Does Low-Income Housing Tax Credit Investment Reduce Poverty Concentration and Racial Segregation? Examining Long-Term Effects Accounting for Neighborhood Trajectories

Source abstract

This paper examines how affordable housing enabled by the Low-Income Housing Tax Credit (LIHTC) program affects neighborhood poverty exposure and racial composition over time. It addresses two research questions: (1) Does LIHTC investment change neighborhood poverty rates over time? (2) Does it change neighborhood racial composition? This paper also examines whether effects differ between the 9% and 4% credit types. Housing advocates worry that LIHTC investment is exacerbating patterns of poverty and racial concentration, while supporters of community-oriented development see the program as a tool to revitalize neighborhoods. By employing structural equation modeling with a dynamic panel model rather than the standard regression approaches used in prior work, this study improves upon existing estimates by distinguishing mechanical compositional changes from longer-term spillovers and better accounting for temporal dynamics and neighborhood trajectories. The results are consistent with previous studies, but effect sizes from LIHTC investments are considerably smaller when neighborhood trajectories are accounted for. LIHTC investment reduces poverty rates in high-poverty neighborhoods by only 0.9 to 2 percentage points per 100 new units per decade. Overall, the LIHTC program does not exacerbate racial segregation, nor does it reduce concentration. Surprisingly, the 4% program produces similar per-unit neighborhood effects to the competitive 9% program. These results suggest that the “as-of-right” 4% program has unrealized potential in addressing fair housing goals.