’, especially children’s, positive development, but sometimes these indicators are not easily measurable or mappable or not available over time. Dr. Edward G. Goetz provides some valuable guidelines for improving “opportunity maps,” including measuring structural opportunities rather than resident characteristics; avoiding classifying neighborhoods as having opportunity or not; and considering multiple dimensions of opportunity—and acknowledging that they will not all hang together. Transit-rich areas, in particular, often do not score highly on other opportunity metrics, though transit may be one of the most important resources for a low-income family. Identifying neighborhoods according to the opportunities and resources they do provide, rather than classifying them as having or not having opportunities, can address this challenge.
To these guidelines, I would add: incorporate tenant assessments of opportunity, ensure developers and planners can easily apply the guidelines by providing maps or look-up tools, work with developers to ensure buy-in, and consider tradeoffs between complex multivariate indices that are difficult to understand and simpler measurement of key factors. States with less data capacity or that want to be consistent with federal approaches might consider using HUD’s AFFH Opportunity Indices as a starting point, rather than reinventing the wheel.
3. Target opportunity incentives. Measuring neighborhood opportunity is complex, and one consideration is: for whom is the opportunity intended? For example, adults or children? Parents or seniors? California initially adopted incentives only for large family, new construction 9% projects. As the 4% program became competitive, opportunity incentives were adopted and applied to both large family and permanent supportive housing 4% developments. Developers and policymakers I spoke with felt that, given social science research on the particular importance of neighborhoods for children, policymakers should prioritize large family developments for these types of incentives. Ten states specifically incentivized building family developments in high-opportunity areas as of 2023. It is unclear whether, e.g., locating single-room occupancy developments in high-quality school districts or senior developments near job opportunities is the best use of the additional political or economic resources that siting developments in high-opportunity areas may require. Of course, this decision will depend on how states define opportunity—all residents would benefit from living in areas with low levels of pollution or crime.
An additional consideration is units’ rent levels. Developers set rents to be affordable to households earning various levels of Area Median Income (AMI), and states should ensure that higher-rent units are not disproportionately clustered in the highest opportunity areas. Ensuring access for Extremely Low Income (ELI) and Very Low Income (VLI) households will maximize the potential of LIHTC to deconcentrate poverty.
Finally, low-income tenants may be unfamiliar with lower-poverty or higher-opportunity neighborhoods, given long-standing patterns of racial/ethnic and economic segregation. Affirmative marketing and housing mobility counseling may be necessary to ensure households have an informed choice when deciding where to live. Given that LIHTC developments are privately-owned, developers are often left to propose such programs individually. Instead, states could consider how to centralize LIHTC listings and support for housing searches, partnering with regional and local fair housing organizations.
4. Balance people-based and place-based priorities. Despite opportunity incentives, the majority of LIHTC developments continue to be located in higher-poverty neighborhoods. Only about 20% of all LIHTC properties are in areas with poverty rates of 10% or lower, and LIHTC units remain underrepresented in high-opportunity areas as defined by HUD. Nonetheless, the move toward opportunity incentives is concerning to advocates and community-based organizations focused on historically-disadvantaged neighborhoods. Several developers I spoke with described California’s Opportunity Map as “redlining,” expressing worries that an excessive portion of the LIHTC portfolio might be directed to high-opportunity areas, potentially neglecting historically disinvested communities.
States must carefully balance the dual priorities of investing in place and enabling access to opportunity. In California, for example, the LIHTC program limits the allocation of 9% tax credits for large family, new construction developments in “highest” or “high” resource areas to no more than 30%. Once this threshold is reached, applications in these areas no longer receive additional tiebreaker points. Similarly, a 50% soft cap has been implemented in the 4% program. This approach highlights one method of balancing competing goals. Overall, policymakers must craft cohesive locational strategies that effectively address both people-based and place-based objectives.
5. Ensure real investments in historically-underserved places. Beyond developing a balanced locational framework, state policymakers should re-examine how they evaluate “concerted community revitalization plans” (CCRPs), a (sometimes overlooked) requirement for building LIHTC in high-poverty neighborhoods. While most states included a definition for a CCRP in their QAPs as of 2023, the content of these plans vary significantly and are often lacking in clarity. States should develop and apply clear requirements for CCRPs to ensure that any LIHTC developed in high-poverty neighborhoods contributes to positive outcomes in these neighborhoods. Investing in places also positions LIHTC as a vehicle for preserving and rehabilitating affordable housing, especially in rapidly changing or gentrifying areas. States should develop guidelines around CCRPs to require analyses of local housing market conditions and gentrification risks to assist states in ensuring LIHTC is meaningfully investing in place.
6. Take an affordable housing needs approach. As state policymakers navigate the challenge of defining opportunity and balancing people- and placed-based strategies, an alternative or complementary framework to siting LIHTC units could focus on addressing local affordable housing needs. How can the state ensure affordable housing is produced in all neighborhoods?
Currently, most states have significant opportunities to expand affordable housing—in fact, 70% of municipalities nationwide have no LIHTC! States could designate priority areas for LIHTC development based on factors such as a lack of multifamily or rental housing, high rents, or significant rental cost burdens. These criteria would enable LIHTC to open doors for low-income households to live in neighborhoods they might otherwise be unable to access. Conversely, states could deprioritize areas where market-rate units are likely to rent at similar rates as LIHTC units and where LIHTC or other subsidized housing is already clustered.
Building affordable housing in neighborhoods with little multifamily or rental housing will likely require complementary state policies, including reforms to land use regulations and additional funding mechanisms. Policymakers might start by identifying “low-hanging fruit”—locations where affordable multifamily housing can be built—and prioritize areas with greatest need, potentially incorporating a straightforward opportunity metric, like poverty rate.
States can take the lead on expanding opportunity for families
The LIHTC program is a vital part of the subsidized housing landscape. It is also a complex program tasked with achieving multiple goals. State housing finance agencies administer the LIHTC program and determine what gets built and where. Policymakers, with input from developers, fair housing advocates, and residents, can significantly influence the program through QAP regulations, which are typically updated each year. With thoughtful and intentional planning, state policymakers can harness the full potential of the LIHTC program, transforming it into a power tool for advancing both housing affordability and equity.