Modify allocation of Low-Income Housing Tax Credits to reinforce location efficiency


The Low-Income Housing Tax Credit is a federal program that subsidizes the rehabilitation and construction of affordable and workforce housing. States should modify the allocation of Low-Income Housing Tax Credits to encourage affordable housing where walking to work, to school and for simple errands is an option.

A number of states have modified the allocation criteria for tax credits to encourage new affordable housing to be built near employment and transit centers. Nearly all states have allocation criteria that encourage rehabilitation and preservation of historic and existing low-income housing, target investment to existing communities or communities of most need, and restrict development in environmentally sensitive or undesirable areas. Many states award points to projects if they are located near or within a specific distance (1/4 mile, for instance) of retail, civic and recreational uses.


Each state is required by federal law to develop a Qualified Allocation Plan that establishes state policy goals for the use of housing credits. The Qualified Allocation Plan is adopted each year by the state housing credit agency. Federal law requires that the Qualified Allocation Plan give priority to projects that serve the lowest income households and remain affordable for the longest period of time. But states have the flexibility to establish additional criteria so that tax credits meet their housing goals.

States can promote their policy objectives via the Qualified Allocation Plan in several ways. The most direct one is to establish a threshold requirement whereby credits are restricted to projects that meet the requirement. States can also establish a credit set-aside or create a system where points are awarded based on certain development characteristics. Most states promote housing goals by modifying their scoring process because it retains flexibility.


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