Comparing the Efficiency and Equity Advantages of Low Income Housing Tax Credit Program (LIHTC) with Section 8

Voucher Program---- A Regional Difference

Lan Deng

Dept. of City and Regional Planning

University of California at Berkeley

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?

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?

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)

Case Study Identification and Data

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

Data for this Research

LIHTC Database, collected from the following state agencies:Florida Housing Finance Corporation Ohio Housing Finance AgencyCalifornia 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 project’s Final Cost Certification File or Underwriting Reports etc.

How Many LIHTC Projects? Where?

Dataset 1: General Project Information (used

for spatial analysis)

Dataset 2: Project Financial Information

(used for cost analysis)

No. of Projects No. of Projects

Miami, FL 126 29

Cleveland, OH 131 29

San Jose, CA 96 66

Boston, MA 210 51

Region

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, HUDR.S. Mean’s Historic Construction Cost Index;Historic 30-year conventional mortgage rate from Federal Reserve

Bank

How the LIHTC differs by MSAs

Miami vs. Cleveland: For-profit New Construction dominates in Miami. It’s the opposite in Cleveland.

New Construction

Acquisition & Rehabilitation

Both NC and A/R

For-profit

8

36

31

43

3

Nonprofit

For-Profit

Miami

18

15

37

43

16

Forprofit

Nonprofit

Cleveland

San Jose vs. Boston: New Construction dominates in San Jose, the opposite in Boston.

Non-profits dominate in both.

New Construction

Acquisition & Rehabilitation

Both NC and A/R

For-profit

658

5

26

43

Nonprofit

Forprofit

Developer Unknown

San Jose Boston

23

20

13

335

51

20

Forprofit

Nonprofit

Developer Unknown

Nonprofit

Development costs vary widely by region, with Miami at the low end and Boston at the high end.

(Dollar in 1996 Value)

76,815

50,197

89,580

72,504

130,999

103,394

167,727

109,671

0

40,000

80,000

120,000

160,000

200,000

Pro

ject

Cos

t per

Uni

t

Miami Cleveland San Jose Boston

New Construction Acquisition / Rehabiliation

Comparison of Spatial Outcomes (LIHTC vs Tenant Based Section 8)

Neighborhood Income Neighborhood Racial Composition School Quality

Except for San Jose, most of LIHTC and Section 8 units are located in very low income and low

Income neighborhoods

0%

20%

40%

60%

80%

100%

LIHTC Section 8 LIHTC Section 8 LIHTC Section 8 LIHTC Section 8

% o

f Uni

ts

Very Low Income Neighborhoods Low Income Neighborhoods

66%

75% 77%73%

27%32%

75%

49%

Miami Cleveland San Jose Boston

Tenant-based Section 8 program not always works better than LIHTC program in bringing low income

families to middle income neighborhoods

26%

8%

14%12%

9%11%

18%

21%

0%

10%

20%

30%

Miami Cleveland San Jose Boston

LIHTC Section 8

% of Units in Middle Income Neighborhoods

(Except for Boston) similar proportions of assisted families are located in the most segregated

neighborhoods, regardless of program type.

12%

53%

29%

3%10%

50%

11%6%

0%

20%

40%

60%

Miami Cleveland Boston San Jose

% o

f Uni

ts

LIHTCSection 8

Ghettos: over 80% are blacks over 10% are blacks

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)

-

20

40

60

80

100

-4 -3.5 -3 -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2Standardized School Performance Score

Cumulative % of V/C Units

Cumulative % of LIHTC Units

The Cumulative School Quality Distribution of LIHTC Units and Section 8 Voucher/Certificate (V/C) Units in Miami MSA

Metropolitan Average

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 schoolsThe Cumulative School Quality Distribution of LIHTC Units and

Section 8 Voucher/Certificate (V/C) Units in Cleveland MSA

-

20

40

60

80

100

-2.5 -2.0 -1.5 -1.0 -0.5 0.0 0.5 1.0 1.5

Standardized School Performance Score

Cumulative % of V/C Units

Cumulative % of LIHTC Units

Metropolitan Average

In San Jose, the school quality distribution of LIHTC units and Section 8 units are very similar

0

20

40

60

80

100

-3 -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2Standardized School Performance Score

Cumulative % of V/C Units

Cumulative % of LIHTC Units

The Cumulative School Quality Distribution of LIHTC Units and Section 8 Voucher/Certificate (V/C) Units in San Jose MSA

Metropolitan Mean

In Boston, 80% of LIHTC units are proximate to low quality school, vs. 60% of Section 8 units

The Cumulative School Quality Distribution of LIHTC Units and Section 8 Voucher/Certificate (V/C) Units in Boston MSA

-

20

40

60

80

100

-3 -2.5 -2 -1.5 -1 -0.5 0 0.5 1 1.5 2Standardized School Performance Score

Cumulative % of V/C Units

Cumulative % of LIHTC units

Metropolitan Average

Comparison of Cost Effectiveness (LIHTC vs Tenant Based Section 8)

Average Development Subsidy across Regions

Development Subsidy vs. 30-year Voucher Subsidy

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.)

$58,596

$68,239

$85,920

$124,200

Miami

Cleveland

San Jose

Boston

Total Development Subsidy Per Unit ( in 1996 Dollars)

56% of TDC

67% of TDC

74% of TDC

68% of TDC

TDC: Total Development Cost

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.

1.40

0.89

0.72

1.21

0.00 0.50 1.00 1.50 2.00

San Jose

Miami

Cleveland

Boston

Mean Ratio of Total Development Subsidy over 30-Year Voucher Subsidy

In Miami, projects targeting larger family units tend to be more cost effective

(New Construction Projects in the Late 90s)

-

0.25

0.50

0.75

1.00

1.25

1.50

1.75

2.00

- 0.50 1.00 1.50 2.00 2.50 3.00 3.50 4.00

A Project's Average Unit Size (No. of Bedroom Per Unit)

Co

st E

ffec

tive

nes

s R

atio

Cost Effectiveness Ratio =A Project’s Total Development Subsidy / 30-Year Voucher Subsidy

In San Jose, LIHTC Projects have become more cost effective over time

(New Construction Projects)

-

0.5

1.0

1.5

2.0

2.5

1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001Year

Co

st

Eff

ec

tiv

en

es

s R

ati

o

Cost Effectiveness Ratio =A Project’s Total Development Subsidy / 30-Year Voucher Subsidy

In San Jose, projects targeting lower income families also tend to be more cost effective

-

0.5

1.0

1.5

2.0

0% 10% 20% 30% 40% 50% 60% 70%

A Project's Average Targeting Family Income (% of AMI)

Cos

t Effe

ctiv

enes

s R

atio

Cost Effectiveness Ratio =A Project’s Total Development Subsidy / 30-Year Voucher Subsidy

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.

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!!