State issues

In vote to weaken incentives, TDHCA hurts chances for affordable housing in desirable areas

Earlier this month, the Texas Department of Housing and Community Affairs voted to change the rules for where low-income housing tax credit (LIHTC) housing is built in a manner that could push families in need even further away from essential neighborhood resources. 

Subsidized housing projects are selected for the LIHTC program using a highly competitive, State-run scoring system called the Qualified Allocation Plan. Following the TDHCA’s latest vote, which greatly increased the size of areas that qualify for precious “Opportunity Index” points, developers can now create LIHTC housing farther from grocery stores, childcare, libraries, and parks, while gaining the same score advantage toward winning huge public financial subsidies for their housing projects. Specifically, rather than requiring a housing complex in an urban area be located within one mile of a grocery store, pharmacy, library, recreation options, or civic organization offering services, a developer can gain the same amount of points for housing that is double the distance to those amenities. 

Without any improvements for tenants or any clear argument for the benefit of this change, the Board voted to weaken the already scant incentives developers have to build low-income tax credit housing in desirable areas. Tenants gain nothing in this senseless bargain that will only move developer bidding wars and competition to cheaper, less desirable sites.

Why is the location of low-income housing tax credit (LIHTC) housing important?

Despite fair housing, anti-discrimination, and civil rights laws, the United States still has major residential segregation by race and income. We have a long history of government excluding low-income people and communities of color from high opportunity areas, and that history unfortunately continues with votes like these. The annual decisions made by TDHCA in this housing tax credit allocation plan provide the opportunity to expand racial and economic integration in Texas communities. As a state, we must use these rules in a way that grants low-income children the opportunity to learn in well-resourced schools and grow in safe and vibrant neighborhoods that accommodate such growth. This change does not happen automatically; we must work to integrate and provide opportunities for those who have been historically discriminated against, and we are bungling the opportunity with a mediocre and hamstrung allocation plan. 

How is low-income housing tax credit (LIHTC) housing a special tool for providing opportunity?

The vast scale of the LIHTC program makes it an important vehicle for driving the development of affordable housing. Each state in the U.S. receives a per capita allocation of competitive 9% LIHTC, and Texas’s estimated total available allocation in 2020 was $81,690,834.1 (Developers applied for a total of $131,431,080, making the 9% LIHTC selection process very competitive in the state.)

Because the tax credit award amount is applied annually for 10 years, the 2020 awards will result in about $800 million of funding for affordable housing development through forgone federal taxes. Even such major investments as the City of Austin’s $250 million affordable housing bond, passed in 2018, pale in comparison to the scale of LIHTC investment coming in each year. In addition to the 9% housing tax credit, the 4% housing tax credit contributes tens of thousands of dollars to affordable housing in Texas each year. The Texas Department of Housing and Community Affairs distributed over $24 million to affordable housing in 4% housing tax credits in Fiscal Year 2012.2

The massive amount of funds come with great influence, and developers apply and compete for these dollars based on how the Texas Department of Housing and Community Affairs designs the rules and points system, including the Opportunity Index. Failing to aggressively design that process to incentivize the best housing developments for low-income Texans would be a shameful waste of this resource. 

What is wrong with the changes made to the Opportunity Index rules? 

It cannot be overstated that the changed distances are not a trivial adjustment, but rather will markedly impact people’s lives. By changing the distance to many urban amenities from one mile (typically a 20-minute walk) to two miles (a 40-minute walk), the increased distance makes these places much less accessible to the average tenant. For those without cars, walking 40 minutes to a library, grocery store, or recreation center may be out of reach on an average day. The one-mile radius is more reasonable for most amenities to ensure that residents can walk to them easily. Similarly, for people with physical disabilities, a two-mile trip by wheelchair or with a cane is meaningfully longer than a one-mile trip. The increase in distance would essentially put these important amenities out of reach. 

The changes to the Opportunity Index appear to be purely market driven, attempting to assuage the concerns of developers who believe competition for the highest-scoring sites raises the cost of affordable housing to an unacceptable degree. However, the reality is these developers are accepting millions of dollars of free money for housing projects and should use those funds to best support the needs of low-income Texans.

In 2020, developers applied for over 60% more funds than were readily available, so there is money to be made even with the previous rules. Under the 2020 Qualified Allocation Plan with the shorter distances, all or almost all projects were awarded the full seven Opportunity Index points. By increasing distance to amenities in 2021, Texas would be gifting these projects the full seven points without improving location for tenants. This is anti-competitive and goes against the goals of the Qualified Allocation Plan. 

Because most developers select sites based on financial considerations, the increased distances will only push any competition for sites to the cheapest maximum-scoring locations, which will now be farther from where low-income tenants would ideally live.

The Texas Department of Housing and Community Affairs Board approved a version of the allocation rules that takes us backward from supporting low-income housing in high-resource areas. The Opportunity Index points should push developers toward places where people can thrive, attend good schools, access healthy food, and avoid environmental hazards. Developers will always strive to lower costs and maximize unit profits, but that cannot be allowed to occur at the expense of individuals and families who will live there. The rules must resist the impulse to cater to developers’ interests over those of low-income Texans. 

The Opportunity Index in Context of the Full Qualified Allocation Plan and How Distances are Changing

How did distances actually change in the rule? 

Allowable Distances to Receive Opportunity Index Points for Given Amenities, in Urban Areas 

AmenityAllowable Distance for Points in Prior Rule Allowable Distance for Points in New 2021 Rule
Full-service Grocery Store1 mile2 miles
Pharmacy1 mile2 miles
Health Facility 3 miles4 miles
Childcare or Pre-School2 miles3 miles 
Library 1 mile2 miles
University or College5 miles6 miles
Indoor Recreation Site 1 mile2 miles
Public Outdoor Recreation Site1 mile2 miles
Civic Organization Offering Services1 mile2 miles

Allowable Distances to Receive Opportunity Index Points for Given Amenities, in Rural Areas

AmenityAllowable Distance for Points in Prior Rule Allowable Distance for Points in New 2021 Rule
Full-service Grocery Store4 miles5 miles
Pharmacy4 miles5 miles
Health Facility 4 miles5 miles
Childcare or Pre-School4 miles5 miles
Library 4 miles5 miles
Public Park with Playground4 miles5 miles
Indoor Recreation Site 3 miles4 miles
Public Outdoor Recreation Site3 miles4 miles
Civic Organization Offering Services3 miles4 miles

Source: See 10 TAC §11.9(c)(4)(B) for current rule affecting properties approved in 2020. The proposed updates to 10 TAC §11.9(c)(4)(B) for 2021 can be viewed in the November 5, 2020 TDHCA Board meeting supplemental materials, available at: https://www.tdhca.state.tx.us/board/docs/books/201105-supplement-201102.pdf.  

Why is the timing a big deal? 

This is a drastic change in a unique year with minimal opportunity for public engagement in the rulemaking process, due to COVID-19. The Department typically hosts a series of public Roundtable discussions throughout the summer to gather input from stakeholders and craft policies for housing project selection with various viewpoints in mind. This year, due to complications from the pandemic, the Department did not hold any Roundtable sessions on the proposed rules. The first public version of the proposed rules came out as a Staff Draft in early September, with the opportunity for written comment before consideration and approval by the Board in November. Without a robust stakeholder process and only cursory response to written comment on the Opportunity Index changes, the Board approved the exact version of the Opportunity Index proposed in the Staff Draft. To make a change adversely impacting the everyday experiences of low-income tenants of these properties without deeper consideration of the detrimental effects that will be felt for years to come is inexcusable. 

Rather than reducing the efficacy of the Opportunity Index as the Department is doing this year, we hope to see improvements in the coming years that would instead benefit low-income tenants.

Within the Qualified Allocation Plan rules that select LIHTC housing projects, points should incentivize higher quality amenities and more proximate amenities. Currently and in past years, out of 197 total points the plan only delegates seven points to the Opportunity Index, which should be a more important part of project selection for how our state directs this massive amount of public funds. 

Opportunity Index Points as Related to Other Main Categories in 2020 Qualified Allocation Plan

How should the Opportunity Index be changed to benefit low-income tenants? 

Specifically, the Opportunity Index would be enhanced by increasing the points available to at least 15 points, rather than the current seven points. In order to truly serve low-income Texans, the Opportunity Index should be restructured to move key factors into the first section making them mutually exclusive for points, with the menu of other options available for the remaining points.

In the current scheme, in order to get any Opportunity Index points at all, a project must earn the two mutually exclusive Low Poverty points in section (A); all the remaining amenities and features — with over a dozen options to choose from — compete for developers’ attention for the remaining five points available. Instead, the rules should have mutually exclusive sections of two points each for the most essential items: low poverty, sidewalks and transit, full-service grocery stores, and attendance zone for highly rated public schools. The additional amenities currently in the list could remain in the separate menu section, for an additional seven points, that would not compete with these essential Opportunity Index factors.  

Where do we go from here? 

For years, Texas Housers has been advocating to use the Qualified Allocation Plan rules to incentivize development in areas with great schools and low poverty. Development for low-income families should be in places where people choose to live when they have the resources to make that choice. The Board needs to do more with these rules to push builders into truly high opportunity areas, making the Opportunity Index worth at least double its current points value and ensuring that the point structure drives development into the best possible areas.

The whole purpose of this point system is to incentivize subsidized low-income housing in high opportunity areas, and de-emphasizing the proximity to essential amenities undercuts that overarching goal. When the Qualified Allocation Plan is revised again next year, we hope to see the Department and the Board make more headway toward placing LIHTC housing as close as possible to grocery stores, parks, and excellent schools. 

The new proposed rules for 2021 discussed above were approved by the Texas Department of Housing and Community Development Board on November 5. After their staff makes minor changes as directed, the draft will go to Governor Greg Abbott to make any changes he sees fit and then to sign and finalize by December 1.

[1] This annual estimated statewide allocation for 2020 comes from Texas Department of Housing and Community Affair’s 2020 9% HTC Award and Waiting List dated 11/04/2020, available at: https://www.tdhca.state.tx.us/multifamily/housing-tax-credits-9pct/

[2] 2020 State of Texas Low-Income Housing Plan and Annual Report, available at: https://www.tdhca.state.tx.us/housing-center/docs/20-SLIHP.pdf

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