Locating Affordable Housing: The Legal System's Misallocation of Subsidized Housing Incentives

Abstract

The primary goal of subsidized housing policy in the United States is to increase access to affordable housing for low-income households. Yet data show that states disproportionately award low-income housing tax credits to finance the development of projects in neighborhoods where there is already a relatively high number of housing units available at similar rent levels. Through a fifty-state study of state housing agency allocation rules, this Article evaluates the legal apparatus that facilitates this “misallocation problem.” I find that approximately seventy-five percent of states fail to make the provision of below-market rents a threshold requirement of receiving an award of low-income housing tax credits. As a result, locational choices often are dictated by private developers who are incentivized to develop where land is cheapest. I argue that states should revise their allocation rules to ensure that, as a default, tax credits are awarded to projects that offer at least a ten percent rent advantage as compared to the local private market. The Article considers challenges to this proposal related to lack of state housing agency autonomy, federal framework limitations, land costs, and local political opposition and, in each case, offers a variety of responses.

Keywords: Housing, Affordable Housing, Community Development, Low-Income Housing Tax Credit, LIHTC, Public Private Partnership, Community Economic Development, HUD, Public Policy