Opportunity, Race, and Low Income Housing Tax Credit Projects

Introduction

Introduction 

The Low Income Housing Tax Credit (LIHTC) program is the largest federal housing program in the United States, redirecting hundreds of millions of dollars per year in funds towards the creation and preservation of low-income rental housing. Indirectly subsidized by federal coffers, states enjoy enormous discretion in administering the program, with each state establishing its own criteria for awarding the tax credit. 

The Haas Institute for a Fair and Inclusive Society at UC Berkeley analyzed LIHTC data from the California Department of Housing and Community Development (HCD) and the California Tax Credit Allocation Committee (TCAC) on housing projects financed by the tax credit within the San Francisco Bay Area.1 The intention was to understand the temporal and spatial patterns of LIHTC developments from 1987–2014, including projects financed with both federal Four Percent (4%) and Nine Percent (9%) Tax Credits.2 To assess the state’s efficacy in promoting housing opportunities for low-income Californians in well-resourced, racially integrated neighborhoods, this report analyzes project categories by neighborhood opportunity and demographic composition:

Opportunity Analysis 

  • LIHTC projects 
  • LIHTC units
  • Total Awards3
  • Acquisition, Rehabilitation, and New Construction4

Demographic Analysis

  • Large Family5 projects
  • Race-based analysis

We utilized UC Davis’ Center for Regional Change Regional Opportunity Index (ROI) methodology and their placebased data to recalculate the opportunity index for the Bay Area at the census tract level, as displayed in Map 1 in the Appendix.6 Additional data were gathered from the U.S. Census Bureau American Community Survey (ACS).

This comprehensive report shows that LIHTC developments in the Bay Area are relatively well spread across boundaries of opportunity. We also find that the Nine Percent Tax Credit outperforms the Four Percent in financing projects in higher opportunity neighborhoods. Furthermore, based on a 2015 report published by the United States Department of Housing and Urban Development Office of Policy Development and Research, California’s LIHTC funding allocation formula has reduced the number of LIHTC projects that are sited in areas with high concentrations of poverty.7 Upon deeper inspection, however, our analysis illuminates areas for improvement, including the need to provide more LIHTC developments in higher opportunity neighborhoods. Thus, TCAC should adopt Qualified Allocation Plan (QAP) criteria that will promote LIHTC projects in higher opportunity areas to ensure that households seeking subsidized rental housing have access to opportunity and upward mobility

  • 1. The IRS administers the LIHTC program to states, while the California Tax Credit Allocation Committee determines how the two federal tax credits are allocated within California. Refer to page 2 of the Description of California Tax Credit Allocation Committee Programs via http://www.treasurer.ca.gov/ctcac/program.pdf.
  • 2. The Four Percent and Nine Percent Tax Credits indicate that housing projects are eligible for different levels of tax credit financing. For the Four Percent Credit, the dollar amount of the tax credits is 30% of the qualified costs of a housing project, while for the Nine Percent Tax Credit, the tax credit value is 70% of the qualified costs. See Novogradac, Michael J. 2002. Novogradac Renewable Energy Tax Credit Handbook-2010 Edition. Novogradac & Company LLP, June 1.
  • 3. Federal and state contributions were aggregated by multiplying federal awards by 10 years of tax credits and adding the one-time state award to obtain the sum of awards categorized as “Total Awards.”
  • 4. Acquisition/Rehabilitation and New Construction are the two different construction classifications that help determine the eligibility basis and building calculation. Novogradac, Michael J. 2002. Novogradac Renewable Energy Tax Credit Handbook-2010 Edition. Novogradac & Company LLP, June 1.
  • 5. Large Family is defined in the California Tax Credit Allocation Committee Code of Regulation Section 10325(g)(1)(A). Prior to 2016, Large Family projects were defined by having at least 25% of units with apartments that have three or more bedrooms. http://www.treasurer. ca.gov/ctcac/programreg/2015/20150121/regulations.pdf.
  • 6. The Regional Opportunity Index has two indices: People-based and Place-based. Our analysis used the place-based index because we are interested in understanding and assessing the spatial patterns of LIHTC developments at the census tract level. The 2014 ROI data are accessible via http://interact.regionalchange.ucdavis.edu/roi/data.html. The Haas Institute served on the peer review committee and assisted the Center for Regional Change in developing the ROI methodology
  • 7. Refer to page 24 in the U.S. Department of Housing and Urban Development Office of Policy Development and Research 2015 Effect of QAP Incentives on the Location of LIHTC Properties report.