Section of Taxation Publications
  VOL. 57
NO. 4
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 Note: The following is an excerpt from the introduction to the article as published in The Tax Lawyer. Author citations have been omitted for brevity. Tax Section members may read the article in its entirety in Adobe Acrobat format.
 Affordable Housing and the Role of the Low Income Housing Tax Credit Program: A Contemporary Assessment
Sagit Leviner*

*Haifa University Law School, J.D., 2000; University of Michigan Law School, L.L.M., 2002; S.J.D. candidate. This paper was awarded first prize in the Tannenwald Writing Competition sponsored by the Theodore Tannenwald, Jr. Foundation for Excellence in Tax Scholarship and the American College of Tax Counsel, 2003.


A home is certainly more than a shelter. A home is the nexus of an individual and his family's life. It is the haven from which one goes forth to seek his fortune and to which he retreats from daily strife. Good housing is not a guarantor of good citizenship, success in life, or economic achievement. Yet good housing has valuable social and political benefits, among them the maintenance of political stability as well as fundamental social and personal well-being.

However, not all Americans enjoy proper housing conditions. In fact, evidence shows that the shortage of decent and safe housing in the United States is severe and growing worse. Unfortunately, the people who suffer most from this shortage are already vulnerable members of society, that is, low-income households.

The Low-Income Housing Tax Credit Program (LIHTC) was enacted as a temporary measure of the Tax Reform Act of 1986 and made permanent by the Omnibus Budget Reconciliation Act of 1993. Codified in section 42 of the Code, the LIHTC utilizes the tax system to increase the supply of affordable housing and provide low-income households with more extensive assistance.

The LIHTC aims to provide an incentive for the construction and rehabilitation of affordable housing by allowing owners of qualified rental properties to claim tax credits annually over a ten-year period. The provision of tax credits is believed to reduce the overall cost of affordable housing production, which in turn is expected to stimulate investments in the affordable housing market. This tax incentive, rather than any revenue or appreciation associated with the properties, is arguably the true motivation behind private investment in the affordable housing market.

The LIHTC is administered by the Department of the Treasury ("the Treasury") through state and local housing agencies ("the agencies" or "the housing agencies") and is currently the largest federal program to fund the production of rental housing for low-income households. About 700,000 affordable units were produced under the LIHTC from its initiation through 1994 and over 500,000 units since then. Nationally, the LIHTC generates between 60,000 and 90,000 new affordable units a year, demonstrating Congress' increased reliance on the private sector to supply affordable housing.

Since its original implementation, the LIHTC has attracted growing attention and, despite some evident problems, is generally considered a success. However, 15 years after its enactment, due to recent developments in the housing market and local communities, and substantial expansions in the LIHTC budget, a reassessment is in order.

This paper evaluates the LIHTC and suggests methods for improvement, concluding that the current program does not adequately meet the needs of low-and especially the lowest-income households, although it has the potential to do so. Part II explores the current LIHTC-its main features, advantages and disadvantages. Part III addresses other issues related to the evaluation of the LIHTC. These issues concern recent developments in the wider U.S. affordable housing policy, the use of supply compared to demand tax subsidies in this area, and the matter of neighborhood revitalization. Part IV suggests merging new housing initiatives with a slightly revised form of the current tax credit provision and limiting the mortgage deduction allowed under the Code to promote economic efficiency and allocate more funds for low-income households.


Published by
Section of Taxation, American Bar Association
With the Assistance of
Georgetown University Law Center


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