# Poverty, Politics and Profit: How We Did the Math

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May 9, 2017
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As part of our joint investigation into the affordable housing crisis, FRONTLINE and NPR took a closer look at the nation’s largest housing construction program for low-income renters – the Low-Income Housing Tax Credit (LIHTC) program.

Millions of families are what housing experts call “rent burdened,” meaning they pay more than 30 percent of their income to keep a roof over their head. And millions of them pay more than half of their income in rent. So at a time of growing need for affordable housing, we wanted to understand how well this program accomplishes its primary mission: creating new units for low-income families.

Measuring the program’s success can be difficult, since data on the total cost of each development is not readily available. Each state tracks the information differently, and there’s no central database. The Department of Treasury, which oversees the tax credit program through the IRS, declined to comment.

The most complete data available comes from the National Council of State Housing Agencies (NCSHA). Each year, the association collects data from states on how much they hand out in federal tax credits to help pay for the new housing – what’s known as tax credit allocation. The association also gathers information on the total number of units those dollars are expected to create. Each development has many units, some as small as 20, others closer to 200.

We focused our analysis in two key ways. First, we looked at the largest share of the LIHTC program. Known as the 9 percent tax credits, these credits are used to help subsidize around 70 percent of the total development costs. Second, we limited our timeframe to the years that housing economists told us had the most accurate data. The analysis started with figures for 1997 and ended with 2014, the last year for which numbers were available.

To determine the cost of the tax credits we had to do a little math.

States report the annual value of their tax credit allocations; this is how much the allocations cost taxpayers through lost revenue. A state will offer a credit allocation worth a certain value, say \$1 million, but that amount is actually available to the investor every year for 10 years.

To determine the actual value of the 10-year allocation, you can’t simply multiply by 10. As economists advised us, it’s important to account for the buying power of a dollar at the time the allocation was made, as well as in each subsequent year. To do this, economists use what’s called a present value calculation. For our present value calculation, we used a conservative interest rate – the 10-year U.S. treasury rate. We then adjusted that amount for inflation using the Consumer Price Index, posted by the Bureau of Labor Statistics.

To find out how many units the program has been producing, we looked at the number of units originally proposed by developers when they first received a tax credit allocation.

Here’s what we found:

• Between 1997 and 2014, the annual number of units dropped 16 percent, from 70,220 to 58,735.
• Between 1997 and 2014 the annual cost to taxpayers increased 66 percent in tax credits.

What accounted for the increase in credits and drop in units?

First, we looked at construction costs. We used the most widely accepted construction cost inflation calculator, the RSMeans Index, and found that increased construction costs accounted for about half of the 66 percent increase in tax credit allocations.

Representatives for the largest tax credit industry associations told FRONTLINE and NPR in a written statement that several factors have had an effect on the amount of tax credits needed. Those include the loss of other federal funding, or “soft subsidies,” such as the HOME Investment Partnership program and the Community Development Block Grant (CDBG) program. They also pointed to the increased cost of trying to create units for low-income renters. They said factors such as increased amenities required by states and the push to move more units into “areas of opportunity” increased the need for tax credits.

These factors have had an effect, but there’s limited data to quantify exactly how much they’ve impacted production. While funding for the HOME and CDBG programs have dropped by about 50 percent, there’s no data tracking exactly how much of those dollars went to the tax credit program. And data from the NCSHA show that less than 27 percent of units received subsidies from these two programs in 2014, while just 16 percent did in 2000.

Similarly, there’s no data tracking how much more in tax credit allocations developers might need in order to subsidize rents for families with extremely low incomes. Data from the NCSHA shows that the percent of units targeted for the poorest Americans was 4 percent in 2000 and 9 percent in 2014.

The tax credit industry also stated that the profitability of the industry has declined.

Mary Tingerthal, a NCSHA board member, agreed with industry officials.

“I think there are good reasons why the program is producing fewer units,” Tingerthal said. “Some of those is that we’re trying to produce more units in areas of opportunity, areas that are perhaps more expensive. We’re also trying to do things like ending homelessness. And that simply does cost us more in terms of credits. It’s not just a numbers game.”

After investigating the tax credit program, what’s clear is that there are multiple reasons why it’s producing less affordable housing and costing more. But without more data or stronger oversight, it’s hard to know exactly why fewer units are being produced.

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