Overview

TRA86 adversely affected many investment incentives for rental housing while leaving incentives for home ownership. Since low-income people are more likely to live in rental housing than in owner-occupied housing, this would have decreased the new supply of housing accessible to them. The Low Income Housing Tax Credit was hastily added to TRA86 to provide some balance and encourage investment in multifamily housing for the poor. Over the subsequent 20 years, it has become an extremely effective tool for developing this housing. As of 2006, as much as 30 to 40% of all new multifamily construction has received a subsidy under the program. The estimated cost to the federal Treasury in FY05 was $3.85 billion. The annual allocations under the program increased significantly in 2001 when Congress increased the state allocations by 40%. A majority of tax credit projects also receive subsidies from other government sources. These additional subsidies, which can include development grants and loans at below-market interest rates from local and state governments, can account for a third of total capital subsidies. Thirty-nine percent of low-income tenants also receive rental assistance in the form of housing voucher from HUD's Section 8 program. Though common, these are not necessarily present in a project that benefits from the LIHTC.