The Low-Income Housing Tax Credit (LIHTC) program is the primary public financing mechanism for low-to-moderate income housing development in the U.S. Created through the Tax Reform Act of 1986, the program provides tax credits for developers to build rental units targeted to low- and moderate-income households. Tax credits are allocated to states based on population and then allocated to projects within each state on a competitive basis. To encourage developers to build projects in distressed neighborhoods, projects located in census tracts that are designated “Qualified Census Tracts” (QCTs) by HUD are eligible to receive a “tax credit boost” of up to 30% additional LIHTCs.  (To be designated as a QCT, a census tract must have a poverty rate of at least 25 percent or at least 50 percent of households with incomes that are below 60 percent of the area median income.)

In this paper, we use a multidimensional regression discontinuity (MRD) design to estimate the impacts of the tax credit boost available to projects located in QCTs on the total number of units receiving LIHTCs that were placed in service between 2003 and 2007.  We then use these estimates to assess the effect of QCT designation on poverty concentration.

Our analysis focuses on the 25 largest metropolitan statistical areas (MSAs) based on 2000 population. These MSAs contain over 27,000 census tracts (35 percent of all census tracts) and 41 percent of the U.S. population.  Our data set is constructed by combining information from HUD’s LIHTC data base with data from the 2005-09 American Community Survey.  The former provides data on the number of units receiving LIHTCs that were placed in service as well as data regarding the two “forcing variables” (poverty rate and fraction of households with incomes that are below 60 percent of the area median income).  The American Community Survey provides data regarding various population and housing unit characteristics that are used to perform specification checks.

In addition to implications for the LHITC program, implications for housing and community development policies, in general, that use neighborhood income levels as criteria for location decisions are discussed.