The Low-Income Housing Tax Credit and Neighborhood Change
The Low-Income Housing Tax Credit (LIHTC) program awards tax credit to developers who allocate at least a certain percentage of their development to low-income units. The program creates affordable housing and encouraging investment and development. Most projects funded with the tax credit are located in primarily minority, low-income neighborhoods. An important question is whether in addition to adding to the housing stock, these projects have spillover effects on the economic standing of the neighborhood. There are at least two possible answers. If the newly constructed or renovated dwellings make the location more attractive, the presence of LIHTC developments could spur neighborhood revitalization and perhaps eventually, gentrification. Alternatively, the presence of affordable housing in a neighborhood may dissuade potential newcomers and investors and eventually drive out middle class residents concerned about falling housing values. Using OLS and looking at the effect of the tax credit on median household income over a thirty year period, I find no relationship between the number of LIHTC projects and household income at any point throughout the period. My results do reveal, however, that the percentage of affordable units in LIHTC-funded projects is negatively correlated with median income. I argue that this relationship may be due to developers' differing goals: some developers build projects that are either primarily or entirely targeted towards low-income residents, whereas other developers put in the minimum number of affordable units simply as a means to qualify for the tax credit. Future research might examine projects built by different types of developers, such as non-profit versus for-profit, and the differences between them.
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