This Is What “Effective” Looks Like at HUD?

Yesterday HUD Secretary Ben Carson tweeted that “The Low-Income Housing Tax Credit [LIHTC] is one of the most effective tools we have to create affordable housing.” And Secretary Carson’s presidential advisor published an op-ed yesterday which lauded LIHTC as a prime example of “the most effective and efficient use of the government’s resources.”

That is high praise for a program known for expense, complexity, lack of oversight, and abuse. LIHTC is arguably one of the most inefficient housing subsidy programs that the federal government administers.

Chris Edwards and I detail some of LIHTC’s failings in our report published earlier this week. One of LIHTC’s problems is that it doesn’t successfully accomplish its own objectives to redistribute to low-income tenants and create new housing.

First, most of the LIHTC subsidy goes to developers, lawyers, accountants, and financiers rather than low-income tenants. A 2011 study found that low-income tenants capture one-third of the subsidy. That leaves two-thirds of the benefit for corporations, banks, accountants, and lawyers involved in the process.

Second, LIHTC displaces similar market-rate housing. A recent study estimated that “nearly 100 percent of LIHTC development is offset by a reduction in the number of newly built unsubsidized rental units.” That means LIHTC requires taxpayers fund housing that would be built on the private market.

Another problem is that LIHTC is relatively expensive even compared to other housing and other government housing programs. Michael Eriksen’s work suggests LIHTC units cost 20% more per square foot than medium-quality market-rate housing, and the Government Accountability Office (GAO) found LIHTC units cost 19-44% more than housing voucher units over their lifetime.

Not to mention, LIHTC has a history of fraud and abuse. NPR ran a documentary that outlined some of the recent cases earlier this year.

This problem is likely due to the federal government’s “minimal” oversight of the program. The IRS oversees LIHTC but has only audited 13 percent of state administrators during the program’s entire existence. As a GAO auditor put it earlier this year, the "IRS and no one else in the federal government really has an idea of what's going on."

This is just a sampling of LIHTC’s problems; additional issues are noted in the report. If LIHTC is HUD’s version of an “effective” and “efficient” government program then that explains a lot.

See our report for more details on the Low-Income Housing Tax Credit.