Input distortions in the Low-Income Housing Tax Credit: Evidence from building size

Bree Lang

Regional Science and Urban Economics, 2015, vol. 52, issue C, 119-128

Abstract: The Low-Income Housing Tax Credit subsidizes the non-land construction costs of low-income housing units. Because land costs are not subsidized, it may incentivize developers to produce buildings with too much capital from the viewpoint of optimal production. Using data on construction in Los Angeles County between 1993 and 2007, this paper estimates how the Low-Income Housing Tax Credit subsidy affects the size of newly constructed apartment buildings. Holding land area constant, I find the average subsidized building includes 25 to 29% more square footage than unsubsidized buildings constructed in the same year and zip code. The effect is primarily driven by subsidized buildings including more, instead of larger, housing units. Consistent with theoretical predictions, the effects are strongest in locations with low market rent. This input distortion is one reason that housing subsidies that fund the construction of low-income housing may be less cost-effective than subsidies given directly to tenants.

Keywords: Housing; Subsidies; Construction costs (search for similar items in EconPapers)
JEL-codes: H2 R (search for similar items in EconPapers)
Date: 2015
References: View references in EconPapers View complete reference list from CitEc
Citations: View citations in EconPapers (3)

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Persistent link: https://EconPapers.repec.org/RePEc:eee:regeco:v:52:y:2015:i:c:p:119-128

DOI: 10.1016/j.regsciurbeco.2015.03.003

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