US Housing Tax Credit Program Faces Renewed Scrutiny Over Affordability Gaps
Economists and researchers warn the Low-Income Housing Tax Credit is failing to assist those in deepest need, yet retains strong bipartisan political support and continues to receive funding increases.
A ProPublica investigation has revealed that the US federal Low-Income Housing Tax Credit (LIHTC) program, which distributes up to $15 billion in annual subsidies, is frequently generating housing that is no more affordable than market-rate apartments. In cities including Portland, Seattle, and Denver, these subsidized units are priced for households earning 60% of the median income, a threshold that renders them inaccessible to the lowest-income renters and has resulted in high vacancy rates.
In Portland, Oregon, where thousands of residents experience homelessness, developers have utilised the federal credits alongside local funding to construct thousands of new units. However, the affordability requirements often only necessitate rents reachable by someone earning approximately $75,000 annually. This places the monthly cost of a one-bedroom unit at around $1,400, which is comparable to typical unsubsidised rents in the city. Consequently, nearly 2,000 of Portland’s subsidised units sat vacant at the last count, as reported by local media outlets.
Economists and academic researchers have warned for decades that this outcome undermines the program’s efficacy. Studies indicate that the LIHTC, which supports nine out of every ten subsidised units built in America, fails to expand the overall housing supply beyond what the market would have produced independently. Independent analyses suggest that redirecting funds to rental vouchers could benefit significantly more people, with some estimates suggesting the impact could be double that of the current construction-focused model.
Despite these criticisms and historical warnings, the program maintains robust bipartisan support and has seen funding increases, including a major expansion approved during the Trump administration. Former HUD Secretary Ben Carson and senators such as Ron Wyden and Maria Cantwell have defended the initiative, arguing it leverages private accountability to increase supply. Wyden noted that the tax credit remains the most successful federal housing construction program and one that has not been targeted for cuts by Republicans.
The divergence from the program’s original intent dates back to its inception in the 1980s. Kirk McClure, an emeritus professor of urban planning and one of the credit’s original architects, noted that developers found it more profitable to subsidise 100% of units at the minimum discount rather than offering deep discounts on a smaller portion. This structural issue has persisted, with the Congressional Budget Office as early as 1992 concluding the program was more suited to investors than poor renters, yet Congress made it permanent shortly thereafter.
