Factors Affecting Spillover Impacts of LIHTC Developments: An Analysis of Los Angeles

Abstract

The Low-Income Housing Tax Credit (LIHTC) program is one of the largest sources of financing for affordable housing in the United States. Contrary to many residents’ fears, research typically shows that LIHTC-financed properties generate positive spillover impacts in their surrounding communities in the form of increased housing prices. Yet some critics suspect that the overall positive effects obscure the properties’ negative impacts for a significant subset of neighborhoods. We examine these concerns by assessing the housing price effects of LIHTC properties in Los Angeles. We explore how the effects differ based on various characteristics of the LIHTC property as well as various characteristics of the surrounding neighborhood. We supplement these statistical analyses with interviews of key affordable housing developers to understand their decision-making process regarding the siting and structuring of LIHTC properties. We find that, regardless of the property or neighborhood characteristics, LIHTC developments in the region have positive spillover price effects. Our findings can help inform policymakers who strive to maximize the secondary benefits of affordable housing developments.

Keywords: LIHTC, affordable housing, spillover effect, housing price, project size, subsidization level, corporate structure, neighborhood characteristics

JEL Classification: R31, R38, R21, H23, H42, G12