The Effect of LIHTC Developments on Surrounding Rents and Home Prices in Florida

Building upon existing research, we show that new rental developments financed with equity associated with the federal Low-Income Housing Tax Credit (LIHTC) have had a positive effect on surrounding home sale prices in metropolitan areas throughout Florida. Yet such positive effects raise the possibility that higher real estate values may contribute to higher rents and thus make housing less affordable for market-rate renters. Using an extensive rental database, we examine the effects of the same LIHTC developments on rents in nearby market-rate multifamily properties. We find that, relative to prevailing market trends, the developments have helped decrease nearby market rents in some markets. Put differently, local market-rate rents in those areas were lower after the LIHTC development than the overall trends would have suggested. We do not find any consistent evidence that the developments increased nearby market-rate rents. The additional supply of rental units appears to have outweighed the potentially inflationary pressures resulting from an improved real estate market. These findings suggest that the rental and homeownership markets respond differently to the addition of new affordable units and that LIHTC housing simultaneously generates benefits for its tenants, nearby homeowners, and nearby market-rate renters.