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Residual Value Capture in Subsidized Housing

44 Pages Posted: 5 Aug 2016  

Brandon M. Weiss

University of Missouri at Kansas City

Date Written: July 6, 2016

Abstract

This Article argues that our primary federal subsidized housing production program, the Low-Income Housing Tax Credit (LIHTC), will result in the unnecessary forfeit of billions of dollars of government investment and the potential displacement of tens of thousands of households beginning in 2020 when LIHTC property use restrictions start to expire. The LIHTC example is presented as a case study of an inherent dynamic of public-private partnerships — namely, the potential capture by for-profit providers of “residual value.” For purposes of this Article, this is value generated by a public-private transaction that is unnecessary to incentivize a private provider to deliver the contracted for good or service.

Drawing on corporate organizational theory, which has highlighted the role that nonprofits play in solving certain contract failures and generating positive externalities, the Article argues that, in certain contexts, partnering with nonprofit providers can be an effective approach to increasing the share of residual value that flows to public purposes. The LIHTC program is one such context, given that a nonprofit preference results in a three-sector approach whereby the federal government provides tax credits to nonprofit developers that must attract private investor equity. This framework leverages institutional strengths, including the access to capital of government, the relative fidelity to public purposes of nonprofits, and the market-based underwriting and oversight of for-profit investors.

Keywords: housing, housing law, housing policy, low-income housing tax credit, federal policy, affordable housing, privatization, public-private partnerships, real estate

Suggested Citation

Weiss, Brandon M., Residual Value Capture in Subsidized Housing (July 6, 2016). Harvard Law & Policy Review, Vol. 10, No. 2, 2016. Available at SSRN: https://ssrn.com/abstract=2812718

Brandon Weiss (Contact Author)

University of Missouri at Kansas City ( email )

5100 Rockhill Road
Kansas City, MO 64110-2499
United States

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