Tuesday, December 10, 2013

New Harvard study on rental housing

Harvard's Joint Center for Housing Studies has just released a new report entitled, America's Rental Housing:  Evolving Markets and Needs.  Here are the report's more salient points in one handy infographic:


In scanning the report, I was particularly interested in a section at the end that discussed the long-term success of the Low Income Housing Tax Credit (LIHTC).  Here is an excerpt from the report regarding LIHTCs:

The Low Income Housing Tax Credit (LIHTC) program has been the primary source of funding for both development of new low-income housing and preservation of existing subsidized properties since 1986. Over the quarter-century from 1987 through 2011, the LIHTC program supported construction of roughly 1.2 million new units and rehabilitation of another 749,000 homes.  Compared with earlier generations of supply-side programs, LIHTC projects have a very low failure rate, with only 1–2 percent of properties undergoing foreclosure. An important factor in this success is that private investors, rather than the federal government, provide the equity up front and bear the financial risk for the projects. Rather than providing direct subsidies that reduce tenants’monthly contributions to rent, the LIHTC program reduces the effective cost of developing rental housing by generating capital through the sale of tax credits. In exchange for the credits, developers must set aside a minimum of either 20 percent of the units for renters with incomes that do not exceed 50 percent of area median income, or 40 percent of units for those with incomes up to 60 percent of area median income. In practice, nearly nine out of 10 rental units in developments supported by the tax credits have been set aside for low-income renters. Rents for set-aside units are capped at levels affordable at the specified income limit and are not tied to the tenants’ income. But since many qualifying renters have significantly lower incomes, developers often have to apply other forms of subsidy to make the homes affordable. This layering of subsidies has enabled the LIHTC program to serve extremely low- income tenants. Indeed, a 2012 New York University study found that 43 percent of LIHTC occupants had incomes at or below 30 percent of AMI and that nearly 70 percent of these extremely low-income residents received additional forms of rental assistance. With the benefit of this support, only 31 percent of renters in this income group were severely housing cost burdened—significantly less than the 63 percent share of extremely low-income renters overall. In addition, these extremely low-income residents benefit from newly built or renovated housing that is of higher quality and often offers better access to supportive services than housing they would otherwise be able to secure. To date, federal fiscal pressures have not yet directly reached this off-budget program. In fact, to help spur housing development after the recession, Congress boosted the value of the tax credit through the end of 2013. But cuts to the HOME program have sharply diminished the pool of funds available to close gaps between what the tax credit can deliver and what is needed to bring rents down to more affordable levels. In addition, deficit-reduction efforts may yet lead to meaningful tax reform, and many proposals call for substantial elimination of tax expenditures (indirect means of funding such as deductions, credits, and other measures that reduce taxes owed). The LIHTC program could no doubt be improved to make housing more affordable for lowest-income renters and to work more efficiently with other subsidy programs. But eliminating or significantly curtailing this program would create a substantial void in affordable housing production and preservation—and at the expense of one of the most successful efforts on record in terms of sound financial performance and delivery of good-quality rentals.

Stephen R. Miller





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