Should We Fix What’s Not Broken?

In “What Should Be the Future of the Low-Income Housing Tax Credit Program? ,” Kirk McClure (2019) lays out an ambitious agenda of reform for the 40-year-old program. He may be uniquely qualified to do so—not only has McClure contributed significantly to the literature on LIHTC over the years (Landis & McClure, 2010; McClure, 1990, 2010, 2008), he also has direct experience working on affordable housing development deals and has for many years been active in informing policy and practice. As such, his observations about the program’s strengths and weaknesses are as much driven by witnessing how LIHTC is implemented on the ground as they are by academic scholarship. McClure argues that LIHTC is currently an imperfect tool for addressing affordable housing needs across the country. His argument centers on the finding that LIHTC units are often built in census tracts that have a surplus of affordable rental units, a disproportionate share of minority households, and higher rates of poverty than other rental housing. Indeed, he argues that LIHTC may be concentrating poverty, as program guidelines can limit developers’ ability to use the credits to build mixed-income housing. McClure thus suggests four reforms for the program: states should revise their Qualified Allocation Plans to promote the deconcentration of poverty, to affirmatively further fair housing, and to incentivize mixed-income housing. Furthermore, in weak markets, policymakers should shift LIHTC resources to vouchers and/or toward rehabilitation rather than new construction. His recommendations are worth serious consideration: given the legacy of racial discrimination in our subsidized housing programs (Rothstein, 2017; Schwartz, 2016), efforts should be made to ensure that LIHTC doesn’t further cement patterns of racial and class segregation. In addition, building in more flexibility in the use of LIHTC resources can help to ensure that the credits are effectively tailored to local housing needs. Given that LIHTC is allocated to states on a per-capita basis, and not specifically targeted to areas that have housing supply constraints, it is worth considering whether those scarce public dollars are better spent on expanding demand-side subsidies through vouchers in weaker housing markets. However, McClure’s article significantly undervalues LIHTC’s benefits. Even in markets with an oversupply of low-cost units, LIHTC developments may be providing better housing quality and stronger property management than what is available in the private market. LIHTC investment thus serves as an important mechanism for community development, leading to improved property values and/or neighborhood conditions (Nguyen, 2005). Although the evidence for this remains mixed, recent studies increasingly find that LIHTC has positive spillover effects, and that these are stronger in lower income neighborhoods (Deng, 2011; Diamond & McQuade, 2016; Dillman, Mertens Horn, & Verrilli, 2017). LIHTC can also preserve affordability in neighborhoods experiencing gentrification, ensuring that lower income residents aren’t displaced as a result of neighborhood change (Schwartz, 2016). McClure’s recommendations also reflect what I think is a troubling trend in housing policy: as housing is increasingly being seen as a critical platform for health and economic mobility, LIHTC is