LIHTC projects in Saint Louis, Missouri often average about $200,000 per unit of “affordable housing” because LIHTC units have brand-new everything. In a city like Saint Louis, perhaps it’s better to invest in upgrading the older, existing housing stock, rather than new construction or total gut-rehab? That’s the alternative model advocated by local nonprofit SITO: “Sanctuary in the Ordinary” which has been able to create affordable housing units for less than $80,000 per unit.
Critiques of LIHTC:
The Low-Income Housing Tax Credit (LIHTC) program is a popular affordable housing initiative in the United States that encourages the private sector to invest in affordable rental housing. While the program has had many successes, it has also faced several critiques over the years. Some of the main critiques of the LIHTC model include:
- Equity for those with greatest need: Is the LIHTC program effectively targeting the most vulnerable and lowest-income households? If the program disproportionately benefits low-moderate income families rather than those in greatest need, it may raise equity concerns.
- Opportunity costs & Alternatives: Could funds invested in the LIHTC program be better used to support other housing programs that have a more significant impact on the quantity of affordable housing? Are there alternative models or policies that could achieve similar or better outcomes in a more cost-effective and equitable manner? Tax credits granted to developers may not always result in the creation of affordable units at the lowest possible cost. Some argue that other affordable housing approaches might be more efficient in achieving similar outcomes.
- Uncertain long-term affordability: The LIHTC program requires properties to remain affordable for a minimum of 30 years. After this period, property owners may opt out of the program, potentially converting the units to market-rate housing, reducing the long-term impact on affordable housing stock.
- Geographic concentration and segregation: Due to market dynamics and investor preferences, LIHTC properties are often concentrated in specific areas, leading to the clustering of affordable housing developments in particular neighborhoods. This can perpetuate or exacerbate patterns of segregation and poverty concentration.
- Inadequate oversight and compliance: Some critics contend that the oversight and compliance measures for LIHTC properties are insufficient. There have been cases of non-compliance with the program’s requirements, leading to issues such as overcharging rent or neglecting property maintenance, which can adversely affect residents.
- Lack of support for homeownership: The LIHTC program primarily focuses on rental housing, neglecting support for low-income households to become homeowners. Critics argue that homeownership can provide stability and wealth-building opportunities for families.
- Larger Developers: The allocation of LIHTC credits is typically competitive, favoring larger developers with more experience and resources. Smaller developers and nonprofits may face challenges in accessing these credits and participating in the program.
It’s important to note that despite these critiques, the LIHTC program has also been successful in creating and preserving affordable housing units across the country. Policymakers continue to review and adapt the program to address some of these concerns and improve its effectiveness in meeting the needs of low-income households.