Low-Income Housing Shows How Tax Credits Funnel Dollars to the Wealthy Under the Guise of Benefits to the Poor

By J. D. Alt, author of The Architect Who Couldn’t Sing, available at Amazon.com or iBooks. Originally published at New Economic Perspectives.

Here is what the HUD.GOV website says about the status of low-income housing in America: “Families who pay more than 30 percent of their income for housing are considered cost burdened and may have difficulty affording necessities such as food, clothing, transportation and medical care. An estimated 12 million renter and homeowner households now pay more than 50 percent of their annual incomes for housing. A family with one full-time worker earning the minimum wage cannot afford the local fair-market rent for a two-bedroom apartment anywhere in the United States.”

This amounts to a significant number of people for whom the existing market-based housing solution simply doesn’t work. For a long time, the federal government has been trying, in various ways and with evolving strategies, to help these citizens be housed. What has evolved to become the predominant current strategy is something called “Low Income Housing Tax Credits” (affectionately referred to as “Lie-Techs.”)

From the perspective of modern fiat currency, Lie-Techs, I think, are extremely interesting and revealing of our utter confusion about money. They basically work like this:

Each year the federal government declares a certain dollar value of tax credits (a dollar for dollar cancellation of taxes due) and distributes them to the states. The state housing authorities make these federal tax credits available to regional housing developers who bid for the tax credits by submitting proposals to build specific multi-family rental housing projects. To obtain the tax credits, the developers have to agree, basically, to rent the housing units they create to citizens below stipulated income thresholds—and further agree to charge them a maximum rent that is below a stipulated percentage of their income. These rental parameters must be maintained for a 30 year period.

Next, the developers form an LLC partnership with investors—usually corporations with significant federal tax burdens. The structure of the LLC is that the corporate investors make a “capital contribution” to the partnership (cash—which is used to pay for the building of the housing project) and receive, in return, 99.9% of the tax credits allocated to the project, plus profits and depreciation write-offs. The capital contribution investors make is typically 75-85% of the value of the tax credits, which are then distributed to the investors over a 10 year period. Consequently, in each of those years the investor extinguishes a dollars’ worth of federal taxes for only 75-85 cents, putting him ahead of where he otherwise would have been. In addition, the investor is able to take a depreciation write-off of the housing facility itself, reducing tax burdens further. Overall, as an investment, this amounts to a 20-30% annual return.

Somehow this “process” makes it appear that private investors are financing affordable housing. Even Wikipedia explains that the Lie-Tech program “has leveraged more than $75 billion in private equity investment for the creation of affordable rental housing.” When you think about it, however, it’s actually the other way around: Affordable housing has leveraged more than $100 billion in tax credits for American corporations.

What’s really interesting is the implicit notion that there is a distinction between a tax credit and a dollar. The suggested difference seems to be that a tax credit is something the federal government has lots of because it doesn’t have to collect or borrow them from the American people. Dollars, on the other hand are something the federal government has few of because the only way, apparently, it can get those is by collecting taxes or borrowing from the private sector. So the idea of corralling the private sector into spending its dollars to build affordable housing in exchange for something the federal government doesn’t have to collect or borrow seems like a really neat trick.

But if you understand modern fiat money, you understand the absurdity of this trick: To avoid the appearance that sovereign spending should be used to pay for affordable housing, the federal government “spends” a dollar’s worth of tax credits to obtain 75 cents worth of housing. If the charade of appearances could be lifted, the federal government could be spending a dollar’s worth of fiat dollars to obtain a whole dollar’s worth of housing.

To lift the charade, all you have to visualize is the simple fact that there is no difference or distinction to be made between a tax credit and a U.S. dollar. A U.S. dollar, in fact, literally is a tax credit and nothing else. Other than being a unit of exchange in the general economy, a U.S. dollar has no intrinsic value other than the fact that it is the only thing a U.S. citizen can use to extinguish a dollar’s worth of tax liabilities.

So what does the charade cost us? I guess if you do the math, it costs us the 25% of the affordable housing we could have been creating, and could be creating going forward. But there are other costs as well. For one thing, the complexity and multiplicity of “deals” that have to be calculated, negotiated and recorded to make a Lie-Tech project produce an actual apartment that a real single-mom can afford to rent—that multiplicity of complexities means that a significant part of the funds going into a Lie-Tech project don’t create livable floor-space but, instead, pay the fees of accountants and lawyers. If your goal is to create income for accountants and lawyers—or just create income in the private sector in general—then it doesn’t matter. But if your stated goal is to create affordable apartment spaces, then you’re wasting a good chunk of the dollars Congress appropriates .

Another cost lies in the fact that after 30 years, the investors, who have already made a 20-30% return on their capital contribution, own a piece of real-estate that can now be rented out at market rates—which means the value of their asset goes up substantially, while the number of available affordable housing units declines. Over time, then, new Lie-Tech projects that come on line begin merely to replace old Lie-Tech projects which are converting to market rates. If sovereign spending simply built the affordable housing in the first place, not only would there be more of it (for the same amount of investment) but it could remain affordable for the lifetime of the structures (sixty years or more, assuming they were reasonably well built in the first place).

Finally, if modern fiat currency was properly understood and embraced, it would be possible to imagine a way to create an actual affordable housing market—in which the house-products bought, sold, and rented would themselves be affordable rather than subsidized—a market which low-income wage earners, themselves, could participate in as entrepreneurs, builders, and owners. I hope to explore this possibility in future posts.

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  1. sd

    Sounds like the Skid Row Housing Trust in Los Angeles which, from what I have been told by former tenants, is starting to roll over some of its apartments to market rate.

  2. bob


    A leader is his field-

    “Fortunately, Craig had discovered a new and not yet widely understood detail in the 1986 overhaul of the federal tax code: the low-income housing tax credit. The new tax law offered investors a dollar-for-dollar credit against their income taxes for money they put into low-income housing developments.”

    Pyramid, where he honed his tax avoidance scheming, has moved on to “green bonds” for looting.


    “The letter then moves to the crux of the compliance argument. The Agency and developer assert that actual installation of renewable energy systems was not required. Instead, the letter claims the developer was only required to make promises related to renewable energy and LEED certification in order to qualify for the bonds.”

    1. fakie wallie

      as a former denizen of syracuse, color me not-at-all-surprised. it was always apparent that destiny was an elaborate scam.

  3. Ignacio

    Housing Tax Credits seems to be just another business opportunity created at the expense of all americans. If the renter defaults, can you sell the unit to blackstone?

    1. ambrit

      The coming new model is that, if the renter defaults, you sell the renter to Blackstone. Debt Slavery 2.0

  4. washunate

    The authoritarians love tax credits and public private partnerships. One of their favorite ways of directing resources in the economy. Difficult for those unfamiliar with the topic to see the cost of the spending (both financial and social) since it shows up as less revenue rather than more expenses and the books of real estate developers are not subject to FOIA or even basic public disclosure. LIHTC is pretty much the poster child for why our entire welfare system should be replaced by universal health insurance and universal unemployment insurance. Skip the middlemen, send financial payments directly to people in need.

    But this isn’t because people don’t understand fiat currency. It’s because people do. The power structure has been financing looting by connected insiders via deficit spending – spending not paid for by taxation – for decades now. They know the power of sovereign money and rather like using it to satisfy their lust for control.

  5. Jim in SC

    This piece is right on the money. Low income housing is every real estate operator and every politico’s answer to the question, ‘Where are people going to live when they can’t afford housing?’ It is a completely self serving answer.

    That said, there are many moving parts. In our rapidly growing county the zoning regulations have just been changed to reduce density–in my opinion, or as best I can determine (land use regulations are not the easiest read), the changes have been dramatic. This will have the effect of driving up rents and home prices. Meanwhile, multi-family housing, which has been part of most of the fourteen existing zoning designations, are now restricted to two. There is a homeless encampment in the Northern part of the county with 20-30 residents. I expect it to grow. In my opinion, we need to be working to reduce the cost of housing in general, not creating zones in which to stigmatize low income people.

    It is very difficult to get people to vote against their economic interest. Homeowners benefit from rising home prices. I’m afraid we’ll eventually become like Europe, where, according to one study, one hundred percent of wealth inequality can be explained by whether one owns a house or not.

    1. Jess

      I’m deeply involved in referendum and initiative efforts in my city of 66,000 to stop increases in density. The local politicians say that we must have groaf to finance city services. But we’ve been growing steadily for the past 50 years and it seems to me that if groaf was the solution, we’d have already grown our way to utopia. Quality of life issues, whether it’s air pollution or traffic or school overcrowding have just as much or more value to the average resident as some developer’s profits. The latest boondoogle give-away we’re fighting is an effort to give a developer 30 years free rent in return for destroying the views of our harbor with a massive waterfront mall. Not the same as more residential housing but still brings the traffic and air pollution problems.

  6. Oscar in Oregon

    This is a smear job by the ignorant.

    Yes, tax credits are subsidies. Are they efficient? A useful answer requires comparing them with the real world alternative—direct federal subsidies. You don’t do it.

    The numbers are wrong. Over the years, LiTec credit prices have ranged from the low 70s to over 100 (which is where they are now). Why would anyone pay more than $100 for $100 of credits? Because they’re also getting depreciation (which they would get even without credits).

    The rates of return are wrong—no one gets a 20%-30% return. Rents are low and barely pay for debt and O&M.

    This isn’t corporate welfare–projects do fail, and investors are at risk.

    Legal and accounting fees related to credit work range from 1% to 2%, and are steeply discounted compared to other business work. Hardly a gold mine.

    And, finally, projects are income restricted for more than 30 years—the law requires an extended use period of low income occupancy beyond the 30 years, and many states insist on periods that last the entire expected life of the project. Yes, there are projects that go market rate after 30 years, but they aren’t typical.

  7. Steve H.

    – When you think about it, however, it’s actually the other way around: Affordable housing has leveraged more than $100 billion in tax credits for American corporations.

    Man muss immer umkehren.

  8. cripes

    Land trusts also are becoming popular for investors to “loan” to nonprofits, who pay all carrying and tax, maintenance costs, then revert to the owner after 20 years or so and they can reap the equity appreciation.

    Generally, what is mostly touted as “welfare” benefits to the poor actually are designed to flow into the coffers of banks in the form of SNAP/LINK cards, debit cards for unemployment payments, home care workers and the outrageous fees they generate, medicare/medicaid payments and ACA insurance and the fees going to capitated health plans, whether any medical care is provided or not.

    The thousands of dollars in monthly payments to pharmaceutical companies that are tallied as “welfare” payments to the unfortunate people who need drugs to manage illnesses. All this is presented as wasted tax dollars going to the shiftless poor.

    It just goes on and on.

  9. diptherio

    This is a great explainer on a complicated topic. Thank you, Mr. Alt. The point about dollars and tax-credits being synonymous is very good, and not one that I don’t hear very often.

  10. Unorthodoxmarxist

    Sweden has a housing authority – which is being neoliberalised unfortunately – but that since 1920 has purchased homes at all levels in communities and then rented them out as public housing to all income levels. This seems like a fine way to strike at the sacred tenet of land ownership while creating a cross-income class of people who enjoy low, stable rents (thus stabilizing market-rate apt. rents too).

  11. Arizona Slim

    I know an affordable housing agency CEO who makes a six-figure salary. Which tells me that I’m in the wrong business!

    1. diptherio

      There is this thing called the “Non-Profit Industrial Complex.” It’s huge. Lots of “progressives” live there. They get paid 6 figure salaries to help poor people. If it wasn’t for the all poor people, they wouldn’t have their jobs or their 6 figure salaries. Somehow, they do not see the irony in this.

      1. Dana

        It’s a problem. But I’m not sure that that’s the correct way to frame it. In order to attract the most qualified applicants, NGOs have to offer a salary that’s reasonably competitive with equivalent private sector positions. Why should CEO pay receive greater scrutiny in the NGO world than it does in the private sector? Why is NGOs’ favoring executive pay over client services and direct-service employees, more wrong than for-profit corporations’ favoring executive pay and shareholder profit over worker safety and adequate pay?

        1. sd

          There are qualified candidates for pretty much every position anywhere. one only has to look. If a headhunter wants to find a qualified candidate at an affordbale salary, they can find people.

          1. TheCatSaid

            Good point. I’ve long taken an active interest in HR / recruiting decision-making. People need to be fairly compensated at all levels, but research has shown that the financial compensation is not ultimately the most important factor in someone choosing a new job.

            We need to stop expressing all values in terms of money. It’s a trap that doesn’t seem to take us to where we want to go.

          2. Dana

            My point was that we should be concerned about disproportionate executive salary regardless of the mission or tax status of the organization. Over-emphasis on the issue in the nonprofit sphere gives a pass to private sector executives.

            1. washunate

              And of course it’s not just administrators. Lots of professors in fields like economics, law, and medicine make six figures, too. As well as lots of police chiefs, lawyers, and various prison officials in the legal system.

  12. cripes

    Somehow, somewhere, sometime, all profits are subsidized. But now more than ever. It’s all thats left of the free market miracle.

  13. PeonInChief

    The political establishment has spent lots of energy avoiding the solution to the affordable housing crisis–building and/or buying housing and renting it at prices people can afford.

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