Book Description

The development of affordable housing for low-income households has been a major focus of federal housing policy. Aimed at addressing the housing needs of the most vulnerable households, federal housing policy has always been met with the challenge of meeting the most need with a limited amount of resources. The Low-Income Housing Tax Credit (LIHTC) program has attempted to bolster the development of affordable rental housing for low-income households through the allocation of tax credits. Both non-profit and for-profit entities participate in the LIHTC program as developers. State agencies that allocate credits have the responsibility of meeting the housing needs of low-income households while allocating the least amount of credits necessary to make a project feasible. The question raised in this research is: among for-profit and non-profit developers participating in Delaware's LIHTC program, which developer type incurs the least cost to the federal government? In terms of economic efficiency, the purpose of this question is to determine which developer type can deliver affordable rental units with the least tax credit allocation? The credits allocated constitute a cost to the federal government as a tax expenditure. Regression analysis results showed that non-profit status did not have a statistically significant relationship (p = 0.32) to the amount of tax credits allocated. Additional t-tests comparing mean total square feet and mean number of tax credit units, showed that for-profits are developing larger projects with a greater proportion of tax credit dedicated units and that these mean differences are significant (p = 0.009 and p = 0.032, respectively). The implications of these results for public policy reveal a need for new models upon which affordable housing policy is developed. The current model typically separates developers into two mutually exclusive categories based solely on non-profit status. This dichotomy separates non-profits from for-profits and portrays non-profits as less experienced and less efficient. This paper argues that such a dichotomy is incorrect in that it does not reveal the variety of organizational types that participate in the development of affordable housing. The existence of other developer types, such as those non-profits that operate on a large scale basis and reach production efficiency levels equivalent to that of for-profits, demonstrate the need for the development of an alternate, less mutually exclusive typology. It is within the context of this alternate typology that a new model for the design of housing policy must be developed. This paper also argues that a new model should also include cost-benefit considerations. The findings in this research do agree with the common assertion that the premium that is paid for projects developed by non-profit organizations is primarily due to the incorporation of social support amenities into their projects such as community centers. These social supports drive up total development costs and in turn increase the amount of tax credits necessary to make the projects feasible. Arguments favoring efficiency establish a preference for for-profit development which in many cases does not include the additional social supports. However, research has shown that housing with incorporated social supports is vital to the success of the household. Therefore, housing policy must move in a future direction in which the model upon which it is designed includes measures that weigh the social benefit outcomes of added social amenities against the costs to other social welfare systems in the absence of such amenities. The proposed new models mentioned in this research speak to the need for the continued evolution of affordable housing policies in a direction that not only seeks to get the most product out of a limited amount of resources, but to also maximize the social benefit outcomes so that households can maintain their housing.