Comparing the Efficiency and Equity Advantages of Low

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 TBSection 8) § Comparison of Cost Effectiveness (LIHTC vs TBSection 8)

Case Study Identification and Data

Case Study Regions § Four case study regions: ü Tight Markets: San Jose PMSA, Boston PMSA ü Balanced Markets: Miami MSA, Cleveland PMSA § Differences among these regional housing markets: ü Growth difference ü New regions vs. established regions. ü Difference in the severity of housing segregation and discrimination

Data for this Research § LIHTC Database, collected from the following state agencies: ü Florida Housing Finance Corporation ü Ohio Housing Finance Agency ü California Tax Credit Allocation Committee ü 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

How Many LIHTC Projects? Where?

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, ü Fair Market Rent and Area Median Family Income, HUD ü R. S. Mean’s Historic Construction Cost Index; ü 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 Miami New Construction Acquisition & Rehabilitation Both NC and A/R For-profit

San Jose vs. Boston: New Construction dominates in San Jose, the opposite in Boston. Non-profits dominate in both. Boston San Jose New Construction Acquisition & Rehabilitation Both NC and A/R For-profit

Development costs vary widely by region, with Miami at the low end and Boston at the high end. (Dollar in 1996 Value)

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

In Miami, 80% of LIHTC units are proximate to lowquality schools, vs. 51% of Section 8 units (Quality is standardized according to the average metropolitan school performance scores)

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 schools

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

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

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 90 s. ) 56% of TDC 67% of TDC 74% of TDC 68% of 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.

In Miami, projects targeting larger family units tend to be more cost effective (New Construction Projects in the Late 90 s) 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) 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 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 ü Local housing supply and demand. ü Local Family Income. ü Different government practices in administering LIHTC program. ü The existence of housing segregation and

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!!