Could Tax Credit Reform Reduce NIMBYism?

I really should start reading Tom Daykin more. Either that or just start linking this blog directly to his byline. This one briefly discusses a paper by Amy Roden at the American Enterprise Institute a non-partisan conservative think tank I'm not very familiar with.

The paper, Building A Better Low-Income Housing Credit, was of particular interest to me because it discusses something that has frustrated me with the Low-Income Housing Tax Credit (LIHTC) program, also known as Section 42. Currently the tax credit program has a rule that either 20% of the units must serve people under the 50% Annual Median Income (AMI) or 40% of the units must be for people under 60% AMI. Given that, I often wonder why more tax-credit developments are not mixed-income.

Ms. Roden discusses the LIHTC program-its history and how it works-and then compares the program to the national housing policy priorities which includes deconcentrating poverty. She refers to studies indicating concentrated poverty (defined as a census tract with over 40% of its residents living below the poverty threshold) leads to (italics mine)-"As Brookings scholar Edward G. Goetz explains, concentrated poverty ‘‘produces a range of social problems whose whole is greater than the sum of its parts. . . . Something about the extreme concentration of disadvantage begets even more community and individual dysfunction.’ "

The national housing policies over the past two decades-especially with the introduction of the Voucher program in 1983, has been trending toward deconcentrating poverty through increased mobility (through vouchers) and more integration of neighborhoods through mixed-income housing. HUD has identified healthier communities as a priority in its 2010-2015 Strategic Plan.

Ms. Roden points out that the LIHTC program has not followed the national trend in that the program currently encourages the concentration of low-income households, both in the location and the composition of the households within the development.

For instance, my frustration at the lack of mixed-income development. Ms. Roden shows that there is a disincentive for developers to limit the number of tax-credit units-the more units they have in the Section 42 program, the more tax credits they can be allocated. Even though mixed-income households are very possible under the current rules, it's clearly not happening often enough.

She also points out that the LIHTC program gives preference to what is called Qualified Census Tracts (QCTs) which are census tracts identified by HUD "in which at least 50 percent of households have incomes below 60 percent of the area median gross income." This has the effect of actually concentrating poverty. I don't consider the fact that "In 2007 more than 40 percent of units were located in QCTs" good policy.

She suggests three changes:

1) Rewarding mixed-income developments by reducing the total the number of LIHTC-assisted units. This can either be done through setting a maximum number of units that can be funded (such as 50%) or by reducing the amount of assistance beyond that 50% so a developer would see a diminishing return.

2) Remove the preference for Qualified Census Tracts, making the LIHTC program location-neutral. She does acknowledge that with a better mixed-income housing policy, a preference for QTCs would not necessarily be harmful, although she does not see a reason why a preference is necessary.

3) Reforming the funding to give greater priority to need (using income levels and/or poverty rate) rather than simply through population size. Currently all states receive $2.10 per person, except for the eight least populous states that receive the minimum amount per state which actually works out to as much as $4.46 per person for Wyoming. She suggests three formulas that can be used to remedy that, of which Wisconsin would gain in two ways ($2.13 or $2.30 per person) and lose with one method ($1.69 per person).

She touches on something-but does not follow up on- a study showing that "public transportation is twice as important for explaining the location of the poor as consumers’ price sensitivity to land." Given the importance of public transportation as a method of getting around for people with low income, a successful deconcentration of poverty will mean either people will have access to better opportunities, and are then able to afford cars, or that the public transportation network will need to be expanded. Most likey a combination of the two.

Update: Sorry about the misleading title. I started out intending to write the post one way, and it led me down a different path!

To get back to my initial point that I intended to make; reducing the number of low-income units within a project by ensuring that it is mixed-income could be benefical in reducing opposition to a development. Although I would cap it more at 40% or less rather than the 50% Ms. Roden used in her paper.