Urban gentrification and its impacts have become controversial topics as housing prices rise and new developments in low-income areas attract younger, higher-earning professionals and push out low- and middle-income families. A variety of government programs and tax incentives, including the Low-Income Housing Tax Credit (LIHTC) program, were created to help these families cope with financial challenges and high rents by providing quality housing at below-market prices. Through state and local agencies, the LIHTC program makes nearly $8 billion available annually to investors via tax credits for the “acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households,” according to the U.S. Department of Housing and Urban Development (HUD) website.
Support for these programs is backed by research demonstrating the importance of neighborhood and environment in preparing low-income children for success and social mobility. These types of programs, however, can meet local resistance. This reflects a common perception of affordable, subsidized housing: that its presence in a neighborhood will drive down housing prices in surrounding buildings.
A 2015 study published in Urban Studies by researchers at Texas A&M University, titled “Unpacking the impacts of the Low-Income Housing Tax Credit program on nearby property values,” questions this perception. It looks at changes in housing prices before and after the introduction of LIHTC subsidized housing. Researchers examined data from Cleveland, Ohio and Charlotte, North Carolina from 1996 to 2007, classifying properties based on the proximity to LIHTC developments.
The study’s findings include:
- In general, LIHTC housing developments had negative impacts on housing prices in Charlotte but had positive impacts on nearby housing prices in Cleveland.
- Charlotte housing prices were already 5.4 percent lower in areas where LIHTC housing developments were constructed, as compared to the prices in control areas. This gap widened by 1.2 percent to 6.6 percent after LIHTC units were developed.
- Cleveland housing prices were 8.1 percent lower in areas before LIHTC housing were built. After LIHTC units were constructed, however, nearby housing prices were 7.3 percent higher than in control areas.
In addition, the authors also looked at how impacts of LIHTC developments vary across submarkets in low-, middle-, and high-income neighborhoods in each of the two cities. The findings for this part of the study include:
- In low-income neighborhoods in Charlotte, a one-unit increase in the number of LIHTC housing was associated with a 0.03 percent decrease in housing price. The corresponding price increase in Cleveland was 0.01 percent.
- In middle-income neighborhoods in Charlotte, installation of the first unit dramatically reduced housing prices, but housing prices increased as additional units were built. LIHTC housing had no statistically significant impacts in similar Cleveland neighborhoods.
- A one-unit increase in LIHTC housing increased housing prices in Charlotte’s high-income neighborhoods by 0.05 percent.
The authors observed from their findings that the common perceptions of the impact of low-income housing on housing markets needs to be examined in a more nuanced way. For example, they attribute the variations in LIHTC impacts on housing prices in Charlotte and Cleveland partially to differences in the cities’ preexisting markets and the neighborhood needs in each city. In Charlotte, LIHTC developments brought down nearby housing prices. Cleveland, on the other hand, used LIHTC subsidized housing as a tool with which to stimulate its stagnant housing market and to revitalize distressed communities where “disamenities,” such as dilapidated or vacant buildings, reduced property values and neighborhood safety.
Related Research: A 2010 working paper from The National Bureau of Economic Research looks at how the price of housing grows across neighborhoods within cities during “city wide housing price booms.” Also, see more from JR in this research roundup about gentrification, urban displacement and affordable housing.
Keywords: housing, poverty, gentrification, low-income housing