Housing USA: LIHTC Allocation to Declining Regions

6 min read

Low Income Housing Tax Credit (LIHTC)-related developers, investors and policymakers all need to know where projects are likely to succeed. It is crucial in enabling these parties to gain returns and effectively house low-income people. But it also leads to scrutiny in answering the question of whether to expand affordable housing in declining regions, such as the Rust Belt. Western Pennsylvania, which I recently visited on a journalism field trip, is a microcosm of this complication.

The region’s economy has been devastated by the ongoing decline of the steel industry that began in the late 20th century. While at one time the industry employed 90,000 people in the area, it collapsed in the mid-1980s and that figure was 44,000 by 1984.

]That figure is now down to 18,000, and the region never really did recover. Pittsburgh showed signs of improvement this last decade, but these positive developments, thus far, are limited primarily to academic and somewhat niche high-skill pursuits. Brookings Institute points to the region’s growth in technological research and development, but also cautions that the city is “in competition with a number of other innovation cities that are rapidly investing billions in a suite of new technologies and industries.”

Many of these benefits are overstated anyway, argues the Allegheny Institute for Public Policy: “For all the touting of Greater Pittsburgh as a center for ‘eds and meds,’ it not only lags the national (2.6 percent growth) and state (0.5 percent growth) numbers for the year-over-year comparison but also its peer Metropolitan statistical areas (MSAs)” in the ed/med sector. The think tank argues that the city’s tax and regulatory policies stymie improvement.

Nearly all metro areas ended the last year worse than they began, but even accounting for the pandemic, Pittsburgh underperformed, writes Stuart Hoffman and Kirk Rankin for Pittsburgh Quarterly. From November 2019 to November 2020, job growth shrank by nearly eight percent – by comparison, Austin shrank 1.1 percent and fellow Rust Belt hub Cincinnati by 3.9 percent. Pittsburgh’s current unemployment rate is 6.5 percent, compared with 4.8 percent for the nation.

Hoffman and Rankin warn: “Below-average labor force growth—even once the effects of the pandemic have waned—means that Pittsburgh’s job seekers, or those looking to transition between positions in the local economy, do not have the bargaining power as their counterparts in more competitive markets do.”

Population decline is a persistent problem. Pittsburgh proper shed 30 percent of its population from 1970 to 1990, and a milder attrition has continued the last few decades. In 2018, the population of Allegheny County declined by 2,204; of immediate Pittsburgh metro counties, only Washington and Butler counties grew—by 50 and 884 respectively—but since 2010, the metro has been the third-slowest-growing among America’s 50 largest.

This stagnation is visible in the city, but morphs into all-out decline once you drive beyond and through southwest Pennsylvania. Small cities, like Apollo, McKeesport, Tarentum and dozens upon dozens more, feel like they are stuck in time, marred by vacancy and blight.

The region’s infrastructure, and that of Pennsylvania as a whole, is also in poor shape. This situation creates problems for development, but especially for low-income projects, according to Rick Swartz with Bloomfield Garfield Corporation, a nonprofit dedicated to building affordable housing in the Pittsburgh area. Per-unit site costs have spiked thanks to gradual deterioration on structures, like sidewalks, steps, retaining walls and catch basins. Water and sewer authorities have increased tap-in fees. In cases where a developer buys a demolished parcel, foundation walls may still be extant, but there is often contamination from lead, mercury and other dangerous toxins. And developers will often need to repave sidewalks following utility installation.

“We can’t pass that cost along to the end user. I can’t sell [that] house to a family at 80 percent area median income (AMI),” Swartz concludes. Swartz and others have called for the city to take on more of these costs, including through a dedicated housing infrastructure fund, arguing that the public sector is responsible for maintenance.

Despite this situation, Pittsburgh received an increased LIHTC allocation last year, following advocacy by the mayor to the state government. Six Pittsburgh projects were awarded nine percent credits, supporting 297 new units. These were further supported by gap funding from the city’s Urban Redevelopment Authority, which itself received $250,000 from the Commonwealth.

One project was Swartz’s, Garfield Highlands. The development, a scattered site project, consists of 25 two- and three-bedroom single-family homes. Swartz tells me that this is the main typology that his LIHTC projects undertake, because working class residents of the neighborhood with children would like to stay there and maintain an easy commute.

“They look at a neighborhood like Garfield that has stabilized, and to them it’s very attractive to stay here,” Swartz says, observing that the Garfield neighborhood has reversed decades of decline dating back to the late 1960s. The project, a lease-to-own arrangement, took four years from its first application to finally receive credits.

Swartz points to Garfield as an ideal neighborhood for working-class LIHTC projects; it is close to job centers, specifically local hospitals. And nearby neighborhoods are seeing “surging” price increases, which makes Garfield attractive and affirms the need to preserve affordability there. But overall Pittsburgh has a high home vacancy rate—10.3 percent according to one source—and aforementioned infrastructure problems.

Juan Powell with The Community Builders (TCB) sees affordable housing as a crucial pathway to reversing the decline. TCB also received LIHTC allocation last year for a Pittsburgh project called Gladstone Residences, a 51-unit structure on a redeveloped school site. Fifteen units will be affordable to renters earning 30 percent of AMI.

Throughout the region housing construction is low. Swartz attributes this situation to poor project economics, suggesting that LIHTC or other subsidies are essential for getting projects moving even with high vacancy rates. Again, he points to municipal support as a critical part of making projects happen.

“You go outside Allegheny County, and these outlying counties…are not raising local resources” to support development, he says. Pittsburgh’s Rental Housing Gap Program, he says, was key to the funding.

LIHTC projects in Western Pennsylvania, then, require major additional subsidies, and many cities are unable to oblige. While LIHTC projects may be beneficial to particular neighborhoods, it is worth asking whether this provides the maximum benefit for low-income residents, given the region’s low overall growth and high inventory. Western Pennsylvania’s bleak economic picture will not be resolved by tax credit allocation, and policymakers must take this into account.