LIHTC scattered site developments and tenant ownership in state qualified allocation plans

• In Event: Can More Housing Supply Improve Outcomes for Vulnerable Communities? Mechanisms and Challenges

Abstract

Although it is more commonly associated with multiunit developments, the Low Income Housing Tax Credit (LIHTC) can be used to finance the construction of single-family homes. These developments are referred to as “scattered site” developments, and their use as an alternative public housing option pre-dates LIHTC as a response to large, high rise “projects” in American urban centers in the 1950s and 60s. These projects ghetto-ized public housing, and stigmatized its expansion into suburban neighborhoods. Building single-family homes for the purpose of providing affordable rental options was more palatable to residents of mixed income and affluent neighborhoods. Nevertheless, scattered site developments have not been a popular option under LIHTC. To date, of the 3 million housing units financed through LIHTC since its inception in 1987, only 64,000 have been scattered site.

There are understandable reasons why scattered sites have been less common than multiunit developments. In terms of per unit cost, single family homes are more expensive than multiunit developments. Moreover, they present additional challenges to manage as affordable units for the mandatory fifteen-year compliance period. Community organizations often couple affordable housing with additional services; scattered sites do not provide a central location for supportive services to low-income households.

From the renter’s perspective, though, single-family homes are an attractive option, particularly for those with children. Managers of scattered site developments report they are not more difficult to operate than multiunit sites, and that tenants are generally happier in these units.

Importantly, since 2001, tenant ownership has been an allowable outcome for LIHTC developments that reach the end of their compliance period. Consequently, scattered site developments that include tenant ownership provide low-income renters a pathway to homeownership, and the eventual wealth that follows from that.

Awarding tax credits for the construction or rehabilitation of affordable housing is a state-controlled process. Each state produces an annual Qualified Allocation Plan (QAP) that determines the points available for various elements of a development proposal. If states wanted to incentivize the construction of single-family housing through LITHC, and provide a pathway to eventual homeownership, they could award more points for scattered site developments and proposals that include tenant ownership.

In this study, I examine the 2024 and 2025 QAP’s for all 50 states to identify (1) whether they award points for either scattered site developments or tenant ownership; (2) how many points are awarded for each; and (3) how those points compare to other incentives in the QAP.

I find that a majority of states favor tenant ownership in tiebreaker scenarios, but that tenant ownership itself does not generally earn proposals any points. When QAPs do award points for tenant ownership, they are equivalent to amenities such as electric charging stations. Scattered site development is mentioned less often in state QAPs, and is generally not awarded any points.

Given constraints on housing development, LIHTC alone is an imperfect policy for building more housing and homeownership opportunities. Nevertheless, states can do more to incentivize its construction through QAPs. 

Author

• Patrick Meehan, University of Michigan
  Presenting Author