The Low-Income Housing Tax Credit (LIHTC) was designed to give low- to middle-income families a way to manage sky-high rents in desirable urban areas. Although this tax credit focuses on helping families rent properties rather than become homeowners themselves, the program could affect housing prices in specific areas — here’s how.
The tax credit targets investors.
Rather than targeting lower-income families, the LIHTC offers tax breaks to investors that acquire, remodel, or build properties designed for low-income families. This aspect of the tax credit isn’t insignificant, either; the U.S. Department of Housing and Urban Development (HUD) offers nearly 8 billion dollars annually to investors who create properties for low-income families.
The LIHTC doesn’t uniformly affect housing prices: sometimes it increases housing prices, sometimes it lowers them.
While local property owners may worry about the effects of the LIHTC on local markets, the influence of these tax credits on housing prices remains inconclusive. Researchers at Texas A&M University studied the effects of the tax breaks on Cleveland, Ohio and Charlotte, North Carolina from 1996 to 2007. They drew their conclusions by considering how areas with many LIHTC properties were affected.
In Cleveland, the LIHTC had a positive impact on housing prices in the areas in which they were constructed. LIHTC developments often built in areas where housing prices were 8.1 percent lower than in the rest of the city. Compared to areas with similar housing prices, however, neighborhoods with LIHTC development increased by 7.3 percent. Home price increases were particularly pronounced when these units were constructed in low-income neighborhoods.
LIHTC properties in Charlotte had the opposite effect on housing prices: these housing developments had a negative impact on housing prices in the city. In areas where LIHTC developments were constructed, housing prices were already 5.4 percent lower, but after building, areas with these new constructions lost 1.2 percentage points in property value, in contrast to neighborhoods with similar property valuations.
What do these findings mean?
The impact of LIHTC-funded properties on neighborhood property values isn’t always easy to ascertain. Interestingly, though, a one-unit increase LIHTC housing in Charlotte increased housing prices in the city’s high-income neighborhoods by 0.05 percent. This final statistic suggests that a small number of LIHTC housing units in high-income neighborhoods could benefit not only low- and middle-income families renting in the area, but higher-income families who own homes as well.
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