Lifetime Citizen Portal Access — AI Briefings, Alerts & Unlimited Follows
Cato scholar tells House panel LIHTC mainly flows to developers and investors, not tenants
Loading...
Summary
At a House Oversight subcommittee hearing, Cato Institute economist Chris Edwards and other witnesses said the Low‑Income Housing Tax Credit is complex, raises per‑unit costs and frequently benefits investors and developers; witnesses and members differed on causes and policy remedies.
WASHINGTON — At a hearing on federal welfare and housing programs, Chris Edwards of the Cato Institute testified that the Low‑Income Housing Tax Credit (LIHTC) — the principal federal tax incentive for affordable rental housing — largely benefits developers and investors rather than low‑income tenants and can raise per‑unit construction costs.
Edwards, who occupies the Kilts Family Chair in Fiscal Studies at the Cato Institute, told the subcommittee that LIHTC provides roughly $14 billion a year in tax credits and that the program’s complexity drives higher costs. “LIHTC is an incredibly complex program with vast amounts of regulations,” he said, noting industry guides exceed 1,900 pages and citing reporting that LIHTC projects in some cities cost as much as $600,000–$900,000 per unit.
Why it matters: LIHTC is a major federal housing subsidy. Members pressed on whether the program expands the housing stock or largely displaces private market development. Edwards cited academic studies, including a 2024 MIT analysis, which he said found that LIHTC often displaces market‑rate production and that “developers capture around half of the LIHTC subsidy and profits.”
Edwards and other witnesses attributed excess costs to regulatory micromanagement, layered financing and long development timelines. He said the 9% LIHTC typically covers roughly 70% of a project’s cost, but investors capture benefits beyond the credit, including tax losses and future capital gains. That combination, Edwards argued, explains strong developer demand for tax credits at the state and local level.
Not all witnesses agreed on the remedies. Edwards recommended tax and regulatory changes — including revising depreciation schedules for apartment buildings and lowering property tax disparities that favor single‑family homes — to encourage private construction. He referenced a Tax Foundation estimate that depreciation reform could produce as many as 2 million additional units over a decade.
Members pressing for program oversight raised fraud and cost‑inflation concerns. Edwards cited GAO and academic reports that contractors and developers have inflated costs and that IRS oversight was limited. Some committee members said LIHTC has yielded needed units in jurisdictions facing acute shortages and cautioned that abrupt changes could reduce affordable housing production.
Selected quote: “The statistical studies that have been done have shown that half or more of the benefits go to the investors and the developers and not to low income tenants,” Edwards said in questioning.
No votes or formal actions were taken. The subcommittee invited follow‑up materials for the record and signaled potential oversight of program administration and federal tax incentives.
