Who Wants Affordable Housing in their Backyard? An Equilibrium Analysis of Low Income Property Development

Who Wants Affordable Housing in their Backyard? An Equilibrium Analysis of Low Income Property Development

Journal of Political Economy. June
2019, Vol. 127, Issue 3, Pages 1063-1117

We nonparametrically estimate spillovers of properties financed by the Low Income Housing Tax Credit (LIHTC) onto neighborhood residents by developing a new difference-in-differences style estimator. LIHTC development revitalizes low-income neighborhoods, increasing house prices 6.5 percent, lowering crime rates, and attracting racially and income diverse populations. LIHTC development in higher-income areas causes house price declines of 2.5 percent and attracts lower-income households. Linking these price effects to a hedonic model of preferences, LIHTC developments in low-income areas cause aggregate welfare benefits of $116 million. Affordable housing development acts like a place-based policy and can revitalize low-income communities.