New Study Reveals Incomes and Rent Burdens of Tax Credit Households

A study entitled "What Can We Learn about the Low Income Housing Tax Credit Program by Looking at the Tenants?" was recently released by Katherine O’Regan, Associate Professor at NYU Wagner Graduate School and the Furman Center, and Keren Horn, Assistant Professor of Economics at the University of Massachusetts Boston. The study describes the incomes and rent burdens of tenants living in Low Income Housing Tax Credit (LIHTC) properties. The authors used tenant-level data from 15 states, representing over 30 percent of all LIHTC units and all regions of the country.

The report is based on tenant data that the U.S. Department of Housing and Urban Development (HUD) is collecting from owners of LIHTC developments. The tenant data collection is the result of the Housing and Economic Recovery Act of 2008 (HERA), which mandated that HUD collect demographic data on the tenants of LIHTC properties annually. As a result of the law, owners and site managers are required to submit data, including the race, disability status, and partial Social Security numbers of everyone who resided in the LIHTC-financed units on Dec. 31 of the previous year. In 2010, HUD asked states to submit data for Dec. 31, 2009. Only about 80 percent of states submitted information during this first collection round, and much of the information submitted was incomplete, so HUD has chosen not to release this data.

The study found that LIHTC recipients tend to have higher incomes than households assisted by other federal rental assistance programs, but that the LIHTC program does serve a significant number of extremely low-income (ELI) households, those earning at or below 30 percent of the area median income (AMI). Approximately 75 percent of all households served by HUD programs such as public housing, vouchers, and project-based Section 8 are ELI, compared to 43 percent of LIHTC households. Moving up the income scale, the study reveals that 37 percent of LIHTC households earn between 31 and 50 percent of AMI; 14 percent earn between 51 and 60 percent of AMI; and the remaining 7 percent earn above 60 percent of AMI.

According to the report, approximately 46 percent of LIHTC recipients receive some other form of rental assistance. Only 10 out of the 15 states analyzed in this report had data on rental assistance, and of the LIHTC households with rental assistance in those 10 states, close to 78 percent were ELI, while just 31 percent of those without rental assistance were ELI. Furthermore, rental assistance was higher among existing tenants than among those first moving into LIHTC housing. The authors suggest that this may be because turnover tends to be lower for households with rental assistance than those without, resulting in the majority of available units being without rental assistance. Multiple studies also found that the larger the share of a state’s LIHTC households receiving rental assistance, the larger the share of ELI tenants.

The report also examined the rent burdens of tenants living in LIHTC properties. Because the rents charged at LIHTC properties aren’t based on the actual income of the household occupying the unit, as is the case with most HUD programs, there’s a greater chance that LIHTC households will spend more than 30 percent of their income on rent and utility costs. The analysis shows that 42 percent of LIHTC tenants have a rent burden between 31 percent to 50 percent, while 17 percent are severely rent burdened, paying over half of their income on housing costs.

The analysis also reveals that rent burdens vary depending on income, with 31 percent of ELI households facing a severe rent burden, compared to just 0.2 percent of households earning above 50 percent of AMI. However, when examining just those LIHTC households without rental assistance, the number of ELI households facing a severe rent burden jumps to 57 percent. Because the federal statute sets LIHTC maximum rents to be affordable at either 50 percent or 60 percent of AMI, one would expect almost all ELI households without rental assistance to face a severe cost burden.

The authors suggest two factors that may contribute to lower rent burdens among these households. First, many developers may have committed to lower rents when applying to the program. Second, other owners may set rents below the federal levels for mission or market-driven reasons. In fact, the report finds that in LIHTC units without rental assistance almost all (99 percent) of households are paying rents at or below the maximum allowable rents, and 43 percent are paying rents that are less than 80 percent of the maximum allowable rent. Furthermore, 81 percent of units without rental assistance that charge rents that are at least 50 percent below the allowable maximum rent are occupied by ELI households. The authors conclude by recognizing the limitations to this analysis, including the fact that not all states are represented in this sample.