Video LIHTC: The Good, the Bad, and the Very Complicated

LIHTC: Are Little Changes Enough? A Shelterforce Webinar

There are reforms and expansions of Low-Income Housing Tax Credit afoot. But some in the field argue that we need to change the tax credit model of financing housing more deeply—or move away from it entirely. Join scholars and organizers as they discuss these issues and explore a path forward.

This article is part of the Under the Lens series

LIHTC: The Good, the Bad, and the Very Complicated

The Low-Income Housing Tax Credit (LIHTC) program awards billions in tax credits each year to private market investors and developers who promise to build or preserve affordable housing. But the program is notoriously complex. Who enforces its rules? Why is it so dominant in the housing sector? What's the current state of efforts to reform it?

When we explored the state of the Low-Income Housing Tax Credit in our Under the Lens series last year, many sources in the field talked about reforming it. But others argued that we need to change the tax credit model of financing housing more deeply—or move away from it entirely.

On March 7, Shelterforce hosted “LIHTC: Are Little Changes Enough?”—a webinar about what the possibilities are for the Low-Income Housing Tax Credit. The discussion was moderated by Miriam Axel-Lute, Shelterforce’s editor-in-chief and CEO, and featured:

  • Alan Mallach, senior fellow at the Center for Community Progress and the National Housing Institute
  • Amee Chew, a senior research analyst at the Center for Popular Democracy.
  • Oksana Mironova is a senior policy analyst at the Community Service Society.

Note: This transcript has been lightly edited for clarity.

Miriam Axel-Lute: The Low-Income Housing Tax Credit [LIHTC] is a pretty dominant force in affordable housing, responsible for the vast majority of the funding for new affordable housing construction. It’s extremely complex. In typical U.S. fashion, it’s arranged as a tax incentive instead of as a direct expenditure.

We heard a lot of feedback from the series. People really want to talk even more about it: Can we do better and how much can we do better? It’s the conversation that we’re going to get into today. First, let’s have our panelists introduce themselves.

Amee Chew: I’m a senior research analyst at the Center for Popular Democracy, a national nonprofit that promotes equity, opportunity, and dynamic democracy in partnership with a network of 50 base-building organizations, alliances, and progressive unions across the country.

A woman with tied back dark hair
Amee Chew

We have a housing justice cohort of 27 affiliates across the country, who in 2020 decided to start organizing against shared corporate landlord targets nationally. In 2021, a dozen of our housing justice affiliates started Renters Rising, which is now a national tenant association of over 17,000 renters with corporate landlords. Last year, we launched a national campaign to push for green social housing as a critical and lasting solution to our affordable housing crisis and rising homelessness. We are organizing not just renters, but also unhoused people.

In 2022, Blackstone purchased 90,000 units of LIHTC homes across the country from AIG, and our affiliates have begun organizing tenants in these LIHTC properties invested in by Blackstone. In my role at CPD, I provide corporate research and policy analysis to support our affiliates’ tenant organizing and housing justice campaigns around the country. In 2022, we with Renters Rising co-produced a report that I wrote called Social Housing For All: A Vision For Thriving Communities, Renter Power, and Racial Justice that outlines our vision for social housing as a cornerstone of a more just housing system in the U.S. and what the government’s role should be in ensuring housing as a human right. We believe housing must be decommodified and treated as a public resource for people, not profit.

A white woman in her late 30s with short brown hair
Oksana Mironova

Oksana Mironova: I’m a senior policy analyst with the Community Service Society of New York. Before CSS, which is an anti-poverty organization that works in New York City and New York state, I worked for Enterprise Community Partners, which was a LIHTC syndicator, and I’ve worked for a couple of community development corporations too that develop their portfolios with LIHTC. Now that I work on broader policy and not for an affordable housing developer or a LIHTC syndicator I feel like I have a little bit more space to speak about LIHTC, maybe more candidly.

Alan Mallach: I’m a senior fellow with the Center for Community Progress, a national organization that focuses on the challenges of problem properties, especially vacant, but also dilapidated occupied, properties and distressed, struggling neighborhoods. We work all over the country and try to help people in their communities make change happen.

An older white man with a full gray beard.
Alan Mallach

I’ve been involved in housing issues for well over 50 years. For many years I was involved directly in practice. I’ve been involved in development projects, I’ve been a municipal official working with developers, and I’ve been an advocate. In the last 25 years, I’ve focused mainly on writing, research, and providing assistance and support to community groups and local governments. I was involved in the LIHTC program, at least to a limited extent, from the very beginning.

LIHTC has essentially become the default housing policy for the United States. That was never its intention. It was supposed to be a financing program, but it really is our housing policy. In order to talk about what should happen with such a tool that is also our default policy, we need to put it in context of what are our goals and vision or what should they be. What would your vision for U.S. housing policy be if it could go beyond LIHTC?

Mallach: My vision is very simple: everybody should be able to have housing that they can afford and that meets a decent level of quality. The question is how do you get there? We have to think about an effective production strategy that increases the stock of housing that people can afford. Even more, we have to think about how we use our existing housing stock more productively. How do we ensure that people can afford housing when we have a structural gap between low-income wages and the cost of housing in this country?

One of the things I think is critical to my vision—and I believe any vision of decent housing for all in this country—would be a universal housing allowance system, which would ensure that people who cannot afford the minimum cost of basic decent housing would get the necessary assistance that they need to get there.

Mironova: I really like the division that Alan just outlined, where the quality and the affordability are central. I think thinking about the risk that a person encounters within their housing is really important—like, do you have a sense of stability? Is there something hanging over your head at any given moment that the housing might be ripped from under you? And the question of autonomy as well. This arises constantly in the U.S. because of the relationship between U.S. housing policy and homeownership, where people think about homeownership as being equitable to essentially the freedom to do what you want. Thinking of it from this perspective of, are you able to do that in other types of tenures, besides homeownership, I think is really important as well.

I wasn’t born in the U.S., and most of my work focuses very myopically on New York City, a little bit on New York state. Thinking outside of New York gets a little hard sometimes. I do always try to . . . familiarize myself a little bit with the housing system that we have here because it’s unusual. It is very, very specific to the political and economic structures of this country.

I’ve been lucky enough to be able to do some research in other parts of the world. Explaining the way that our housing system works is always really interesting. New York City has rent stabilization, and if you talk to a group of people from Germany or from Austria or other parts of the world, the idea of mitigating rents is pretty natural because it makes sense. Even if you take something like mortgage insurance and a mortgage system, it’s a little bit more complicated. Lots of governments don’t have the FDIC, but it does make sense.

Then when you introduce LIHTC, eyes glaze over. Instead of giving direct subsidies, we made up this very complicated system where we pretend to give money to low-income tenants, but actually, we’re giving it to multinational financial institutions that somehow through this very complicated Rube Goldberg machine eventually produce a couple of units. It’s impossible to explain.

Chew: When we think of what our vision for what we want housing to be is, we also have to look at how do we understand what is causing the problems we have today with our housing. It has to do with treating land and housing as a commodity for profit, and not for human needs. It has to do with the government withdrawing responsibility from ensuring housing is available to everyone.

It also has to do with an imbalance of power, the lack of power that tenants have in relation to the landlords. Lack of power of ordinary people in relation to the people who own the land, the housing, and the corporations that are profiting off of us. We are facing a worsening housing affordability crisis that is only going to keep getting worse if the government doesn’t aggressively intervene.

Homelessness is rising. It increased 12 percent from last year. Nationally, we lack 7.3 million rental homes that are affordable and available to extremely low-income households. There are 16 million households that are eligible for federal housing assistance but receive none. There are over 22 million households that are forced to pay too much for rent, and over 12 million are paying most of their income on rent.

The scale of a problem is enormous, it’s huge. We’re losing deeply affordable housing constantly. Today, we have a housing system in the U.S. where corporate landlords and for-profit investors are overrunning our housing system, and their influence has ripple effects throughout it. Even when it comes to providing affordable housing, through their involvement in Section 8 and LIHTC, and other public-private partnerships, these for-profit actors are increasingly steering our affordable housing provision.

The crisis we face today was created by 50 years of government cuts to affordable housing, and the privatization of how we provide affordable housing. These forces that we see, these trends, are why our international network of tenant organizations is calling for a social housing as a lasting solution.

We define [social housing] as permanently and deeply affordable to lower-income people. It’s publicly owned or under democratic community control. It can never be resold for profit. There’s a strong role for democratic management through tenant unions and resident associations. We also consider public housing as a very important part of social housing: housing that is directly owned by the government, and that is deeply affordable to the lowest-income households. In our country, public housing has been neglected, and that’s why it’s in the terrible state it’s in, and its residents have been criminalized, but we don’t think public housing inevitably needs to be like that.

We see in examples around the world that actually it’s public housing that is most deeply affordable . . . compared to other forms of social housing ownership. . . .  We believe in prioritizing those who need it most: We want housing for everyone, but we get there by targeting resources to achieve those goals first for the people who need it most.

We think that even though the aspiration should be to eventually reach a scale where anyone who wants it, including moderate-income families, have access to deeply affordable social housing, we need to start with lowest-income families, communities of color, people with disabilities, people who are seniors—the people who are most in need right now and have the least options in the private market.

Because the scale of the problem is so huge, we are calling on the federal government to create 12 million deeply and permanently affordable homes, spending $1 trillion to do this. Sweden built 1 million homes in the span of 10 years. Compared to the size of population, if we were building at the rate of Sweden’s public housing program, we could achieve 42 million homes in 10 years.

We also believe that public housing needs to be fully funded and repaired, and greened and modernized, and the government needs to contribute the $180 billion to do that. We think that the policymakers and the government really need to limit the role of profit in our housing system at every level, whether that’s finance, construction, ownership, [or] preservation. We’ll need finance infrastructure to support this. That will include redistributive taxes like the mansion tax that LA passed to tax real estate luxury transactions.

We’ll need public banking. We’ll need robust public land banking. We’re calling for government infrastructure and agencies like an office of social housing, social housing development authorities to provide just the infrastructure to acquire property for conversion into permanently affordable housing.

We have the resources. We already spend $600 billion annually in the mortgage interest tax deduction to subsidize the wealthy homeowners. We already subsidize for-profit investors through programs like LIHTC, and we spend way much more on this than we actually spend on affordable housing to the poorest. We think it’s a matter of changing priorities and redirecting spending to those who actually need it.

We also think that tenant protections need to be at the center of this: rent control, just-cause eviction, the right to counsel, the right to organize, and the right to negotiate, to have mandatory collective bargaining between landlords and tenant unions, policies that have better penalties for corporate landlords, policies that counter speculation through anti-speculation taxes and so on. Tenant organizing will be the driving motor for a lot of these transformations.

Our vision is this setup where we have actually fulfilled the housing needs of the people who need it in a way that says the government has taken responsibility for this and is not just putting people in houses, but making sure they’re stable, have agency and control over where [they] live, and are living in a decent place.

How is the Low-Income Housing Tax Credit advancing us toward that vision, and how is it failing to advance us toward that vision? How did we get to a place where there’s a disconnect between our primary financing tool and the way that it’s functioning to serve that vision?

Mironova: From my perspective, it feels like the vision is either a decommodification of housing to the tenor that Amee described or even the availability of affordable and decently comfortable housing to what Alan spoke of initially. The point of LIHTC is not to achieve either of those things. It is very much not a decommodification program by any means, and that’s by design. I’m sure most of you in the room know that LIHTC was a tax cut that was added to the 1986 Tax Reform Act under Reagan.

It is very much a program of the ’80s and of Reaganomics where the point is to transfer wealth to large financial institutions, not to produce low-income housing. The design of the program speaks to it within itself. It’s housed within the Department of Treasury; it sidelines HUD while LIHTC haphazardly grew throughout the 1980s and more so in the ’90s and the 2000s. HUD funding was cut over and over again by 75 percent through the Reagan presidency, but then continuously under both Democratic and Republican presidents afterwards too. So the point is not to produce low-income housing.

At the same time, localities that lost a ton of money over the last 50 years for all sorts of social programs, and CDCs have figured out how to use it. By no means am I saying that no good housing gets produced with LIHTC, it does. I think that if we’re trying to fill a broader need and not the very particular need that LIHTC serves, thinking about having a more intentional housing system is something that we need to do because LIHTC was never intentional. It just filled a bunch of space and created a system where every other type of low-income housing program essentially orients itself around LIHTC in affordable housing deals. Thinking about a way of moving away from that is really, really important.

LIHTC is not neutral—no political program ever is. It creates this uneasy alliance between large financial institutions that benefit from the tax credits and people who develop affordable housing and the tenants in that affordable housing. I think that it’s not politically realistic to assume that the needs of those actors are the same. What this looks like on the ground is where a community development corporation that’s grassroots, that’s doing everything right, may want to do the best that it could by its residents, by the people who make up its community. If you’re trying to do that and also develop LIHTC properties, you just can’t. You can’t do both of those things.

Some organizations manage to do this by bifurcating where you have a section that does tenant organizing and then you have another section that basically does real estate development, but at a certain point, those parts of your organizations are going to clash. Within the world of limited resources, the money is going to flow towards the part of the organization that is essentially financialized as opposed to funding tenant organizing which the funding for doesn’t exist. The prevalence and the centrality of this program creates a situation where local CDCs are really unable to fulfill the more radical side of the overall CDC movement, which is tough.

I’ve heard a number of people talk about how the dominance of the Low-Income Housing Tax Credit affects all areas. Among the affordable housing advocates who proposed the idea of the credit in the first place, they did intend it to create low-income housing, but I think it got away from them. They were desperately scrambling for something while the Reagan administration was cutting, and they said, “Well, maybe they’ll like a tax credit,” but then it’s gone from there. They say the outcome of the system is in the end its intention. If it’s largely sending money to financial institutions, then that has become part of its goal.

Mallach: It was, in fact, advocated by housing advocates, affordable housing, and low-income advocates because some of the provisions in the tax code that had helped that type of housing were already planned to be cut. This was a substitute and it got in. Again, nobody expected it to take on the role that it was going to. For all kinds of reasons, it has swallowed up almost everything else.

Taking a step back, one of the things—and this is an American tax thing that is not typical in other countries—it’s not a unique phenomenon in American history or American tax law. We use tax credits for all kinds of things in this country. It’s a very standard way of trying to incentivize things that for whatever reason, government or somebody considers to be in the public interest to make happen.

I don’t think it’s a subsidy to large financial institutions. The large financial institutions pay a great deal of money, which goes directly into creating low-income housing for the tax credits and the other benefits they get. They get a rate of return on it. Yes, but it’s not an exorbitant or inordinate one.

Essentially it’s a quid pro quo, and I think it raises an interesting question. Given America’s history of using the tax code to incentivize public purpose activities, which is not something you see in other countries, from my experience, if you can get the right results by using a tax credit, is there anything inherently wrong with using a tax credit versus going in every year to a notoriously fickle, at best, Congress and ask for a housing subsidy appropriation? I don’t necessarily know the answer to that question, but rather than simply say, “Hey, it’s a bad mechanism. We’ve got to go for capital subsidy and appropriations by Congress,” I think it’s a debatable point.

Certainly we should examine that. There must be a profit involved or they wouldn’t be doing it.

Mallach: Of course, there’s a profit, but compared to other investments, it’s not an inordinate profit. It’s not like they’re making 20, 30, 40, 50 percent returns on these projects.

Amee, you want to talk about how the tax credit matches or doesn’t match the vision?

Chew: LIHTC works by giving for-profit investors a tax break to invest in lower-income housing. This might not be called a subsidy, but there is some profit skimming involved. Because what happens is the tax break that these investors get is greater than the money they actually spend on affordable housing, which means the government is losing more money than it is actually putting into the affordable housing.

We’re relying on these for-profit actors, but is that the only way? Could we have direct investment that cut them out of the deal? Could we invest in some other actor that, if they profit-skim, was a nonprofit entity that was required to use those profits to put it right back into affordable housing, which is what other countries do?

The way LIHTC is set up, it only requires temporary affordability. It is not required to create permanently affordable housing. Some states, like Vermont, have passed their own laws requiring permanent affordability, which is a way of reforming LIHTC to improve. As it is, it only creates temporary affordability. What that means is that we have public subsidies or tax breaks that are enriching corporate landlords at the expense of low-income tenants without creating deeper lasting affordability.

Today, we have a situation where unfortunately, with all the financialization of our housing market, LIHTC is acting as a corporate tax shelter that is now attracting the largest private equity investors to a greater extent where the trend is moving away from individual investors. These large institutional investors are a greater and greater share of LIHTC. Nationally, 80 percent of LIHTC developers are for-profit institutions.

When it comes to the investors, there’s a forthcoming report by Urban Habitat and East Bay Community Law Center that’s going to be released this month. It looked at the Bay Area and found that nearly half of homes that receive LIHTC allocations are owned by for-profit corporations or nonprofits with for-profit characteristics. This isn’t just investors, but this is investors setting up shell companies that are the paper owners that have these for-profit characteristics.

When the tax credits expire, the investors can take over properties, they can boost them back up to market rate. The profit-seeking actors are twice as likely to convert to market rate at the end of those affordability terms compared to when mission-driven nonprofits are the developers. There’s that trend.

Even when those tax credit restrictions are still in place, even when affordability requirements are still in place, LIHTC affordability standards are so loose that investor owners are making a profit from rent increases and evictions. How does this happen? Part of how this happens is because the rents are set to area median income rather than just the income of the tenants as public housing does.

If you live in an area that’s gentrifying or you live in an area where rents are increasing, your area median income is increasing, over time, that gentrification is going to be allowed to push up the rents allowed in LIHTC. That allows massive rent increases of hundreds of dollars for tenants. Unlike in other public housing, there’s no limits to how many rent increases people can have. There’s no rent stabilization in LIHTC buildings. There’s rent increases that force people out, both legal ones as well as illegal ones. There’s a neglect of maintenance and habitability conditions. There’s charging fees and penalties.

A lot of the issues we see the corporate landlords do in the for-profit sector have permeated into LIHTC now because of the lack of oversight. It’s been a longstanding issue from the beginning that unfortunately, LIHTC is not the most economically efficient way of producing affordable housing.

We know it’s so hard for nonprofit developers to piece together all the funding they need because LIHTC doesn’t cover everything. We know on average, they have to pull together an additional 3.5 funding sources—in some cases, many more than that—and this takes a lot of time. When for-profit developers are involved, they use this as a pretext to increase developer fees but there’s inefficiencies built into that model because of the lack of sufficient upfront public funding.

There’s data about how maybe as much as half or less than half of LIHTC households are extremely low income. I know that there’s data that may contest that. The point is, for extremely low-income households to access LIHTC, most of them need a Section 8 voucher on top of that. Again, it’s not especially well targeted, and as noted before, because of the way rent is defined, people can easily be pushed out. There can be rent increases and people can be gentrified out.

We have affiliates organizing in the Blackstone LIHTCs in Arizona that are finding severe plumbing issues. They’re finding retaliation against tenants in the form of thefts of personal property by management. Just disrespect and harassment and a lack of accommodation for people who are seniors or disabled because of the lack of regulations and requirements around that and government oversights.

Interestingly, there’s also been found a high percentage of non-occupancy in some of these Blackstone LIHTCs. A house with 50 percent of the units unoccupied in one of the big buildings suggesting a high turnover rate. I know there’s more questions and I think there are ways that LIHTC system can be improved to make the outcome more like permanently affordable housing with strong tenant protections. At the same time, I think there’s ways that the financing mechanism relying on tax-based and for-profit actors creates tensions between the goals of really putting the public interest first versus the kinds of exploitation that happens when profit-skimming parties get involved.

I’m hearing you say, Amee, [that] one of the issues is putting such a large portion of our affordable housing into the hands of non-mission-based actors, especially when the tenant rights are not strong, which we have written about. I wanted to note there was a comment in the chat saying LIHTC rents are very strictly regulated. I just want to clarify that I believe what the panelists were saying is that, yes, they are very strictly regulated to the AMI, but the area median income can increase in an area without the tenants’ incomes increasing. Then the rents do go up even if the tenants can’t pay them.

In fact, in some places, unlike in a standard lease situation, you can even have your rent increase mid-lease in a Low-Income Housing Tax Credit property, if there’s a particular provision for that if the area median income is increased. There are a lot of regulations on those rents, but they are not sufficient to make sure that the rents don’t suddenly become unaffordable to the residents in them because they’re based on something other than residents’ income.

Mironova: On your point about the AMI increases in LIHTC units because of AMI inflation, this is something that we’re seeing in New York [City] and I suspect that it’s probably true in other high-cost markets at this moment in time too because of how crazy inflation was over the last couple of years, where our AMIs jumped by like 20 percent. The rent increases that people are seeing, which sometimes are mitigated by vouchers, are staggering. At the same time, we’re back to the same thing that I feel we’ve been circling around which is that cost is being covered by the government. There is the continuing problem of this program being extremely inefficient and the costs coming out of federal coffers one way or another. Even though they’re not a direct subsidy.

I wanted to come back to a point that Alan made, which I think is really fair. That the problem of having to go back to a pretty hostile federal government and fighting over appropriations every single year versus having this program which inefficiently does its thing. Even though I still posit that, it’s still a subsidy even though it’s forgone tax revenue because it’s tax revenue that the government is not collecting. It is money that we’re not seeing.

The problem there is more a political one than a housing policy one, where we need a federal government that functions better and functions differently and we’re not going to get there tomorrow. . . .  What we have now is not going to agree to build 12 million units that are permanently affordable right now. At the same time, if we don’t ask for it, we’re never going to get it. Just accepting the fact that we have this pretty shitty program that works really poorly and doesn’t make any sense is the best that we could get is pretty depressing.

Maybe a little bit more in a very realpolitik type of approach to this thinking on the local level is the best that I can do. Where no, this administration or whatever comes in 2024 is probably not going to give us all the social housing we want. It is much more possible to push large local and state governments to do this. It’s also a huge fight. New York state’s government is not a socialist paradise but I do think that there is a lot more potential to organize around this issue, [which] is much more difficult to do on the federal level at this point in time.

Mallach: I’d agree with the last point. It’s important to organize state and local level, but I think to make a distinction between housing policy and politics is not meaningful. Housing policy is totally ingrained with politics and vice versa and there’s no way out of that regardless of what society or what country or what kind of system you operate on. We have to look at what are the tools we can work with in the country that we live in? The economic system? The political system? We know that the political system currently is badly broken. We can only pray that someday it will get better but that’s a separate issue.

Again, there is nothing inherent about for-profit housing versus nonprofit housing versus governmentally owned housing that makes it inherently different in the outcomes to the tenants. It is a function of how the housing is regulated, how the housing is managed. There are some for-profits, operators, and owners of LIHTC projects that do a beautiful job maintaining their properties and maintaining full occupancy. There are others that are rotten. There are public housing authorities that are an unmitigated disaster in terms of the conditions of their tenants as well as nonprofits.

A major reason why the LIHTC program has become so heavily dominated by for-profit corporations is not inherent in the program, but it’s inherent in the fact that the technical capacity to use the program to get the credits and so forth, unfortunately, is in the hands overwhelmingly of for-profit entities. There are only a handful of nonprofit entities in the United States that have technical capacity to compete effectively with the for-profit entities.

Alan, is that partly due to the structure of the program?

Mallach: I don’t think so. I think more than anything else, it’s [that] a nonprofit entity that operates in a small area, especially if it’s a neighborhood-based or a small city-based entity, simply doesn’t have the ability to build the capacity, and groups like Bridge in the Bay Area and so forth that operate at a regional level and can develop the scale and the capacity are very few and far between in the nonprofit sector. I don’t think it’s inherent in the structure of the program.

It’s inherent in the scale of the program?

Mallach: Yes. Scale is critical. There’s nothing wrong with trying to think for the long term in terms of how to create fundamental changes in the system, but I don’t think we get there by demonizing or by trying to think of things that are simply not achievable within the hand that were dealt.

Anybody want to push back on that for a minute?

Chew: I do think that there is a difference when you compare the role of for-profit and nonprofit actors and LIHTC. It doesn’t mean there aren’t exceptions, but there is data that shows that for-profit actors are more likely to sell back to market rate, that they are more likely to treat tenants badly.

There’s many things about LIHTC that can be improved and reformed. Part of those reforms are trying to limit the role of some of these for-profit actors. For example, trying to direct more of the LIHTC financing to mission-driven nonprofits versus the current situation where they don’t play as big a role [in] LIHTC financing [as] they could. I LIHTC could also be reformed to actually require permanent affordability, to require stronger tenant protections, but trying to direct LIHTC funding away from some of the [for-]profit actors could actually make an important difference for tenants.

How do we change LIHTC? Either we change it so that it will better move us toward our housing vision, or we start changing it and the environment around it to create a practical off-ramp so that it becomes at least less central and less of the only tool in the toolbox. What do we do? Alan, you wrote a piece for us on this for our series.

Mallach: There’s a long list of what we should be doing and some of them have been mentioned in terms of better tenant protections, longer and hopefully permanent affordability provisions, and a lot of other things like that. But I want to focus on three things that are systemic.

The first one, and I think it’s very interesting, the United States has a lot of different housing markets. The LIHTC rents, interestingly, in say, the San Francisco Bay Area . . . tend to be below what the typical median market rent is. In many parts of the country, particularly the Midwest, the South, outside a couple of hot metros and the Northeast, outside of New York, D.C. areas, LIHTC rents are often above the median private market rent for a similar unit. The LIHTC unit is likely to be newer and of somewhat higher quality.

I’d like to suggest that we look at other ways of using LIHTC money in areas where LIHTC rents are above the median of the market. It’s been suggested that LIHTC rents be used to fund additional vouchers, or the equivalent in terms of demand-side subsidies. I personally would like to see LIHTC proceeds converted into pools of funds that could be used by local governments or nonprofits or others to upgrade existing private market low-income and moderate-income rental housing in low-income and moderate-income neighborhoods so that properties that are currently habitable but shabby could become good quality housing without any increase in the rents.

Typically, LIHTC units are now costing $300,000, $400,000 and up. For $30,000 to $40,000, you could take a housing unit, an existing house or large apartment, and make it really first-rate. Use LIHTC for purposes other than building new projects in those parts of the country where you typically have low market rents and a surplus of existing housing. Believe me, there are a lot of them. They don’t get into the media the way San Francisco or New York do, but there are a lot of areas like that.

The second issue is the fact that LIHTC in many parts of the country has become de facto, a program for people earning 25, 30, 40 percent of AMI, rather than the 50, 60 percent of AMI that on paper it was originally designed to serve. A lot of those people do get vouchers so they can afford to live in those units without any housing cost burden. A lot do not, and a lot pay 40, 50 percent, or more of their income in order to live in LIHTC projects. I think there’s something just incongruous about the notion of having an “affordable” housing program where a significant number of the tenants are severely cost-burdened.

I don’t have . . . a specific answer, but we have to recognize unless we’re going to create other programs to address the needs of people at 30 percent of AMI or below—and again, that’s where we really need a universal housing loans, but that’s a different subject. Assuming LIHTC is going to remain the only or the principal game in town, we have to start thinking about how are we going to create units that people at 30 percent of AMI can afford on a regular and consistent basis.

Some developers, mostly nonprofits, try through various means to make some of the units affordable at 30 percent of AMI, but it’s a struggle and it’s usually only a small percentage of the units.

The second issue is to really rethink LIHTC as a program that’s going to serve people at 30 percent of AMI. I don’t have the specific fix, but I can work on it if anybody is interested.

Then the third issue, which goes to the point on integration, is it’s time we abolish the qualified census tract boost.

Basically, the tax credit program provides a 30 percent increase in the tax credit basis, which is a 30 percent increase, which how much people are willing to put into the housing projects for units that are built in so-called qualified census tracts, which basically means high-poverty census tracts. Areas where I think 25 percent or more of the population is below the poverty level. This provides a massive incentive to build in those areas, which are already the areas that are typically less expensive to build in because it’s easier to get land, less political opposition because people want to see something happen in those areas.

What you’re doing basically is creating a massive incentive to concentrate LIHTC projects in areas which already have the highest poverty levels and the highest levels of overall economic distress. This was designed into the program from the beginning. It was a mistake from the beginning, but here we are almost 40 years later. It’s time to get rid of it and time to focus on how [we] can maximize future LIHTC production in areas of opportunity, areas with high-level public services, high-level schools, and so forth.

There are some really concrete ideas and places to focus on. . . .  Amee, you were going to talk to us specifically about building some social housing financing models that can provide an alternative to LIHTC and how they can be practical.

Chew: This issue of LIHTC tenants being extremely cost-burdened . . .  just points to me that there is no way around creating deeply affordable housing without massive government funding and massive government subsidies. There is no way around it, and so now that is going to be made up for by having Section 8 vouchers on top of it. If we really want to address how cost-burdened people are and how low-income people-—what their incomes are and what they need—there’s no way around massive public subsidies.

What is the most efficient way to use public money? It’s way more cost-efficient to use public money at the production stage of creating affordability, than at the end stage where you give tenants a voucher. By the time you give tenants a voucher, you’re also paying for the profit-skimming that happens in LIHTC and all those for-profit costs. If you look at social housing systems around the world, they’re also dealing with this issue where the more public money is aimed at this rental subsidy side at the end stage, the more issues of cost increases and rent increases and gentrification are not being addressed.

When public money is massively used at the production stage, that’s when the market can be stabilized more, that’s when it’s more cost-effective. That points for why when we look at the scale of housing production that needs to happen—unfortunately, the rate of LIHTC production, because it’s piecemeal, because it’s decentralized, because affordable housing dollars are scrambling to make everything pencil through 10 different funding sources—that’s not going to be an efficient way of producing the scale of affordable housing we need. For us, there’s this political problem, there’s no way around. We need massive public prioritization and funding directly for affordable housing.

I think Alan raises a really important point that this is a political issue and LIHTC sidesteps the political issue by, “We don’t need political support to have this tax break system.” On the other hand, you sidestep the political problem, but you have the economic problem of the market intervening. We know that over time, LIHTC has actually become less and less efficient at creating units. It’s actually costing more in tax breaks now to create fewer units, and that has to do with market forces.

That’s part of what we see in terms of the corporate investor exploitation of the LIHTC system. It’s like, “We’re protecting tenants by creating the system that lasts in terms of our political, government landscape, but we’re not protecting them from the trends in our for-profit housing system and the trends of financialization and increasing corporate concentration and how that’s affecting people.” The political fight is an important fight, and that’s part of why tenant organizing is going to be at the center of changing this.

I do think that there are steps along the way and reforms that can be made. As mentioned before, I think even within the existing LIHTC system, there are very useful reforms that can happen at the state and the federal levels to change the outcomes of LIHTC so they look more like permanently and deeply affordable housing that’s under democratic community control, that has strong tenant protections. For example, the state-level QAPs [qualified allocation plans] are a very important area for that reform in terms of requiring permanent affordability, requiring that the funds go to nonprofit mission developers as much as possible, requiring stronger tenant protections, that kind of thing.

Then in terms of the issue of the fundamental way the profit motive is built into the financing structures through tax breaks, it is very important to grow other financing possibilities and models at the same time so we have something to transition off of. When you look at how this is achieved, I don’t want to underestimate how much progressive taxation matters. When you look at Vienna’s robust housing system, there is no such thing as a revenue-neutral housing system that is deeply affordable to the people who need it.

When Vienna’s system was created, it was created by taxing the rich. That’s how they built their public municipally owned housing, which is way more affordable for the lowest income people than the limited profit association housing that they have. Progressive taxation, public banking, using public pension funds—right now [U.S.] public pension funds are investing in corporate landlords like Blackstone—having other sources for low-interest loans to fund affordable housing. This is how other systems of social housing have done it. That’s how Finland relies on public banking … its social housing is not permanently affordable.

Low-interest loans are an important aspect of financing, but I think that there’s public land banking in this country where the land is just sold off as a way of dealing with distressed neighborhoods to for-profit developers instead of for affordable housing. I think Oksana can talk about this more too because [she] worked on a great report in New York about some of this existing infrastructure that can be retooled.

There’s ways that tax delinquent properties, properties with habitability problems, or that are vacant, that are corporate-owned—there could be pipelines to convert these into permanently affordable housing in a way that tries to help with the cost because you’re not producing new construction, you’re using what’s already there.

Mironova: Amee’s point about diversifying the financial infrastructure that makes less speculative types of housing possible is super important. There is a good piece that Shelterforce published as part of the LIHTC overview about how it’s the only tool in the toolbox. I would love for it to no longer be the only tool in the toolbox. It doesn’t have to be a situation where we destroy it tomorrow and that’s it. It just needs to wane in prevalence in order for other types of programs and other types of tenures to be able to thrive in the country overall and, in my experience, in New York City in particular.

A lot of the stuff that’s happening on the local level in New York City and New York state is oriented towards thinking about, “How do we do affordable housing in a way that doesn’t necessarily involve LIHTC, doesn’t necessarily involve a very, very complex system?” This goes back to what Amee was saying about the way that all of this public profit is being sucked out through the complexity of the system and the need to assemble a very complicated capital stack in order to make a deal work where you’re not only paying the LIHTC syndicator and the developer who’s often the for-profit developer that’s taking a huge fee, but you’re also paying bond financing fees to multiple agencies, etc.

If you centralize it, it’s easier because there’s not all of this money that’s going to all sorts of real estate–adjacent institutions that aren’t necessarily fulfilling a role that has anything to do with housing people. One of the bills that we have pending that— again, under no illusion that it’s going to happen tomorrow, this is an organizing tool as much as anything else—is a social housing development authority bill on the state level that would produce social housing and stay very flexible because New York State is complicated.

We have New York City, which is a high-value market, but then we have places in the North Country close to the Canadian border that are super rural. We have cities where the land market is pretty low, where there’s a ton of vacancy, where the properties are not worth that much. This was the case in New York 25 years ago, so it’s not a permanent state. These things change.

Creating a social housing development authority that is flexible enough to work in every single type of market, and to collaborate with CDCs that are strong in certain places, and to fill a role of basically just being a public developer in places where that infrastructure doesn’t exist at the community level. That is the primary thing and the primary bucket that we’re putting our energy into in terms of creating a system that, hopefully, functions better than what we have now.

There’s a question [in the chat] about raising rents based on cost of living increases as opposed to area median income.

I don’t know if the person who asked that question intended or not, but that sounds like rent control to me which does, in fact, apply to LIHTC housing unless it’s been explicitly exempted.

Mironova: That does sound a lot like rent control. All affordable housing subsidy programs work better if there’s a regulated market because it prevents rent inflation. In addition to doing the basic thing of capping how quickly rents rise, there’s also the secondary impact on the financial markets where it becomes much more difficult if you have a fairly airtight regulatory system, it becomes much more difficult to over-leverage your building. You can’t just go to a bank and say, “I’m going to kick everyone out and hike up the rent by a million percent.” I think yes, that would be great.

Anyone else?

Chew: In California, where there’s a rent cap or rent stabilization, it actually exempts affordable housing like LIHTCs. Tenants in LIHTCs have actually been having to organize at the city level to pass an Antioch, [California]-like rent stabilization that specifically includes them. Just something to look out for in terms of policy, to make sure rent stabilization definitely includes affordable housing like LIHTCs also.

A question I hear a lot is, is there potential and what do we need to do in order to look to expiring LIHTC properties for conversion to permanently affordable housing cooperatives or land trusts or things like that? It’s incredibly complicated and for the amount of time that it gets brought up, it happens fairly rarely.

Chew: That’s important and I think that policy change to make that easier is also important too. I know there’s lots of proposals for strengthening the community or tenant opportunity to purchase. I think requiring permanent affordability for the building like Vermont does is also important. I think that supporting tenant organizing to try to make those conversions happen. Also, I think, support the larger issues too of tenants organizing against some of the corporate landlords that are in LIHTC, and questioning why are these corporate landlords being favored with LIHTC subsidies in the first place.

Is there any precedent for tenants using habitability standards to maybe get tax credits revoked and retain and grab community control of those spaces? We wrote a little bit about the opaque enforcement process for LIHTC standards in our series. I wonder if any of you had heard of any examples of that or had any thoughts about its use?

Mironova: It’s a really interesting question. There’s the problem of organizing within LIHTC properties and it obviously happens like Amee was saying, tenants organizing to be included in tenant protections that exist for all other tenants in California. I think that there’s more and more community organizations that are interested in organizing tenants within LIHTC properties where they’re reaching year 15, or reaching the end of their extended use period.

The problem is . . .  in many cases, there’s just so little leverage. Because again, the original problem of this program where it lives within the Department of Treasury, it doesn’t live within HUD.

There’s the issue of not really knowing anything about the building, not really having much infrastructure that is built into the program in order for this to happen. I think that organizing—whether it’s for the building to become a limited equity co-op at the end or organizing against habitability issues and using the credits as leverage—it just becomes more difficult because that infrastructure is not in place.

Chew: I have not seen an example of tenants able to get the tax credits revoked because of habitability problems. I also think that it’s really important to have stronger enforcement mechanisms than just this possibility of revoking the tax credits because of the lack of oversight. Even within that tax credit period, there’s not that many inspections . . .  and there’s a lot of just allowing the landlord to testify to certain conditions without verifying if that’s actually true. There’s also this issue of after the tax credits have already expired, for the rest of that 30 years, there’s even less incentive to comply with any habitability standards. It can’t just depend on the tax credits being used to hold the landlord and investors accountable. There’s been proposals for just landlord licensing or just stronger code enforcement measures in general, and then how it’s operationalized to LIHTC but also in terms of fines, penalties, possibly revoking landlords’ licenses . . .  some stronger mechanisms in addition to just revoking.

Agreed. We talked about that a bit in the article that Shelby King, our reporter, wrote on enforcement in LIHTC. A couple of states are looking into putting stronger provisions for enforcement in because  the tax credits can’t be recaptured after year 15, but you’re supposed to continue following all these rules until the year 30.

I hear all sorts of people talk as if the rules actually end at year 15 because that’s when the enforcement stops, even though they are supposed to extend to 30. That’s how strongly that the enforcement drops off, that they’re actually assumed to go away at that time.

There’s a question that we talked a lot about in the beginning about the inefficiencies of LIHTC. It’s not just whatever profit that the investors are making that [affects] the cost of LIHTC. There’s also syndicator fees, legal fees, and consultant fees to make these incredibly complex deals work.

Does anybody have a sense of how much cost these various things add?

Mallach: It’s a ballpark. LIHTC projects are very expensive. If you compare them to conventional plain vanilla market projects of roughly the same size and type being built in the same communities, they’re significantly more expensive. I think there are two factors, though. One is justifiable, the other one not so much. Certainly, the fact that the investors do get a profit, not a huge profit, but it is a profit, and of course, the syndicators, the lawyers, the accountants, and everybody takes a cut. Of course, when Enterprise [Community Partners] or LISC acts as a syndicator, they take a cut even though it’s nominally nonprofit.

Then you have developer fees and so forth. My guess is that that adds probably about 15 percent. The other thing though is LIHTC projects—not all of them, but most of them—tend to be built to higher standards in many respects than conventional market projects. Especially if you know you’re going to be running a project for 30 years, maybe longer, and you know that depending on what you can do with rents and so forth, you may not be able to see a significant increase in reserves and net income and so forth over that period.

You try to build the initial project with things like heating systems and plumbing systems and so forth that are going to last longer than a developer who might be looking at a 15- or a 20-year horizon and looking at steadily rising rents to replace those systems is looking at. That’s another factor, and that probably accounts for another maybe 10 percent, 15 percent.

In addition, LIHTC projects tend to have, especially if they’re built in deeply distressed neighborhoods, maintenance and operating costs [in] the operating budget [that are] significantly higher than the norms in the private markets. The upshot is you have a much more expensive product, but most of it is not a function of the profitability, as it were, of the project to the investor.

Chew: I don’t know if maybe there’s just wide variance, but just for one example, in the case of a property that Blackstone bought from AIG called RiseBoro in New York City. I think I saw that there’s a record that AIG had paid $2.5 million for the project, but they got $3.3 million in tax breaks from it. I don’t know if that accounts for inflation or something, but that’s very high.

They got $3.3 out of paying $2.5, so that seems about a 30 percent increase. That said, I also don’t know this question about syndicator fees, but I do think it’s very important to point out every single level where there’s a for-profit actor involved. There is this issue of developer fees, there is this issue of syndicator fees, there is this issue of private owners raising rents when they can because of the bandwidth allowed by the AMI calculations.

I think it would be very interesting to just see what that adds up to, and also, compare when there are large private equity investors and having corporate or for-profit owners be their partner versus mission-driven affordable housing developers and see how the profit skimming is working out in those different cases.

There’s some really great examples of mission-driven nonprofits like the Women’s Community Revitalization Program in Philadelphia, that achieved 100 percent of their units being affordable to extremely low income.

I think there are examples that show important differences between the different actors and the outcomes they’re able to achieve.

Any thoughts that we haven’t gotten to, anything that you want to leave our listeners with?

Chew: We need to decommodify housing and limit the role for for-profit investors and really consider what’s happening with the financialization of housing. What is the impact of these big private equity investors in a system like LIHTC? We can improve LIHTC and try to create more permanently deeply affordable housing out of it with tenant protections.

There’s no way around that we need massive public funding and direct funding for deeply affordable housing if we’re truly going to address the housing crisis at the scale that our communities need.

Mallach: Ultimately, there’s a political issue here. LIHTC has a powerful collection of lobbyists, which run the gamut from for-profits, nonprofits, community-based organizations, etc., that make their money off LIHTC. It’s become entrenched. The key is, ultimately, if there’s going to be any significant change, is going to be to come up with a political movement that can be powerful enough to make change happen.

I think it’s worth pursuing. The state level is critically important as Oksana mentioned, but also at the federal level. At the moment, things look pretty grim, but we can’t assume that they’re going to be like that forever.

Mironova: I hope things will get a little less grim. This program—that ballooned and took up all of this space as other federal programs in this country waned—can’t be the thing that we all hang our hat on. There have to be alternatives. I think honesty and intentionality about what it is that housing programs try to achieve . . .  is something that often gets lost. The goal—what are we actually trying to do here?—gets muddled because of politics. Being forthright about who we’re housing, how long we’re housing them for, and who is getting paid off . . . all of these deals should be part of the conversation.

Thank you.

Other Articles in this Series

LIHTC: The Good, the Bad, and the Very Complicated