How to Improve the Low-Income Housing Tax Credit

In a piece published by the Federation of American Scientists, Stanley Chang outlines some policy recommendations that would improve the efficacy of the Low-Income Housing Tax Credit (LIHTC) program, a federal program that “has been the backbone of new affordable housing construction nationwide for the last 37 years.”

According to Chang, “Existing LIHTC incentives for nonprofits do not ensure that profits are recycled to build more housing, because many nonprofits have other, nonhousing missions.” Thus, “Incentivizing organizations to use their profits to build more housing will enable LIHTC to create much more housing in the long term.”

Chang recommends amending the federal code governing the program to require entities participating in the program to use profits on housing and offer preference to state and local governments. “If LIHTC funds created projects that recycled their profits into building more housing, LIHTC would create a virtuous cycle to build more and more housing, moving the needle without additional expenditure of taxpayer funds.”