The Dream Revisited

Research Can and Should Play a Role in More Effective Use of LIHTC Resources

by Kathy O’Regan | June 2015

Adam Gordon’s excellent essay ends with a challenge to the federal government, to do more “to encourage more effective use of the single biggest federal government housing production program.” As a federal official leading HUD’s Office of Policy Development and Research (PD&R), I want to start where he ended, with that challenge. PD&R’s goal in funding the study he references (PDF) was essentially that, to examine the effectiveness of using QAPs to achieve one goal of LIHTC, providing affordable housing in areas of greater opportunity. While there has been considerable work simply examining QAPs, and another body of work describing the locations of LIHTC developments, to date there has been very limited work drawing credible connections between the two.

That is the first key contribution of this report, assessing the relationship between location outcomes and specific features of QAPs likely to affect tax credit siting in high or low poverty neighborhoods. Using allocation data on competitive (“9 %”) credits for 21 states, the authors examined five categories of changes in QAPs between 2002 and 2010: prioritization of opportunity neighborhoods; proximity to amenities; importance of community approval; investing in high-poverty neighborhoods; and avoiding concentration of assisted housing. Changes were scored in terms of whether they would increase or decrease siting in low poverty areas and on the likely magnitude of those effects.

Statistical models using a composite measure of changes in QAPs found states that increased priorities for higher-opportunity areas saw significant increases in the share of developments allocated tax credits in low-poverty areas, decreases in the share in high poverty areas, and decreases in the average neighborhood poverty rates surrounding LIHTC developments. As Adam says, QAPs matter. And that is very important to know. QAPs are meant to be the mechanism through which states are achieving their local priorities for LIHTC, consistent with federal requirements.

Exactly which features of the QAPs are most effective is harder to learn through this purely quantitative assessment across only 21 states.  When broken out individually, none of the five components of the index meet standard levels of statistical significance, which is not surprising with such a small sample and the inevitable noise in the data.  There is, however, suggestive evidence that three components might shape locational patterns—these elements achieved near statistical significance (at the 15% level) in three models.  Specifically, prioritizing high-opportunity neighborhoods and avoiding concentration of assisted housing each showed signs of mattering for increasing access to low poverty neighborhoods. Meanwhile, stronger community approval measures, which may act as a local veto on developments, were associated with higher average neighborhood poverty rates for tax credit developments.

These last set of results are just suggestive at this point, but they lead to the second contribution of this study—the starting point for further exploration on the specific actions taken by states and their experiences. The report contains descriptions of each of the QAP changes undertaken, providing an inventory for states and interested parties to consider and learn from. To that end, HUD discussed this report directly with many state housing agencies at the National Council of State Housing Agencies’ (NCHSA) most recent gathering in Los Angeles, just one means of getting information into the hands of those who can use it. Supporting and disseminating research on topics core to HUD’s mission – including housing programs we don’t administer, is PD&R’s charge.  Indeed, such knowledge creation is a quintessential public sector role, and in this case I would argue a federal one. That was recognized in the Housing and Economic Recovery Act’s requirement that state HFAs submit tenant data annually to HUD. It is a role we should take up more consistently.

Of course, there are limits to this study and what can be learned from it.  Let me focus on one feature in particular, which also connects to how we should and should not interpret the results.  As noted by the researchers, data limits prohibit distinguishing between new construction and rehabilitation.  Rehabilitation is frequently part of preserving affordable housing, itself a key LIHTC goal due to its cost effectiveness and benefits for existing tenants.  Such housing, however, is more likely to be in higher poverty neighborhoods.  In this report, prioritizing preservation is scored as lowering access to low poverty neighborhoods.  Does that mean preservation should not be prioritized? No it does not.

LIHTC is meant to meet many goals.  Any individual development may primarily be contributing to only a subset or one of those goals.  Simply said, the inclusion of priorities in QAPs to support additional goals, such as preservation of affordable housing and leveraging the tax credit for community revitalization, can be completely consistent with federal priorities.

The study may, however, help us understand tradeoffs between goals and help identify ways to minimize them.  Not all applications that help meet one goal come at the direct cost of another goal; it may be possible to find projects that meet multiple goals.  Adam Gordon’s essay notes that while New Jersey’s preservation of existing affordable housing predominately occurred in high poverty neighborhoods, over time it has also encompassed suburban development, in essence lowering the tradeoff on two key goals.  Exploiting opportunities for meeting multiple goals within one project  would stretch limited resources further.

Ensuring that states’ criteria for allocating credits more clearly match intended outcomes would also improve targeting. Here I want to focus on the federal requirement to prioritize applications in Qualified Census Tracts (QCTs) with ‘concerted community revitalization plans.’ As frequently noted, no federal agency has issued guidance on what constitutes such a plan. That has resulted in many states staying silent, and by default, all applications in QCTs receiving some type of preference, regardless of whether there is evidence of a revitalization plan.  That is not the intent of the federal requirement, and this may well increase the prevalence of tax credit developments in high poverty neighborhoods without the added benefit of contributing to revitalization.

Other states, however, have stepped into that gap and defined concerted community revitalization plans, and those definitions are described in an appendix to the study.  While the study does not assess the effects of adding those definitions, adding definitions has the potential for targeting state allocations to those projects in QCTs where the goal of revitalization is more likely achieved.  This is more consistent with federal priorities, and I suspect, those of states.

I am sympathetic to the call for more federal action.  In the meantime, this federally funded study is meant to arm state HFAs and advocates with some evidence for better accomplishing one key affordable housing goal, improved access to higher opportunity areas.

Kathy O’Regan is the Assistant Secretary for Policy Development and Research at the U.S. Department of Housing and Urban Development, which tweets at @HUDgov.

More in Discussion 14: Housing Subsidies & Inclusive Communities