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 lowincome 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 Agency
 California 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, HUD
 R.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.
Cleveland
Miami
Nonprofit
Nonprofit
8
16
18
31
15
43
43
36
For-Profit
37
Forprofit
3
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
Developer Unknown
Developer
Unknown
5
23
6
20
8
Nonprofit
Nonpro
5
20
51
43
13
Forprofit
26
3
Nonprofit
35
Forprofit
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)
200,000
Project Cost per Unit
167,727
160,000
130,999
103,394
120,000
76,815
80,000
109,671
89,580
72,504
50,197
40,000
0
Miami
Cleveland
New Construction
San Jose
Boston
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
100%
75%
80%
77%
75%
73%
% of Units
66%
60%
49%
40%
32%
27%
20%
0%
LIHTC
Section 8
Miami
LIHTC
Section 8
Cleveland
Very Low Income Neighborhoods
LIHTC
Section 8
San Jose
LIHTC
Section 8
Boston
Low Income Neighborhoods
Tenant-based Section 8 program not always works
better than LIHTC program in bringing low income
families to middle income neighborhoods
30%
26%
21%
18%
20%
14%
12%
11%
8%
10%
9%
0%
Miami
Cleveland
San Jose
Boston
LIHTC
% of Units in Middle Income Neighborhoods
Section 8
(Except for Boston) similar proportions of assisted
families are located in the most segregated
neighborhoods, regardless of program type.
% of Units
60%
53%
40%
20%
LIHTC
Section 8
50%
29%
12% 10%
11%
3%
6%
0%
Miami
Cleveland
Boston
Ghettos: over 80% are blacks
San Jose
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)
The Cumulative School Quality Distribution of LIHTC Units and
Section 8 Voucher/Certificate (V/C) Units in Miami MSA
100
Cumulative % of V/C Units
80
Cumulative % of LIHTC Units
60
40
20
-4
-3.5
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
Standardized School
Performance Score
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 schools
The Cumulative School Quality Distribution of LIHTC Units and
Section 8 Voucher/Certificate (V/C) Units in Cleveland MSA
100
Cumulative % of V/C Units
Cumulative % of LIHTC Units
80
60
40
20
-
-2.5
-2.0
-1.5
-1.0
-0.5
0.0
0.5
Metropolitan Average
1.0
1.5
Standardized School
Performance Score
In San Jose, the school quality distribution of
LIHTC units and Section 8 units are very similar
The Cumulative School Quality Distribution of LIHTC Units and
Section 8 Voucher/Certificate (V/C) Units in San Jose MSA
100
Cumulative % of V/C Units
80
Cumulative % of LIHTC Units
60
40
20
0
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
1
1.5
2
Standardized School
Perform ance Score
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
100
Cumulative % of V/C Units
Cumulative % of LIHTC units
80
60
40
20
-
-3
-2.5
-2
-1.5
-1
-0.5
0
0.5
Metropolitan Average
1
1.5
2
Standardized School
Performance Score
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.)
Boston
San Jose
$124,200
56% of TDC
$85,920
67% of TDC
$68,239
Cleveland
74% of TDC
Miami
$58,596
68% of TDC
Total Development Subsidy Per Unit ( in 1996 Dollars)
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
Boston
1.21
Cleveland
0.89
Miami
0.72
San Jose
0.00
0.50
1.00
1.50
2.00
Mean Ratio of Total Development Subsidy over 30-Year Voucher Subsidy
In Miami, projects targeting larger family units tend to
be more cost effective
Cost Effectiveness Ratio
(New Construction Projects in the Late 90s)
2.00
1.75
1.50
1.25
1.00
0.75
0.50
0.25
-
-
0.50
1.00
1.50
2.00
2.50
3.00
3.50
A Project's Average Unit Size (No. of Bedroom Per Unit)
Cost Effectiveness Ratio =
A Project’s Total Development Subsidy / 30-Year Voucher Subsidy
4.00
In San Jose, LIHTC Projects have become
more cost effective over time
(New Construction Projects)
Cost Effectiveness Ratio
2.5
2.0
1.5
1.0
0.5
1991
1992
1993
1994
1995
1996
1997
1998
1999
2000
Year
Cost Effectiveness Ratio =
A Project’s Total Development Subsidy / 30-Year Voucher Subsidy
2001
Cost Effectiveness Ratio
In San Jose, projects targeting lower income
families also tend to be more cost effective
2.0
1.5
1.0
0.5
0%
10%
20%
30%
40%
50%
60%
A Project's Average Targeting Family Income (% of AMI)
Cost Effectiveness Ratio =
A Project’s Total Development Subsidy / 30-Year Voucher Subsidy
70%
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!!