Affordable Housing Issues

The Low Income Housing Tax Credit was created by the 1986 tax reform bill. This $9 billion credit masquerades as an antipoverty program, but it mainly subsidizes developers, investors and the financial industry. It is also a ripe source of fraud.

Georgetown has three approved tax credit developments. The one next to Catfish Parlor on Williams Drive has commenced construction.

The Wall Street Journal had a recent article describing the tax credit program and some of the issues associated with it.

To stimulate low-income housing construction, the federal government allots a share of tax credits to the states, which dole them out to selected developers. The credits cover part of the construction costs of multifamily housing projects. The developers must cap rents for a share of the units, so the benefits of the tax credit are meant to flow to tenants in the form of lower rents. Yet the developers usually sell the credits to banks and investors, often using syndication companies as intermediaries. The investors, developers and middlemen—not poor families—end up grabbing most of the benefits.

Gregory Burge of the University of Oklahoma estimated in a 2010 study that the value of the rent savings for tenants was a mere 35% of the value of the tax benefits going to developers. 

 The housing credit is also a prime target for abuse. Earlier this year a National Public Radio reporter profiled a Miami-area business that stole $34 million from 14 low-income-credit housing projects by submitting inflated construction cost data to the government. Another Miami company discussed by NPR stole $4 million from four projects by the same method.

This brings up an interesting question. Has the Texas tax credit program been audited to ascertain that the funds are being spent consistent with the program requirements?

Even though it is not Georgetown's responsibility, the city should watch the tax credit developments closely for any signs of fraud. After all, it is our money that is being allocated to the developers through tax credits. 

NPR profiled affordable housing earlier this year and found that the affordable housing program costs more, while it shelters fewer people.

And guess who administers this program? The IRS! That's a real confidence builder.