The voices of Urban Institute's researchers and staff
July 16, 2018

Why the low-income housing tax credit matters for rural communities

Although the lack of affordable housing is often seen as a major issue for cities, rural communities also face shortfalls in rental housing that is decent, safe, and affordable. The Low-Income Housing Tax Credit (LIHTC) program is often the only source of high-quality affordable housing production and preservation in rural areas throughout the United States.

As we explore in our recent report, the 2017 Tax Cuts and Jobs Act (TCJA) poses risks for LIHTC, which provides tax credits to private investors to fund affordable housing construction and preservation. The TCJA slashed the corporate tax rate to 21 percent, decreasing financial incentives for corporations to make equity investments in tax credits. 

Industry sources have estimated that LIHTC production could decline by 235,000 units over the next 10 years. Although additional funds for LIHTC were appropriated in the March 2018 omnibus spending bill, this intervention is not expected to fix the long-term risks the TCJA created for LIHTC.

Rural rental housing challenges are real

Homeownership rates in rural America are higher than the national average, but rural renters face challenges in the housing they can access. One in four rural renters is severely cost burdened, paying more than 50 percent of their income on housing, compared with just under 1 in 10 rural homeowners.

Rural renters’ median household income is less than half of what rural homeowners earn: roughly $21,000 compared with $43,000. In addition, rental housing in rural America is older, faces quality issues such as a lack of complete plumbing or kitchen facilities, and has higher rates of overcrowding. That’s why LIHTC has been such a critical tool for rural communities to provide high-quality housing that is affordable to renters.

LIHTC provides rental options for vulnerable rural communities

Rural communities might be vulnerable if the LIHTC program experiences a future decline in investment. Between 1987 (when the program was created) and 2015 (the most recent year that National Housing Preservation Database data are available), LIHTC has built or preserved around 236,000 units in almost 1,600 rural counties.

2016 US Department of Agriculture (USDA) Rural Development data show that LIHTC has preserved almost 200,000 USDA Section 515 units aimed at low-income families, seniors, and people with disabilities. Although the USDA data are analyzed separately, there is likely overlap with the National Housing Preservation Database units.

For 51 rural counties, LIHTC investments have financed 12 percent or more of all county rental units. For these “high-share” counties scattered across 21 states mostly concentrated in the South, LIHTC has significantly expanded housing opportunity.

These counties have fewer rental options to begin with. On average, they have less than half the total county rental units of other rural counties. The 51 counties also have smaller populations and higher poverty and unemployment rates. LIHTC projects in these 51 counties are also larger than projects in other rural areas, a testament to LIHTC’s importance in these communities.

Choctaw County, Alabama, is one of the 51 rural counties with a high share of LIHTC projects we spotlight in the report. A community built around once-thriving local timber and paper industries now faces an aging population, persistently high poverty rates of over 20 percent since 1980, and high unemployment of 13.4 percent in 2016 (nearly double the US average of 7.4 percent).

Like many rural communities, only a small proportion of housing in Choctaw County is available for rent, about 20 percent of the county’s occupied housing. LIHTC has significantly contributed to the growth of Choctaw’s rental housing stock, financing nearly 25 percent of all rental units.

For renters in Choctaw County and other rural communities that have experienced economic challenges, LIHTC remains critical to support the preservation and development of decent and safe affordable housing. The TCJA jeopardizes this resource, making declining investments in affordable rental housing more likely in the face of growing need in rural America. 

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