Why Do Republicans Support the Low-Income Housing Tax Credit?
Publicly funded homes in some cities are costing taxpayers more than $1 million per unit, but Trump’s “big, beautiful bill” would increase funding for these inefficient projects.
President Donald Trump's "big, beautiful bill" aims to avert the tax increases that would result from the expiration of the 2017 Tax Cuts and Jobs Act, and it's drawn criticism for not doing enough to reduce the debt or deficit. Earlier in June, The Washington Post reported on publicly funded homes in some cities costing taxpayers more than $1 million per unit, but little attention has been paid to Republican support for the Low-Income Housing Tax Credit (LIHTC) which is partially responsible for these cost increases, and which would receive a budget increase from $13.5 billion to $14 billion in the Republican bill. For a party theoretically devoted to reining in government spending, the housing tax credit portion of the tax bill does the opposite.
The bill extends the temporary 12.5 percent increase in the LIHTC through 2029. The accounting firm Novogradac has estimated that some 527,000 subsidized rental apartments could be financed between 2026 and 2035, as the 10-year tax credits are used. Their cost would come on top of the ongoing expense of the hundreds of billions in previously allocated 4 percent and 9 percent tax credits, which housing developers sell to finance construction and write off gradually. Since 1987, approximately 3.7 million LIHTC units have been built.
The primary criticism of this system has focused—not incorrectly—on the high cost of construction, which can be staggering. The Terner Center for Housing Innovation at the University of California, Berkeley, found that the typical tax credit–financed project in California costs $708,000 per unit. In Chicago, the Evergreen Real Estate Group said that its Encuentro Square LIHTC-financed projects cost $766,350 for each of its 89 units.
Costs are driven by what the Congressional Research Service describes as a bureaucratic "process of allocating, awarding, and then claiming the LIHTC" that is too complex and lengthy. Costs continue to increase, driven by a 59-page IRS statute, which raises questions about the extent to which the increased tax credits will actually finance new housing. As Chris Edwards of the Cato Institute has found, "the credit has spawned a large industry of law and accounting firms to administer it because it is so complex."
Although the high costs of the LIHTC are alarming, Republicans concerned with upward mobility—as evidenced by their backing of work requirements for Medicaid and a potential time limit on public housing—should examine closely the rules and experiences related to tenants in LIHTC apartments.
A lone study from the Terner Center found that economic upward mobility was not the norm for LIHTC tenants, with many living in their unit for over nine years, and more than half were original residents of their unit. "LIHTC is thus providing deep and long-term subsidies to some households, but it is unlikely that these residents will ever have the significant wage growth needed to move out and open up the unit to someone new," the report says.
That lack of increased income may reflect the fact that 78 percent of those in Terner's study were women, raising the question of whether its income limits help encourage the formation of single-parent households. It's also worth noting that 30 percent of LIHTC tenants were not U.S. citizens.
In this context, it becomes difficult to understand why Republicans support the current LIHTC. In a testimony on May 7, former Secretary of Housing and Urban Development Ben Carson told the House Oversight Committee that "by aligning incentives toward self-sufficiency, promoting upward mobility, and reducing long-term taxpayer burdens," the LIHTC "can be an important tool for addressing America's housing challenges." He included it among programs that "uphold the dignity of work, strengthen traditional family structures, and offer real hope for upward mobility."
It's hard to square such claims with the actual experience of LIHTC tenancies. Carson promoted tax credit housing as a means of "reducing long-term taxpayer burdens by avoiding the pitfalls of direct government construction." In other words, it's better than straight public housing. But this has been the Republican approach since Richard Nixon halted new public housing in favor of housing vouchers, which have also become a progressive favorite plagued by long-term dependency.
As they refine the tax bill, Republicans should consider ways to use tax credit housing, since it's likely to continue, to actually achieve Carson's stated goals. The program should prioritize new tenants willing to accept a time limit and work requirement, perhaps in exchange for higher, short-term rent subsidies, allowing them to save funds for potential homeownership.
It should also bar cities from imposing rent controls on tax-credit-financed housing, currently instituted by New York City. Limiting rent increases is a sure way to gut property maintenance and lead tax-credit housing on the same downward spiral as public housing projects.
It's worth noting that one member of the House Oversight Committee was not persuaded by Carson. Following the hearing, Rep. Glenn Grothman (R–Wis.) introduced the "Low Income Housing Tax Credit Elimination Act", describing the program as "an outdated, costly, and ineffective program that has primarily enriched politically-connected developers and banks, while doing little to reduce housing costs for low-income Americans."
The LIHTC has become the major driver of U.S. subsidized housing. Its high construction costs should raise the question of whether it should continue at all. But if the tax credit does exist, it should encourage, not impede, upward mobility.
