In a recent year-long investigation, Frontline PBS and NPR delved into the affordable housing industry. The result was Poverty, Politics and Profit, an hour-long documentary on PBS, as well as several pieces on NPR and on both organization’s websites. While drawing attention to the nation’s affordable housing crisis is an important goal, in their work PBS and NPR seriously misrepresent the Low-Income Housing Tax Credit (LIHTC), a crucial tool for building affordable housing.
LIHTC works as a public-private partnership, and it was created under President Reagan as a replacement for the old system of government built public housing. It offers a tax credit to developers in exchange for building affordable housing. The developer then sells that tax credit to an investor to raise money for construction, with the resulting units required to remain affordable for 30 years.
Over the past two decades LIHTC funding has grown considerably, from just over $4 billion in 1997 (inflation adjusted) to almost $7 billion in 2014. But during that time, the number of units produced each year has dropped from 70,000 to under 60,000. It’s a problem that’s worth looking into.
Unfortunately, this investigation was more interested in flashy anecdotes than a data driven analysis. Their work repeatedly refers to two cases of fraud found in south Florida, where developers embezzled a combined $38 million. Certainly, any level of fraud is too much, and it’s very possible that more federal oversight of LIHTC could be helpful.
But this represents a drop in the bucket of the program’s multi-billion-dollar budget. The PBS/NPR investigation found no other instances of fraud, and they uncovered no evidence pointing to wide-spread fraud in the industry.
The report also spends considerable time focusing on the commissions that investors and middle-men, called syndicators, make for their work. These payments are portrayed as a ballooning, shadowy industry, complete with images of men in suits laughing into their cocktails.
In fact, in recent decades increasing market competition has cut the rate of return for LIHTC investors by half. Since the mid-1990s, rates have gone from double digits to a more moderate 4 to 6 percent.
So why hasn’t increased money resulted in more LIHTC units? PBS and NPR actually covered all the major reasons in their reporting—albeit with significantly less gusto than the fraud and abuse angle.
Why more money is producing less units
1) Rising construction costs: Over the same period the report considered, construction costs increased significantly faster than inflation. According to their own calculations, this alone accounts for 50 percent of the change in price per unit.
2) Cuts in other federal funding: Affordable housing units often have multiple channels of subsidy, with more than one program helping to keep a unit affordable. Two of the biggest programs that supply this extra coverage, the federal HOME grant and the Community Development Block Grant, have been subject to painful cuts during the period in focus. This means that more LIHTC funding is needed for each unit to hit the same affordability levels.
3) Deeper affordability: At the same time that other funding has been disappearing, officials have been making a push to make units affordable to lower-income families. That’s a great goal, but it costs more money, meaning that fewer units get built overall.
4) Neighborhood choice: Similarly, in an effort to avoid creating concentrated pockets of poverty, more LIHTC buildings are being built in wealthier areas. It’s another worthy goal that, again, costs more money.
While Poverty, Politics and Profit seems to love the idea of a shadow network of affordable housing political bosses, what emerges instead is the picture of a program that’s consistently producing in the face of rising costs and changing priorities.
Then again, Bipartisan Program Provides Affordable Homes for Millions just doesn’t have the same ring to it.