A Missed Opportunity? The 4% Low-Income Housing Tax Credit Program

The Low-Income Housing Tax Credit program is the largest housing production subsidy in the U.S. Two types of credit, known as the 9% credit and the 4% credit, are subject to different allocation criteria. The 4% program has been flying under the radar of policymakers, housing advocates, and researchers since its inception. Whereas newly constructed 9% units are increasingly sited in lower poverty neighborhoods, 4% investment is made in high-poverty and low-opportunity neighborhoods. This paper reveals that states have not actively influenced the locational outcomes of 4% projects credit until recently. Policy levers have a more substantial impact on the outcomes of the 9% program. However, the results indicate that increased competition and strong policy levers have enabled some states to influence the siting outcomes of 4% projects. As states have significant power over tax credit allocations and additional financing required to enable the 4% credit, they could consider explicitly using this credit to further fair housing goals and help low-income households reach opportunities. However, careful consideration is needed to balance these goals with neighborhood revitalization.