The largest federal program designed to increase the rental housing supply for poor working families helps them find living space in decent neighborhoods with good schools. It also encounters frequent neighborhood opposition.Housing subsidies ; Education ; School choice

James C. Murdoch

Wenhua Di

English

Research Papers in Economics

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  FEDERAL RESERVE BANK OF DALLAS • FiRSt quARtER 2011 SouthwestEconomy 15
The  largest  federal  program  designed  to 
increase the rental housing supply for poor 
working  families  helps  them  find  living 
space in decent neighborhoods with good 
schools. It also encounters frequent neigh-
borhood opposition. 
The  low-income  housing  tax  credit   
(LIHTC)  program,  created  under  the  Tax   
Reform  Act  of  1986,  subsidizes  developers 
who  construct  market-quality,  multifamily 
units or renovate older structures for rent to 
low-income tenants at below-market rates.
Homeowners  in  more-affluent  areas 
often  resist  the  housing  in  their  neighbor-
hoods, citing concerns that new residents will 
flood public schools and crowd classrooms, 
negatively influencing existing students and 
competing for limited educational resources. 
There are also worries that adding more low-
income pupils to struggling schools in poor 
areas may overburden educators and facili-
ties, ill-serving students even while helping 
reduce the financial burden on parents.
Texas allocated approximately $750 mil-
lion in tax credits to developers from 1989 to 
mid-2009, creating almost 200,000 affordable 
housing units, 90 percent of them reserved 
for low-income residents. Suburban counties, 
though lacking large low-income populations, 
attract LIHTC investors drawn to a greater sup-
ply of vacant land than in central cities.1
Approximately  9  percent  of  Texas  el-
ementary schools have nearby LIHTC prop-
erties, each averaging 324 units. Year-to-year 
changes in the accountability ratings of pub-
lic elementary schools closest to the low-in-
come housing may help indicate whether the 
construction  adversely  affects  neighborhood 
schools.2
Chart 1 illustrates that ratings remained 
unchanged over a one-year period for most 
schools. Some of the schools moved up or 
down one level, but very few moved two or 
more levels. Most of the schools that improved 
one level were initially rated academically ac-
ceptable. In contrast, those that fell one level 
were mainly recognized. Among schools rat-
ed exemplary, approximately one-fourth fell 
one level the next year.
Adding LIHTC units appears to positively, 
not negatively, influence a school’s account-
ability rating in the year the projects open, our 
analysis found. However, that effect is tempo-
rary, largely disappearing after a year. Schools 
with nearby LIHTC units were classified by 
income and share of minorities in nearby cen-
sus blocks. The estimates suggest that the pos-
itive influence is largely driven by the hous-
ing units constructed in higher-income census 
areas, while the negative, offsetting data come 
from LIHTC census block groups with greater 
minority  or  lower-income  populations.  The 
program’s influence on schools also depends 
on whether the project is new construction or 
rehabilitation. New buildings seem to contrib-
ute to improvement of academic performance 
at the nearest elementary schools. 
To be sure, the results involve relatively 
few children from the new homes in elemen-
tary schools each year. Therefore, the makeup 
of residents in the new housing units doesn’t 
necessarily  alter  the  demographics  of  Texas 
schools. However, the results appear consis-
tent with previous studies indicating that such 
projects don’t necessarily adversely affect re-
ceiving  neighborhoods.  In  fact,  they  seem 
to  suggest  that  more-motivated  low-income 
families seek subsidized rental units in mixed-
income neighborhoods offering better schools 
for their well-performing kids. This may dispel 
some homeowner concerns in higher-income 
neighborhoods hosting the projects. However, 
the possibly negative influence of the units in 
lower-income or higher-minority areas justifies 
the worries that the multifamily units in neigh-
borhoods densely populated with low-income 
residents may limit educational opportunities. 
–Wenhua Di and James C. Murdoch
Notes
1 For a more-detailed discussion of the LIHTC projects in Texas, 
see “Low-Income Housing Tax Credits in Texas: Achievements 
and Challenges,” by Roy Lopez and Wenhua Di, Federal Reserve 
Bank of Dallas Banking and Community Perspectives, Issue 2, 
2009.
2 For more details on the methodology and data, see “The 
Impact of LIHTC Program on Local Schools,” by Wenhua Di and 
James C. Murdoch, Federal Reserve Bank of Dallas, Research 
Department Working Paper no. 1006, 2010.
Does Low-Income Housing Tax Credit Hurt Nearby Schools? 
Educational Opportunity 
Chart 1
Some Schools Improve After Low-Income Tax-Credit Housing Opens
Number of schools
–3 –2 –1 0 1 2 3
0
2,000
4,000
6,000
8,000
10,000
12,000
Exemplary
Recognized
Acceptable
Unacceptable
Rating level change
NOTE: Compiled from a pooled sample of 19,433 Texas public elementary schools near new low-income housing tax credit projects, 2004-09.
SOURCE: Texas Education Agency Academic Excellence Indicator System.

Spotlight: Educational opportunity: Does low-income housing tax credit hurt nearby schools?

http://www.dallasfed.org/assets/documents/research/swe/2011/swe1101d.pdf

Spotlight: Educational opportunity: Does low-income housing tax credit hurt nearby schools?

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