Dear Editor,

Thank you for your timely article “Renovation or Ruin” in the September/October 2004 issue of Shelterforce. Without doubt the tax credit rules are responsible for dramatically over-concentrating the new construction of affordable housing in the lowest income parts of many cities. Just look at the maps of any large city in Texas.

In Austin, where Foundation Communities works, tax credit developers over the last ten years have built more than 8,000 tax credit units (85 percent of the total new units) in the same low-income census tracts – often within blocks of each other. This same concentration pattern prevails in Dallas and Houston. Texas tax credit developers carry around census tract maps with the poorest parts of town highlighted in bright yellow.

Why? The tax credit code encourages developers with a 30 percent bonus for projects located in lower-income census tracts as compared to more affluent areas. That means you get millions of dollars more to make your deal work if you pick the right poor location. This policy may have made sense for a while, but over 17 years the result is segregation of tax credit housing in the same parts of town. This practice may be less prevalent in East and West coast cities, where the entire city qualifies for the bonus credits because of overall high development costs.

Should developers get bonus credits to locate in a low-income neighborhood and supposedly help with revitalization? In our market developers already have plenty of incentives to situate deals in lower-income census tracts. In general the land is cheaper and the threat of a NIMBY fight is lower. Try and build a deal in a well-heeled area, and you face hostile neighbors and higher development costs. I think these are precisely the deals that deserve the bonus credits because the location promotes desegregation, housing choice, and mixed income communities.

Advocates in Texas have done all we can within the state allocation rules to promote projects outside of traditional areas of concentration, but we need a change in the federal rules. One solution is to allow states the flexibility to structure the 30 percent bonus credits to match their policy goals and housing markets. Some states might continue to reward projects in true revitalization areas. Other states might award the extra credits for projects with lower rents for serving special needs populations or extremely low-income families. And other states might reward developers for taking the risk to build in affluent parts of town, where many low-income families would choose to live if the opportunity existed.

Walter Moreau
Executive Director
Foundation Communities