Double-dipping or lagniappe? : a study on the use of tenant-based vouchers in low-income housing tax credit developments in New Orleans, Louisiana

Abstract

Following Hurricane Katrina, New Orleans demolished nearly all of its public housing. Mirroring a national trend, not all of it was replaced. What was replaced largely took different forms: tenants received portable Housing Choice Vouchers and developers built new housing subsidized by the Low-Income Housing Tax Credit (LIHTC). Now, New Orleans has over 18,000 voucher households and approximately 10,000 LIHTC units. While this might appear to add up to 28,000 affordable units, the two programs overlap in significant ways. Tenants are permitted to use vouchers in LIHTC developments and LIHTC developers must accept tenants with vouchers. I start with a seemingly simple question: What is the prevalence of this practice? Through spatial analysis, some relationships between LIHTC and vouchers appear. Through interviews and review of property level data, I find that approximately 50% of LIHTC units are occupied by individuals with tenant-based vouchers. By permitting tenants with portable vouchers to live in LIHTC developments, do we "lose" affordable units? Through interviews with developers, policymakers, and property managers, I find that LIHTC developers do not consider tenant-based subsidy in the development process, nor do they depend on it for underwriting deals. However, due to different methodologies for rent determination, tenant-based vouchers allow LIHTC developers to earn higher rents. This "Tenant- Based Section 8 Overhang" brings additional unanticipated revenue to developments. This is essentially lagniappe - a phrase used in New Orleans to describe an unexpected small gift. Using New Orleans as a case study, I analyze payments standards and suggest that by requiring developers to accept the lower LIHTC rents, it may be possible to save millions of dollars per year. I conclude with policy proposals that seek to preserve tenant choice while pushing for maximum program savings to potentially create additional vouchers.