Vanessa Brown Calder and I examined the Low-Income Housing Tax Credit (LIHTC) in a November study. The LIHTC is a $9 billion federal program that is supposed to increase the supply of apartment units for people with moderate incomes.
We found that the LIHTC imposes high administrative burdens, generates local government corruption, inflates construction costs, and crowds out market-based housing supply.
The Heritage Foundation recently published its analysis of the LIHTC, and scholars Adam Michel, Norbert Michel, and John Ligon come to similar conclusions.
They find:
- “The LIHTC is a complex program that has spawned a cottage industry of lawyers and accountants.”
- “The value of the LIHTC is largely captured by investors and intermediaries, not renters.”
- “The LIHTC is a costly and inefficient corporate welfare program that has failed to boost the U.S. housing stock.”
- “Since its inception as part of the 1986 tax reform, the LIHTC has proven ineffective and inefficient.”
The authors conclude that “it is time to repeal the LIHTC and focus on reducing artificial barriers to new housing supply.”
Vanessa examined those artificial barriers in a 2017 Cato study. She argued that state and local governments can tackle housing affordability by cutting the thicket of land-use and zoning regulations that restrict housing supply.
The Heritage scholars concur:
The LIHTC and other housing subsidies are largely treating the symptom of high housing costs, rather than the cause of overly restrictive land-use regulations. Reforms to make it easier to privately build and finance new and expanded housing developments of any type would go a long way toward relieving the current upward pressure on rent in America’s cities.
The LIHTC is a failed federal response to a problem caused—or at least exacerbated—by state and local policies. As Congress considers legislation to adjust some of the provisions in its recent tax reform law, it should put the housing tax credit on the chopping block.
