Academic journal article Cityscape

How Can the LIHTC Program Most Effectively Be Used to Provide Affordable Rental Housing near Transit?

Academic journal article Cityscape

How Can the LIHTC Program Most Effectively Be Used to Provide Affordable Rental Housing near Transit?

Article excerpt

Introduction

Providing affordable reniai homes near quality public transit ensures that low-income households are able to fit both housing and transportation expenses into their budget. Studies show that lowincome households who live in autodependent neighborhoods can spend as much as 25 percent or more of their income on transportation costs (CTOD, 2009). In contrast, families who live in neighborhoods with quality public transit options, on average, spend only 9 percent of their income on transportation costs (CTOD, 2009). All too often, low-income households are shut out of such neighborhoods because they are unable to afford the high housing costs that come with living in locations that are convenient to transit and other amenities. As a result, many households face a difficult tradeoff, unaffordable housing or budget squeezing transportation costs (JCHS, 2010).'

The Low-Income Housing Tax Credit (LIHTC) Program2 is a unique resource to create and preserve affordable homes near transit (exhibit 1). The LIHTC Program has been the primary source of funding for building new or preserving existing affordable housing since 1986 (JCHS, 2013). State housing agencies have the discretion to determine which developments receive funding and can target resources to address pressing local housing needs, such as providing or maintaining affordable rental housing near transit. Section 42 of the Internal Revenue Code requires each housing credit agency to set forth selection criteria in a qualified allocation plan (QAP). Although the code states that the QAP must give preference to "developments serving the lowest income tenants," "developments obligated to serve qualified tenants for the longest periods," and "developments located in a Qualified Census Tract3 and the development of which contributes to a concerted community revitalization plan," state housing agencies are granted the authority to otherwise allocate their credits based on their own set of criteria. Housing agencies generally use three mechanisms in their QAP to guide allocation decisions based on state and local housing needs: (I) threshold requirements,4 (2) set-asides,3 and (3) preferences.6

The report from which this article is drawn addresses a fundamental question: How can the LIHTC Program most effectively be used to promote the preservation and development of affordable rental housing near transit? To answer this question, the report examined the mechanisms through which state housing agencies evaluate LIHTC applicants and make funding decisions. Through a review of more than 400 QAPs issued during the 8-year period and interviews with more than 100 stakeholders, the report explores-

* The extent to which agencies seek to encourage the development and preservation of affordable housing near transit.

* Whether incentives had an observable impact on the location of LIHTC properties.

* Which other factors beyond these incentives-such as local relative land values and land use policies, transit availability and quality, and other QAP requirements or preferences-impact the location of LIHTC properties.

Two significant challenges must be addressed to effectively develop and preserve affordable housing near transit. States must seek a balance between promoting affordable housing near transit and other housing priorities. In addition, the importance of cost in developer decision making reinforces the notion that explicit QAP preferences in and of themselves are necessary, but not sufficient, to encourage the preservation or construction of affordable housing near transit.

Research Methodology and Data Sources

Both qualitative and quantitative methods were used to answer the research questions. The qualitative analysis was based on discussions with a sample of various stakeholders from 15 states with a variety of QAP approaches, transit systems, and market dynamics.7 Stakeholder discussions were semistructured and intended to identify and explore key themes. …

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