How the Program Sets Affordability
Under the Low-Income Housing Tax Credit, states award tax credits to developers through competitive processes. Those developers use the credits to attract private capital and build or rehabilitate apartments, then commit the units to affordability for at least thirty years. The program ties rents to local incomes, historically targeting households earning below half the regional median income. But as housing costs have climbed far faster than incomes since the 1990s, many cities have found those income limits increasingly disconnected from the needs of the poorest residents.
In Portland, the city supplemented the federal construction money with local dollars, creating incentives that were hard for developers to turn down. However, to meet the affordability requirements, most developers only needed to set rents within reach of someone earning 60% of the area median income. That earnings threshold equates to about $75,000 annually for a family of four. Research published by the Urban Institute and others has repeatedly warned that without stricter targeting or deeper subsidies, tax-credit projects can end up serving moderate-income workers rather than the lowest earners. The result in Portland has been a glut of apartments costing renters roughly $1,400 a month for a one-bedroom unit. That amount is manageable for a family earning $75,000, but it eats nearly half the monthly income of someone who makes $35,000 at the local minimum wage.
Vacant Units Amid Rising Homelessness
The disconnect between program design and real-world need is stark. At last count, nearly 2,000 of Portland’s subsidized units stood vacant and unused, as The Oregonian and Willamette Week have reported. Meanwhile, on any given night, thousands of people sleep on the streets of a city that has struggled with one of the worst housing crises in the country. The same situation has repeated from Seattle to the San Francisco Bay Area to Denver. The tax-credit program, which allocates credits to states and relies on private equity to expand the supply of low-cost rentals, was conceived as a way to leverage market forces instead of direct government spending. Yet the income limits tied to local medians have become increasingly disconnected from the needs of the lowest earners, especially in high-cost markets.
For readers, the issue matters because it illuminates a gap between policy design and real-world need. When economic conditions shift, well-intentioned rules can miss the mark. The program traces its origins to the Tax Reform Act of 1986, when Congress created it as a federal incentive to encourage private investment in affordable rental housing. Today it extends from coastal cities to small towns, financing the majority of new affordable apartments each year. But the pattern of newly built tax-credit units sitting empty while homelessness rises reveals a fundamental challenge: the definition of affordability, tied to 60% of median income, now produces rents that in many places are close to what typical landlords already charge without any subsidy. As a result, the program is spending billions annually on units that remain out of reach for the very people policymakers intended to help.
