Comparing the Efficiency and Equity Advantages of Low Income Housing Tax Credit Program (LIHTC) with Section 8 Voucher Program ---- A Regional Difference

1
Comparing the Efficiency and Equity Advantages of
Low Income Housing Tax Credit Program (LIHTC)
with Section 8 Voucher Program---- A Regional
Difference

• Lan DengDept. of City and Regional Planning
• University of California at Berkeley

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Research Question

• How should limited government housing subsidies
  be directed
• via supply-side investment programs such as
  public housing or the LIHTC program?
• or by demand-side programs like housing vouchers?
  

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Two Sets of Evaluation Criteria

• Which approach is better at providing quality
  neighborhoods and economic opportunity to
  low-income families?
• Which approach is more efficient in terms of
  lifetime costs?

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Organization Of This Presentation

• Case Study Identification and Data
• How the LIHTC differs by MSAs
• Comparison of Spatial Outcomes (LIHTC vs
  TB-Section 8)
• Comparison of Cost Effectiveness (LIHTC vs
  TB-Section 8)

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Case Study Identification and Data
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Case Study Regions

• Four case study regions
• Tight Markets San Jose PMSA, Boston PMSA
• Balanced Markets Miami MSA, Cleveland PMSA
• Differences among these regional housing markets
• Growth difference
• New regions vs. established regions.
• Difference in the severity of housing segregation
  and discrimination

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Data for this Research

• LIHTC Database, collected from the following
  state agencies
• Florida Housing Finance Corporation
• Ohio Housing Finance Agency
• California Tax Credit Allocation Committee
• Massachusetts State Dept. of Housing and
  Community Development
• Dataset 1 General Project Information for all
  LIHTC projects in each region from 1987 to 2000.
• Dataset 2 Financial Structure, Unit
  Composition, Rent Information for available
  projects, extracted from a projects Final Cost
  Certification File or Underwriting Reports etc.

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How Many LIHTC Projects? Where?
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Other Data Sources

• Section 8 Voucher / Certificate Data, from A
  Picture of Subsidized Households in 1998, HUD
• 1990 and 2000 census data, Summary Tape File 3
• Public school performance data, from the
  Education Department in individual state.
• Also,
• Fair Market Rent and Area Median Family Income,
  HUD
• R.S. Means Historic Construction Cost Index
• Historic 30-year conventional mortgage rate from
  Federal Reserve Bank

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How the LIHTC differs by MSAs
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Miami vs. Cleveland For-profit New Construction
dominates in Miami. Its the opposite in
Cleveland.
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San Jose vs. Boston New Construction dominates
in San Jose, the opposite in Boston.
Non-profits dominate in both.
13
LIHTC projects tend to be larger in Miami and San
Jose than in Cleveland and Boston. Especially
for new construction.
14
Development costs vary widely by region, with
Miami at the low end and Boston at the high
end.(Dollar in 1996 Value)
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Comparison of Spatial Outcomes (LIHTC vs Tenant
Based Section 8)

• Neighborhood Income
• Neighborhood Racial Composition
• School Quality

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Except for San Jose, most of LIHTC and Section 8
units are located in very low income and low
Income neighborhoods
17
Tenant-based Section 8 program not always works
better than LIHTC program in bringing low income
families to middle income neighborhoods
of Units in Middle Income Neighborhoods
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(Except for Boston) similar proportions of
assisted families are located in the most
segregated neighborhoods, regardless of program
type.
over 10 are blacks
Ghettos over 80 are blacks
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In Miami, 80 of LIHTC units are proximate to
low-quality schools, vs. 51 of Section 8 units
(Quality is standardized according to the average
metropolitan school performance scores)
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In Cleveland, 70 of both LIHTC units and Section
8 units are proximate to low quality schools, but
more LIHTC units close to the worst schools
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In San Jose, the school quality distribution of
LIHTC units and Section 8 units are very similar
22
In Boston, 80 of LIHTC units are proximate to
low quality school, vs. 60 of Section 8 units
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Comparison of Cost Effectiveness (LIHTC vs Tenant
Based Section 8)

• Average Development Subsidy across Regions
• Development Subsidy vs. 30-year Voucher Subsidy

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The Subsidy Story in Dollars The required
subsidy in Boston is more than twice what is in
Miami.(New Construction Projects in the Late
90s.)
TDC Total Development Cost
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In Boston and Cleveland,the LIHTC development
subsidy is greater than 30-year Section 8 voucher
subsidy, but the opposite holds in San Jose and
Miami.
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In Miami, projects targeting larger family units
tend to be more cost effective (New Construction
Projects in the Late 90s)
Cost Effectiveness Ratio A Projects Total
Development Subsidy / 30-Year Voucher Subsidy
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In San Jose, LIHTC Projects have become more cost
effective over time (New Construction Projects)
Cost Effectiveness Ratio A Projects Total
Development Subsidy / 30-Year Voucher Subsidy
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In San Jose, projects targeting lower income
families also tend to be more cost effective
Cost Effectiveness Ratio A Projects Total
Development Subsidy / 30-Year Voucher Subsidy
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Concluding Remarks

• Differences in spatial outcomes between LIHTC and
  Section 8 tend to be modest, and the result of
  local factors.
• Contrary to the conventional wisdom, a supply
  subsidy program like LIHTC can actually be more
  cost-effective than a demand subsidy program like
  Section 8. Regional variations influence the
  efficiency and equity advantage of different
  government housing programs. Relevant factors
  might include
• Local housing supply and demand.
• Local Family Income.
• Different government practices in administering
  LIHTC program.
• The existence of housing segregation and
  discrimination in local housing markets.
• Specific project design.

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I Need Your Help!!!

• Does anyone here have rent and stock
  characteristic information for market rate rental
  housing properties in Boston, Cleveland, Miami,
  or San Jose?
• Thank you!!