Source: United States House of Representatives – Congressman Glenn Grothman (R-Glenbeulah 6th District Wisconsin)
Congressman Glenn Grothman (R-WI), joined by Congressman Paul Gosar (R-AZ), introduced the Low-Income Housing Tax Credit Elimination Act, which will repeal the Low-Income Housing Tax Credit (LIHTC), an outdated, costly, and ineffective program that has primarily enriched politically-connected developers and banks, while doing little to reduce housing costs for low-income Americans.
Currently, LIHTC provides tax credits to developers to subsidize the construction and rehabilitation of affordable housing units. These subsidies cover around 70% of a project’s cost. However, rather than benefiting tenants, the program has become a cash grab for developers and banks. The elimination of LIHTC will save taxpayers a staggering $69.1 billion over a ten-year period.
“The Low-Income Housing Tax Credit is another way for developers to get rich, while hardworking taxpayers foot the bill,” said Grothman. “It’s absurd that the federal government is paying 70% of construction costs to private developers, who often use these funds to build lavish and costly housing units. We need to stop throwing money at a broken system and instead focus on reducing supply constraints that make it so difficult to build affordable housing in the first place.
“Despite its original intent, LIHTC fails to effectively serve low-income tenants. The primary beneficiaries are rich developers, banks, law firms, and state bureaucracies. Only 24% of the programs’ costs benefit low-income households in the form of rent savings. Its elimination will save taxpayer dollars, end the funneling of money to corrupt developers, and allow us to refocus on solutions that work for hardworking Americans.”
“Unfortunately, the government subsidy meant to ease the financial burden of tenants is ripe with abuse. Instead of creating affordable housing for those who need it most, the program produces costly low-income housing and lines the pockets of greedy developers and banks,” said Congressman Paul Gosar.
“The Low-Income Housing Tax Credit is a textbook case of good intentions gone wrong. After nearly four decades and billions in federal subsidies, the Low-Income Housing Tax Credit has done more for banks and developers than for struggling renters. It’s time Congress ended this inefficient corporate welfare program,” said Adam Michel, Director of Tax Policy Studies at the Cato Institute.
“Since its inception in 1986, the Low-Income Housing Tax Credit (LIHTC) has been plagued by the Five Cs: crowding out, cost, complexity, corruption, and cartel,” said Edward Pinto and Tobias Peter, Co-Directors AEI Housing Center. “LIHTC developments often displace housing that the private market would have produced without subsidies, creating a crowding-out effect. The cost to taxpayers is staggering, with the average LIHTC unit priced at approximately $450,000—compared to zero for private developments that would have otherwise been built. The program’s excessive complexity has given rise to a cartel-like ecosystem dominated by a small cadre of developers and nonprofits, who have profited handsomely, while calling for even more subsidies. This has bred corruption and inefficiency. At its core, LIHTC reflects a misguided emphasis on the futile task of building ever more expensive subsidized housing, rather than on policies that allow for the building of housing that is affordable. We applaud Representative Grothman for taking this step to sunset this fundamentally flawed program.”
Background Information
Currently, the federal government provides a tax credit, the Low-Income Housing Tax Credit (LIHTC), to developers to subsidize the construction and rehabilitation of housing units with income limits and rent caps for eligible tenants. These LIHTC tax credits subsidies cover roughly 70% of the cost of qualified housing projects.
A 2009 study found for a large sample of projects that the construction costs per square foot of LIHTC projects were 20 percent higher than for average industry projects.
Because of the complex structure of the program, most of the LIHTC benefits go to the developers and banks, rather than the tenants. A 2017 study found that “tenants capture at most 24% of the [LIHTC] development subsidies.” The ability for states and localities to dole out these lucrative tax credits breeds corruption and funneling subsidies to politically connected developers.
The Low-Income Housing Tax Credit Elimination Act would end this costly, inefficient, and corrupt program. To lower housing costs, policymakers should focus on reducing supply constraints on housing, not funneling tax dollars to politically connected developers.
According to the Congressional Budget Office, repealing LIHTC would save taxpayers $69.1 billion over ten years.
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U.S. Rep. Glenn Grothman (R-Glenbeulah) is serving his fifth term representing Wisconsin’s 6th Congressional District in the U.S. House of Representatives.