PAST ARTICLES AND EDITORIAL BOARDS IMPROVING THE SUPPLY OF AFFORDABLE HOUSING:
THE ROLE OF THE LOW-INCOME HOUSING TAX CREDIT
David Philip Cohen
6 J.L. & Pol'y 537 (1998)
The author explores the role of the low-income housing tax credit ("LIHTC") as an incentive for the construction and rehabilitation of low-income rental housing across the United States. The LIHTC was created by the Congress in an effort to address the national problem of shortage of affordable housing. The LIHTC was part of the Tax Reform Act of 1986 and was made permanent by the Omnibus Reconciliation Act of 1993. The tax credit, codified in section 42 of the Internal Revenue Code, allows owners of qualified low-income rental housing to claim a tax credit over a period often years in exchange for creating a certain percentage of "low-income" rental units in their newly constructed or rehabilitated buildings. The intended purpose of LIHTC was to create more affordable housing for low-income families.

However, the LIHTC has not met its goal. The problem is that it does not offer sufficient incentive to build affordable housing nor is it cost-effective. It is too easy for housing units to qualify for the tax credit without having to rent to the "most needy" families. Because projects receiving the LIHTC must set their rents for the "low-income" units based on the income limitations of either 50% or 60% of the local area median income, the "low-income" rental units are still unaffordable for most poor people. Since there is no requirement for owners to charge rent at a rate affordable to those earning below 50% of the area median income, there is not incentive for the owners to charge lower rents.

The author makes three recommendations. First, the national median income should be used as the guide in determining the rents for the "low-income" units. Secondly, the law should provide better incentives for developers to maintain more than a minimum number of "low-income" rental units and to provide units that are affordable to the neediest families. And lastly, a complete overhaul of the LIHTC program rather than just amending the flaws in the law. This recommendation advocates Congress to provide tax credits directly to low-income renters in the form of refundable tax credits. This would provide the low-income renters more money for rents and increase chances of finding affordable housing.

The reality is that the issue of affordable housing is a national problem that cannot be fixed by the LIHTC in its current form. After ten years of ineffective existence, Congress needs to take a second look.