Poor Housing Incentives: Tax Credits Reward Politicians Not Neighbors in Need

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Poor Housing Incentives: Tax Credits Reward Politicians Not Neighbors in Need 

[00:00:00] Joe Selvaggi: This is Hubwonk. I’m Joe Selvaggi. Welcome to Hubwonk, a podcast of Pioneer Institute, a think tank in Boston. Few public initiatives offer as enticing a photo opportunity as a ribbon-cutting ceremony for a low-income housing project. With funding from federal, state, and local agencies in the form of low-income housing tax credits, or LIHTC, homes are constructed to provide housing options that advocates argue wouldn’t be available through the private sector, particularly in regions where housing costs are prohibitively high.

[00:00:33] However, closer examination of the incentives reveals a complex web of standards that discourage competition among contractors and impose politically motivated green or social justice criteria, resulting in the cost to build low-cost housing exceeding twice its private market alternative. For housing advocates striving to promote home accessibility for low-income tenants and lower prices for all consumers, the acknowledged high cost of so-called low-cost housing, maybe in practice, reduce the number of rental units produced, and crowd out private residential production, thereby driving up costs for those seeking market-rate properties. This prompts questions about how the low-income housing program operates, who benefits from its complex structure, and what the actual outcomes are in terms of the number and quality of units produced, and the ultimate costs borne by taxpayers.

[00:01:29] Joining us today is Chris Edwards, the Kiltz Family Chair in Fiscal Studies at Cato and a leading expert on fiscal and state tax and budget issues. With his extensive research on the LIHTC program, Mr. Edwards will shed light on what this nearly 40-year-old initiative, which allocates over 9 billion annually, truly delivers.

[00:01:52] We’ll delve into whether the program’s objectives align with the outcomes and explore how its incentives may favor financiers, contractors, and politicians over the low-income renters it claims to assist. When I return, I’ll be joined by Cato Chair of Fiscal Studies, Chris Edwards. Okay, we’re back.

[00:02:13] This is Hubwonk. I’m Joe Selvaggi, and I’m now pleased to be joined by the Kilts Family Chair in Fiscal Studies at Cato Institute, Chris Edwards. Welcome back to Hubwonk, Chris.

[00:02:23] Chris Edwards: Hey, thanks a lot for having me,

[00:02:24] Joe Selvaggi: Joe. Okay, great. Well, I’m thrilled to have you. I don’t often admit to being completely ignorant about a particular massive public policy issue, but here we are.

[00:02:32] I’m going to admit my ignorance. I stumbled across this idea because it’s in pending legislation here and at the federal level. We’re going to be talking today about low-income housing tax credits, or LIHTC. Which, again, I knew about them. I didn’t know much about the details, but I’ll just paint in broad strokes.

[00:02:47] What I had thought at its base is a well-intentioned effort by the government to address the unmet, unneeded, unmet need in the market to build and provide homes for those whose income, frankly, is not enough to afford market-rate rents. So, okay, that’s, I’ve set the table for what we’re going to talk about.

[00:03:06] Let’s start at the beginning. What is LIHTC, the Low-Income Housing Tax Credit? For our listeners, what is it?

[00:03:12] Chris Edwards: Well, as just about everyone knows, housing has become very expensive in many parts of the United States, and public policymakers want to do something like that. That’s certainly reasonable, and they go about trying to create more affordable housing in two ways.

[00:03:27] For a long time, there’s been a program operated by the Federal Department of Housing and Urban Development called Section 8. where they give individuals vouchers and, in order to go, help them pay for the cost of apartments, buildings, or apartment units. but at the same time for the last few decades, the federal government has had a giant subsidy program, to, increase the supply of low-income housing units.

[00:03:51] This is called the low-income housing tax credit. It’s a 13 billion dollar-a-year subsidy to developers. of low-income apartment buildings. Uh, now the supporters of this subsidy program claim that it works and increases the supply of low-income housing. I’m very skeptical of that. I think it mainly displaces private market development of low-income housing.

[00:04:15] And not only that, but this federal government program, low-income housing tax credit, or LIHTC as it’s called, is enormously complex and mainly benefits the financial middlemen and not low-income tenants. Thank you.

[00:04:28] Joe Selvaggi: So, I want to take that apart. Great, you’ve defined it in broad terms. Let me just say, we’re addressing the supply of housing for people who, maybe, don’t have income from market rents.

[00:04:40] The economist in me says, more supply generally means lower prices, so that sounds good. What’s an example of how a builder earns a low-income tax credit, or low-income housing tax credit?

[00:04:54] Chris Edwards: Well, the federal government doles out this 13 billion low-income housing tax credits every year to state governments.

[00:05:00] Then the state governments either allocate them directly or they pass them on to city councils in order to dole out these credits to favored developers. One of the problems that creates right off the bat is that Local governments and developers, there’s long been a corruption problem there, so city councils have these tax credits that are worth a lot of money, they only give them to favored developers, that has encouraged developers to bribe city council members in many cities across the country to get these credits.

[00:05:33] So that’s one of the problems with this program. But then a bigger problem is that these credits are enormously complex. In order to get the credits, the developers must give to city or state governments, these long, detailed financial plans. And, and the state governments, these are called Qualified Allocation Plans.

[00:05:55] The state governments have all this complex point system and rule system for the developers developing these low-income apartment buildings. where they essentially micromanage the development of these apartment buildings. So, this micromanagement tends to boost costs, and so the low-income apartment buildings developed with this federal tax credit end up costing a lot more than private market development.

[00:06:24] To put numbers on that, a Wall Street Journal story a week ago profiled California’s low-income housing tax credits. They profiled some private market developers who were developing apartment buildings for 300, 000 per unit. They compared that to apartment buildings developed with this low-income housing tax credit.

[00:06:46] They cost 600,000 per unit or even more. So, when we see this often, the federal government or state government subsidizes something, but it ends up pushing up and inflating costs for the end product. And that’s what we see with this, with these housing tax credits.

[00:07:05] Joe Selvaggi: So, let’s take that apart.

[00:07:06] In preparation for our conversation, I looked up our Massachusetts QAP. It’s 165 pages long. I invite all our listeners. It’s very easy, Massachusetts QAP, and you can read it yourself. and it’s a compendium of, in my humble view, contradictions that seem, either to practically assure that no project is ever built, or as you mentioned, if they are built, they’re built, you cited numbers that seem as if they’re 100 percent more expensive than their market rate counterparts.

[00:07:35] So, let’s just break some of those things down. I, in 165 pages, my head was spinning and all the apparent contradictions that it sets out to build more units, which is a wonderful goal. And then. It’s 164 pages of why it’s almost impossible to satisfy these criteria. Share with our listeners some of the typical criteria that might affect the cost and frequency of these projects.

[00:07:59] Chris Edwards: Right. So, state governments, create these QAPs or Qualified Allocation Plans, as you said, and developers must follow these state rules if they want to get these valuable tax credits. So, there’s enormous micromanagement in these QAP plans. developers, there are all kinds of energy efficiency standards for toilets and lighting systems and HVAC systems.

[00:08:25] They even micromanage that, these low-income housing apartments must have USB ports in every room. That’s what my, the Virginia QAP says. There’s diversity requirements. There’s all kinds of requirements for developers about the sort of people they can hire and this sort of thing. So, all of these mandates and requirements add costs.

[00:08:46] So, in the end, the low-income tenants don’t actually end up, benefiting much because the cost of these projects is so high, and careful economic studies have found that a lot of the benefits end up actually going to the financial middlemen, and frankly, the lawyers that deal with all this complexity, and not the low-income tenants.

[00:09:07] Joe Selvaggi: Yeah, I saw a lot of contradictions in our QAP, as I mentioned, of course, environmental concerns, even dictating how much of the construction waste must be recycled, they go to great lengths to talk about how, all contractors must comply with, equal opportunity employment law, but also then mandate, literally affirmative action to choose, contractors, based on, status in a, a particular group.

[00:09:27] So, it’s a very strange universe. Right.

[00:09:31] Chris Edwards: And in addition, I would add in here that, so this is the state government complexity, for this low-income housing tax credit. On top of that is a massive amount of federal government complexity. This is a federal tax credit. And so, the federal government imposes complex rules as well, and as I’ve documented, the IRS audit guide for this tax credit is 350 pages long.

[00:09:55] It’s remarkable. In a recent post at Cato, I added up all the federal tax rules for this tax credit. The original statute is only 59 pages, but there are 2,000 pages of IRS regulations and rulings and procedures and other rules. that must be followed if you want to get these tax credits. The HUD guide that the Department of Housing and Urban Development, their guide for this tax credit is 800 pages long it’s remarkable. One reason for that is that developers get these credits for building these low-income housing apartment buildings, but then they must follow federal rules for 30 years after the construction of these buildings to make sure that. The tenant, there’s a proper mix of low-income tenants, and what the tenant’s expenses are, and income levels are, and all this sort of thing.

[00:10:48] So, developers, they’ve got to follow these rules to construct the building, and then the building owners have to follow all these complex rules for 30 years. It’s, again, this is a bonanza for the lawyers. It doesn’t really, end up benefiting the low-income tenants very much.

[00:11:04] Joe Selvaggi: So, again, I, we’re talking about this labyrinth of layers and layers of regulation, and that, of course, when you layer regulation, what, the regulation that attaches is the, the most restrictive, meaning, if they’re contradictory, you just take the one that’s the most restrictive, and that prevails, right?

[00:11:18] So, given all these complexities, who in the heck is, well, let’s first stipulate, of course, this complexity means fewer of these projects are going to happen. Of course, there’s, these are a lot of hoops that only a few, project managers or, contractors can get through. Who are the people who are, who ultimately do navigate this, Gordian knot of nonsense?

[00:11:39] Chris Edwards: So, you raised an interesting question, Joe. And this, a common problem with over-regulation is that the businesses that end up, benefiting sort of a small group of insider businesses that have figured out all the complex rules, they hire all the lawyers. So it’s really the larger developers that have become experts on these complex rules that end up benefiting, smaller developers in cities, they, avoid programs like this, like the plague, because they can’t figure out all the complicated rules.

[00:12:08] So, again, there’s been careful economic studies that have found that actually, it’s these insider middlemen. and the investors in these projects make most of the benefits and not the low-income tenants. So you can compare these studies, for example, compare a market-based and non-subsidized, low, low rental apartment buildings to ones built with these subsidies.

[00:12:32] And, low-income tenants can get almost a similar deal in the market-based, developments, compared to these, government-subsidized developments. and that, leads to the, the, one of the conclusions here is that we’ve got this giant, complex government system here, but we don’t need it if the government just got out of the way, there’d be more market-based, low-income development, and that’s really where we ought to be headed.

[00:12:55] Joe Selvaggi: Indeed, okay, I think you and I both are more sympathetic to market solutions than government solutions, but I just say for our listeners who are, keeping score at home, if you create these, 1000 rules for, building a low-income property, and it’s the city or the state that is in charge of enforcing it, as you say, there’s a couple of, let’s say, choose firms that, let’s say, are preferred, isn’t this inviting a collusion between politicians and developers?

[00:13:21] In other words, you’re saying, well, politicians, they really care about low-income housing, they wouldn’t go down this road, but what if they benefit greatly from incentivizing certain developers? For essentially supporting their campaign or their political ambition.

[00:13:36] Chris Edwards: That’s right. Well, Joe, you touched on this.

[00:13:37] There has been a major corruption problem with the low-income housing tax credits. Your listeners, if they want to follow up on this, a great example is California had a massive scandal regarding these housing tax credits. So, if you google housing tax credits and corruption in California, you’ll see all these stories.

[00:13:54] And basically, the federal government is giving state and local governments this valuable, tax credit item, which is in limited supply. And it’s the local politicians who get to dole it out to their favored, contractors or developers. In theory, it’s supposed to be a fair competition system where the developer with the best project ideas gets these tax credits.

[00:14:19] In reality, there’s a big incentive to bribe the state and local politicians, and that’s what happened in California, to get at the front of the line for the handing out of these tax credits. You actually, by the way, as a, on a tangent, you see a similar problem. When local governments hand out alcohol licenses, for example, or they hand out marijuana grower licenses, as in California, you get a big corruption problem.

[00:14:45] When governments keep things in artificially limited supply, they dole the benefits out to their favored, businesses, you get a corruption problem and you see this with the housing tax credits.

[00:14:58] Joe Selvaggi: I want to shift our conversation to the housing cost. You already stipulated it’s more than a market rate, so it costs more to build one of these properties.

[00:15:06] In your case, you were describing something that costs 100 percent more or double what it would otherwise cost. But why does a market rate builder constrain costs? They ultimately have to make a profit, right? What they build has to be worth more than what they paid to build it. They, ultimately, someone’s going to buy it or rent it, so they don’t have unlimited resources to build whatever.

[00:15:25] In this case, if we’re building a low-income, project, and ultimately the people who are going to move into this are people who have subsidies, and ultimately those subsidies are going to be, paid and I’m going to get my subsidy to build it, what’s going to be the rent that, where is the profit?

[00:15:39] Is it in the tax credit or can they also enjoy some sort of guaranteed tenant when it’s all over?

[00:15:46] Chris Edwards: Yeah, it’s in the tax credits. The tax credits pay most of the costs. for developing these buildings. And the costs are much higher. construction experts, which I am not, point to two main costs of construction.

[00:16:00] There’s what’s called a hard cost, the actual cost of materials and that sort of stuff, and the soft cost, which is the cost of financing. Both of those costs are higher. In these government-subsidized tax credit projects, the hard costs are higher, because they often, for example, have labor union requirements, and, all kinds of requirements for, superior quality, goods and products and that sort of stuff.

[00:16:26] And so that raises the actual hard cost of construction, but the soft cost of financing is higher too, because the government, when you bring in government subsidies, the deals get a lot more complex, you need a lot more lawyers, and there’s a lot more delays. And in the construction business, time is money.

[00:16:42] So these government, if you take the government subsidies, your project will be delayed probably months or years as you try to figure out all the, how to get these, credits and other subsidies. and so, if projects get delayed, that costs developers more money. So, for all these reasons, government projects cost a lot more.

[00:17:02] And, so if, there’s been many, states and the federal government have done studies on this, and there is general agreement that these when government affordable housing projects cost a lot more than market-based, housing, market-based developers, they don’t have to deal with all these complex rules like labor union requirements, they can just go build, projects, in the fastest and most efficient ways, and so their projects end up costing a lot less.

[00:17:28] Joe Selvaggi: Well, and it’s interesting, another point, this is a project I saw in my reading, they were talking about the fact that ultimately the tenants in these, buildings are people with, housing subsidies. now we’ve got a tenant who, or a landlord who’s getting these subsidies and ultimately maintaining the property, but ultimately some, in a market rate where there are no subsidized, tenants, the landlord has an incentive to keep that building, lest our listeners hear that.

[00:17:53] Markets cut corners and subsidized builders do it right. The owners of these buildings, when they’re getting these housing subsidies, ultimately, whereas many landlords will use some of the rent to maintain the building and keep it ready for, to attract, to keep the existing tenants or attract new ones.

[00:18:13] If you’ve essentially got a low-income project and every tenant in there is a low-income tenant, I’ve read whereby 20 or 30 years later, that building has so much deferred maintenance that the project that had been subsidized with tax credits is so bad that it needs to either be torn down and rebuilt and enjoy new tax credits or be refurbished and enjoy tax credits.

[00:18:36] In other words, there are some real perverse incentives once you’re hooked on these subsidies, which says, rather than markets Governing and having me as a landlord keep my property nice for future tenants. These subsidized buildings seem to have so many perverse incentives that they’re built more expensively but ultimately go to shambles because they’re not maintained.

[00:18:56] Chris Edwards: That’s right. You put your finger on something very important, Joe. And a week or so ago, the Wall Street Journal story on the housing tax credits quoted A, a liberal activist who supports the housing credit claiming that market-based housing, is not kept up well because the landlords, fill their pockets with the profits rather than investing in the housing project.

[00:19:19] The reality is exactly the worst. the experts on, the housing tax credit program know that there’s this long-term problem that the developers who are the building owners do not have incentives, to maintain these low-income housing tax credit buildings because they can’t earn a decent return in years down the road.

[00:19:42] They get the benefits up front with the tax credit and then there isn’t enough of an incentive for them to maintain buildings down the road. And so, again, it’s, the market here that works. Market construction is lower cost and market buildings are maintained, better over time because landlords have strong incentives to maintain their own building and are to earn, to continue earning a good return.

[00:20:08] Joe Selvaggi: You’ve mentioned something that often folks, I’ll say like us, I’ll flatter myself, who believe in markets that talk about this concept of Projects like these crowding out private competitors, right? You, there’s only so much land. We’re here in Boston where it’s constrained in land, and we’ve got a piece of the land or a potential project and you’ve got two people bidding on it.

[00:20:27] One is a market developer, and the other is one with a subsidy. I’m thinking, whereas there’s no subsidy for the land purchase, there is a subsidy for the ultimate development. So if I am someone who’s going to enjoy, I’ve cracked the code, I figured out how to get my tax credit, I’m competing with a private developer, I can afford to pay much more for that property because ultimately I’m going to make that back in, in tax credits.

[00:20:49] In other words, that private project isn’t going to happen because I’ve been able to outbid him because I know ultimately what I build will be subsidized. The private person can’t do that. Is that what you mean by crowding out, private, competition?

[00:21:02] Chris Edwards: That’s right. When, as a general matter, when the government expands, it displaces, the private activity that used to be there.

[00:21:09] So we see this with many government programs. When Medicaid expands, we see less private health care. and when housing subsidies expand, we see less market-based housing. So, there’s been careful economic studies on the low-income housing tax credit. and they find that a substantial share of private market-based housing is displaced or crowded out, with government-subsidized housing.

[00:21:33] In other words, a lot of the housing would have been built anyway, even without the government subsidy. in my 2017 study on the low-income housing tax credit available at Cato under Chris Edwards, I go into some detail about why that’s the case. so, the low-income housing tax credit, and the subsidized development crowd out, it partly crowds out private development.

[00:21:56] But in addition, you have to think about if the government were to deregulate and make other policy reforms, we would get additional private market housing. And that’s why I think Actually, we’re no further ahead with affordable housing with all these subsidies than we would otherwise be if we let markets work and we got governments out of the way.

[00:22:19] Joe Selvaggi: So, to tie it up a bit, again, you mentioned studies and you were in the egghead world, you’re in the think tank world, studying this stuff. you and I have established that tax credits for these projects make for far more expensive cost to build, it invites corruption, fewer properties will be built so there’s less supply, and therefore even for those of us who have no, connection to these subsidies have to pay higher rents.

[00:22:41] Is the jury still out on this? Are there, there are, studies that show it’s valuable or in the research world is it an, open and shut case?

[00:22:51] Chris Edwards: The experts in the low-income housing area including the experts who generally support this program, recognize these problems, the high-cost problem, the fraud and corruption problem, many, centrists, and housing economists, don’t favor demand-side subsidies for housing.

[00:23:10] The main one in the United States is the Section 8 program where the federal government gives individuals vouchers, and they can go to apartment buildings of their choice and use these vouchers. Most economists, both conservative and libertarian and centrist economists, think that is actually a better way, to subsidize housing, if you’re going to subsidize housing by the low-income housing tax credit gives the subsidies to the developers. That is really the wrong way to go. It’s the developers and the lawyer’s benefit. It’s more efficient to give subsidies to the housing consumers, and low-income tenants themselves. I think an even better solution than that is the free market solution.

[00:23:52] where we deregulate housing markets and we let housing developers develop buildings, for individuals at all income levels. I think markets work. I don’t think there’s any big government failure here where you need government intervention. It is the government itself with excessive building requirements, overly restrictive zoning requirements, and high taxes.

[00:24:14] Those are the barriers we need to get out of the way if we want more affordable housing.

[00:24:19] Joe Selvaggi: Okay, good. So, you’ve jumped the gun, you’ve anticipated my next question, which is to say, I don’t want to, no more despair with, this is a pretty dark podcast, but I just want to say, look, I live in Boston. We have very high prices here.

[00:24:31] I’m sympathetic to anybody who is just trying to raise a family anywhere near the city center. So, they’re too high. We’re going to look; we’re going to talk about some alternatives. but let’s give our listeners just basic economics 101. things are expensive because they’re scarce.

[00:24:46] Not how, diamonds are expensive because they’re scarce, not because they’re necessary. And water is free, not because it’s not necessary, but because it’s abundant. How do we make housing abundant? And if you’ll take the leap with me, therefore, if it’s abundant, it will naturally be more affordable.

[00:25:02] Go ahead and just reframe what you recommended in your last statement.

[00:25:07] Chris Edwards: Well, it’s widely recognized that local governments restrict the supply of housing, all types of housing, including multifamily housing and apartment buildings with excessively tight zoning rules. There are all kinds of ways we can loosen those zoning rules.

[00:25:24] So, for example, right now, we’ve got a massive excess supply in many cities of office buildings, but zoning codes generally prevent that, the transfer of, office zone space into residential space. Some cities I understand are starting to change that. I think New York has recently loosened the rules to allow building owners to convert office buildings to residential buildings.

[00:25:46] That’s the type of zoning rule we need to loosen. Excessive building requirements. Economists have written about how a lot of cities have excessive parking requirements for apartment buildings in cities, but these may raise the cost of apartment buildings unnecessarily. A lot of young people, especially live downtown, in big cities like Boston or Washington or New York, don’t need or want cars and yet they’re forced essentially to pay for parking spaces that they don’t want.

[00:26:15] So there’s these excessive building requirements. And yet another area that I think needs reform is property taxes. Interestingly, the property taxes on apartment buildings are far higher than the property taxes on single-family homes. Indeed, the Lincoln Land Institute, which studies these issues, found that property taxes on apartment buildings averaged 44 percent higher than property taxes on single-family homes.

[00:26:41] So this is a bias that, harms low-income tenants, because of course, property taxes on apartment buildings, are pushed forward onto the tenants, so we are unnecessarily raising, the tax costs on low-income tenants here by having these high property taxes. So, some of the reforms here we need are deregulation and we need lower property taxes, in urban areas in particular.

[00:27:07] Joe Selvaggi: Okay, well, I understand, and I essentially agree with what you are arguing for, which is, to throw open the gates and let more houses be built. But let’s just stipulate that, there are still folks out there, even in a, where market rates come down. down dramatically, who have very low income?

[00:27:25] I’m thinking about the elderly or people with disabilities or, we know of these people who will never be able to pay market rates. What would we do for those people to ensure that they are, their needs are met, wherever you fall on that issue?

[00:27:41] Chris Edwards: Well, for those, folks, I think that the proper level of government to deal with those issues is state and local government.

[00:27:48] Right now, we’ve got a massive, federal government, program, Section 8, that provides these subsidies to individuals for affordable housing. I don’t, I think there are all kinds of problems with the federal government running these programs because every city and every state is different.

[00:28:04] Local needs are different. I think if cities and states, want to, subsidize or help low-income tenants, the way to do it is direct vouchers to tenants and not supply-side, subsidies like we’ve been talking about with the low-income housing tax credit.

[00:28:20] Joe Selvaggi: So rather than the producer of low-income, properties, it’s the consumer of the low-income properties, which provides, in my mind, a little bit of accountability, and it also takes away that incentive for corruption.

[00:28:30] I suppose someone could corruptly apply for a Section 8 housing voucher. That’s a different level of corruption than a very sophisticated developer who’s commanding, at the helm of a 50 million project. Is that fair?

[00:28:42] Chris Edwards: That’s right. I think generally you get a more efficient outcome and less corruption, if you’re going to subsidize not the producers, but subsidize the consumers.

[00:28:52] Another example here is Medicare. the federal Medicare program, a trillion-dollar program, It’s massive subsidies to the providers, to the hospital systems, to the doctors, and the like. There’s an enormous amount of corruption there. people, submit hundreds of billions of dollars, literally, of fake and exaggerated, excessive claims to federal Medicare. It’s an ongoing problem. Something like 15 percent or so of all Medicare claims from providers are exaggerated or fake or improper as they call it. for the Medicare program, the much better solution is to give individuals vouchers to buy health care.

[00:29:31] That way it reduces corruption, and you increase competition in markets. I think the same is true with housing. If we’re going to subsidize housing, I think it ought to be state and local programs, and I think the subsidies ought to go to individual consumers, not to the businesspeople, the providers.

[00:29:48] Joe Selvaggi: Yeah, I don’t know what, what we would have to say in this conversation to help the scales fall from the eyes of those who think government is the solution. You and I both want to see more affordable housing, more abundant housing. and we care about those people who can’t afford houses.

[00:30:01] Well, we’re not arguing whether affordable housing is a good idea. We’re arguing about the way to get there, right? We’re saying what we’re doing now has the absolute opposite intended effect, wastes, wastes a huge amount of money and subsidizes already wealthy developers with the sophistication to navigate this sort of labyrinth of regulation.

[00:30:20] This is a dinner bell for the most corrupt intentions.

[00:30:23] Chris Edwards: as a general matter, as Joe, the, it’s reasonable for the government to intervene in markets where there’s some sort of clear market failure. In my view, there’s no clear market failure in housing, just like private markets provide automobiles for people at all income levels.

[00:30:38] I bought a new automobile myself, a couple of years ago for 30,000. My daughter just bought herself an automobile for 10,000. It’s not as good as my 30,000 car, but she’s young, and it’s good enough for her, and as she earns more money, she’ll be able to buy better automobiles. The market works. I think the same is true for housing.

[00:30:59] When I was young and you were young, Joe, we, we lived in group houses, we had lower cost, housing. Markets provided that. I think markets can provide decent housing for people at all income levels. I don’t think that there’s a market failure here. And I think subsidies come with all these, they create all these additional problems.

[00:31:18] That we’ve been discussing. The crowding out, the corruption, and the high cost. We don’t need it.

[00:31:24] Joe Selvaggi: Well, this is a terrific conversation. I think we’ve whet the appetite of our listeners who wanted to learn more. Again, I will admit, I was completely unaware of this whole sort of a feature of low-income housing.

[00:31:35] I’m like, well, Good Anya, if you want to help the poor find a house. and I realize this is terrible. Where can our listeners, I want to read more about your research, but also, maybe we’ll link to a different, think tank. You did a presentation over at AEI with a couple of other scholars.

[00:31:49] It’s three hours long. I suffered through it, but I think not everybody’s willing to do it, but let’s give a shout-out both to your research and the recent, presentation that you gave at AEI

[00:31:58] Chris Edwards: Well, you can read my research on this and other matters simply Chris Edwards at Cato Institute. I’ve made a lot of posts recently on this housing tax credit issue because the issue is right in front of Congress right now.

[00:32:10] Not only is there a bipartisan group that wants to expand the tax credit we’re talking about, they want to add new tax credits. I think that would be a terrible direction for Congress to go. So, you can look under Chris Edwards at Cato and also, the American Enterprise Institute, AEI. org. they’ve got a great group of scholars there that look at these housing issues as well.

[00:32:30] Joe Selvaggi: Good. And again, as you say, these credits have bipartisan support, but, perhaps it’s, you know, on both sides, sheer ignorance about the complexity and the counterproductive nature of these things that make it, so well supported. So, maybe our representatives will have watched this or your presentation or this podcast, and we may change some hearts and minds.

[00:32:49] Thank you again, for joining me, Chris, you’ve been a great resource. And I think we’ve educated both me and our listeners about an important topic. Thank you for joining me on Hubwonk today, Chris. Thank you, Joe. This has been another episode of Hubwonk. If you enjoyed today’s show, there are several ways to support Hubwonk and Pioneer Institute.

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Joe Selvaggi interviews Chris Edwards, Chair of Fiscal Studies at CATO Institute, about his research on the 40-year history of Low-Income Housing Tax Credits. They delve into its features, effects, and potential alternatives that could provide greater benefits at lower costs to taxpayers.


Chris Edwards occupies the Kilts Family Chair in Fiscal Studies at Cato and is the editor of downsizinggovernment.org. He is a top expert on federal and state tax and budget issues. Before joining Cato, Edwards was a senior economist on the congressional Joint Economic Committee, a manager with PricewaterhouseCoopers, and an economist with the Tax Foundation. Edwards has testified to Congress on fiscal issues many times, and his articles on tax and budget policies have appeared in the Washington Post, the Wall Street Journal, and other major newspapers. He is the author of Downsizing the Federal Government and coauthor of Global Tax Revolution. Edwards holds a BA in economics from the University of Waterloo and an MA in economics from George Mason University. He was a member of the Fiscal Future Commission of the National Academy of Sciences.