THE PRIVATE MARKET MEETS AFFORDABLE HOUSING: LOW-INCOME HOUSING TAX CREDIT PROPERTIES IMPROVE LOW-INCOME NEIGHBORHOODS WITH MINIMAL EFFECTS ON HIGH-INCOME NEIGHBORHOODS

Abstract

This paper explores both the placement and the impacts of Low-Income Housing Tax Credit (LIHTC) properties on the demographic and housing market characteristics of neighborhoods. I find that where LIHTC properties are developed depends not only on the present but also on the changing characteristics of a neighborhood. To measure demographic and income changes to a census tract after the introduction of a LIHTC property, I use the random nature of the year in which a LIHTC property becomes active as a quasi-experimental policy implementation. I demonstrate that there are heterogeneous effects of LIHTC properties across different pre-existing conditions of census tracts, with a $3.8 million increase in the aggregate welfare of residents in lower-income census tracts over the ten-year period after the property becomes active. Notably, I find that the introduction of LIHTC properties induces downward pressure on rental prices for any given census tract, with the greatest declines seen in the rental prices in higher-income neighborhoods. The LIHTC program offers a unique study of the impact of affordable housing on neighborhoods, as developers can choose where to build or restore LIHTC properties and the tenants of a LIHTC property may or may not reflect the neighborhood in which the property is located.