Columbia Journal of Law and Social Problems

Copyright (c) 1999 by the Columbia Journal of Law and Social Problems, Inc.
Columbia University School of Law

Winter, 1999

32 Colum. J.L. & Soc. Probs. 131

LENGTH: 16469 words

ARTICLE: Breaking the Subsidy Cycle: A Proposal for Affordable Housing

Allison D. Christians *

* Administrative Editor, Colum. J.L. & Soc. Probs., 1998-99. The author wishes to express her deep gratitude to the following persons for their help with the construction of the ideas, the writing, and the mechanics of this article: Professors Anthony Kuklin, Kellis Parker, Marvin Chirelstein, Andrzej Rapaczynski, Robert Ferguson, and Mary Zulack, as well as Meredith Kane, Esq.

... Affordable housing is a commodity that is perpetually in short supply in the United States. ... For example, the federal government has implemented the Low-income Housing Tax Credit ("LIHTC"), a tax credit designed to encourage investment in low-income housing. ... Low-income families face difficulty in finding affordable homes to buy or rent partly because of the relative inelasticity of the housing market. ... This section will discuss how market inelasticity, resulting in a perpetual shortage of affordable housing, is created and sustained by the failure of the "filtering" process (a trickle-down development theory), including abandonment and deterioration of housing due to landlord and tenant practices, and gentrification. ... First, the tax credit will build upon the LIHTC's success in encouraging the development of affordable housing. ... The Code does not prohibit the ongoing involvement of the investor (here, a for-profit corporation) in the low-income housing project. ... For example, Mercy Housing Inc., a Denver non-profit corporation, sponsored a rehabilitation project in the city's East Colfax neighborhood. ... Cooperative housing has proved a successful model for resident ownership. ... An example of a low-income housing project that has created tenant-control mechanisms without ownership, as the proposed tax credit creates, may be found in Boston's Egleston Square area of Jamaica Plain. ...  


Affordable housing is a commodity that is perpetually in short supply in the United States. n1 The United States Department of Housing and Urban Development ("HUD") estimates that there are a total of 14.75 million very-low-income households in the nation. n2 All of these households qualify for federal housing aid, but only 4.8 million families receive it. n3 There is only one publicly subsidized apartment available for every four families poor enough to qualify. n4 A total of 6.1 million low-rent units are available n5 for the 35 million poor people in the United States. n6 As a result of the gap between supply and demand for low-income housing, approximately 4.4 million families now spend more than half of their income on rent and utilities. n7 In cities  [*132]  across the nation, the poor are "buckling under the weight of the cost of housing." n8 Without housing assistance, many low-income households will be likely to live in highly unstable situations, be forced to double up with other families, and most likely will never be able to buy their own homes. n9

Historically, the federal government has addressed the need for affordable housing through various subsidization programs, with various degrees of success. n10 For example, in 1963 the federal government chose New Haven, Connecticut to test housing programs. Federal money was "poured into New Haven" in the 1960s and 1970s, to eliminate "urban blight" and to renew and upgrade neighborhoods. n11 More public units per capita were built in New Haven than anywhere else in the United States. n12 Nonetheless, not enough new low-income units were produced to replace those that were lost under the redevelopment programs. n13 In addition, under poor Housing Authority management, many of the new units "quickly deteriorated and were lost." n14

Housing Authority mismanagement and the resulting deteriorated conditions in Chicago, Hartford, Denver, Newark, San Francisco, and other cities across the nation, have prompted the federal government to destroy the public housing projects they created. n15 Perhaps it is in response to failure of this kind that  [*133]  the federal government has turned to a market-driven, private development approach, with less government involvement in the financing, development, and management of affordable housing. n16 For example, the federal government has implemented the Low-income Housing Tax Credit ("LIHTC"), a tax credit designed to encourage investment in low-income housing. n17 The LIHTC has been widely regarded as successful in its efforts to encourage private organizations to invest in affordable housing. n18 However, the LIHTC, like many federal public housing plans before it, has only tried to make more units available at the lowest cost. n19 It has not addressed other vital issues of housing such as tenant involvement in housing decisions, transition to unsubsidized housing, and home ownership. n20

In Part II, this article examines the perpetual shortage of affordable housing and the failure of the market to meet the demand for such housing. In Part III, it discusses how the federal government has attempted to address the affordable housing shortage through the LIHTC. Part III also critiques the LIHTC program. In Part IV, this article introduces a proposal designed to build upon the successful aspects, and address some of the shortcomings, of the LIHTC. Part V presents a model of the proposed tax credit, and Part VI examines the goals addressed by the proposed tax credit.



The United States began as a nation with a "revolution in land" that paralleled the political revolution, whose "aim, not always fulfilled, was to put small holdings into the hands of the rank and file." n21

Since the 1980s, the National Housing Institute ("NHI"), a nonprofit organization that examines affordable housing and community building efforts, has been monitoring an enormous rise in homelessness and a "growing gap between incomes and the cost of decent, affordable housing in the United States." n22 NHI emphasizes that "the nation must strive to preserve extant distressed housing stock before age, neglect, and/or market forces remove it forever from the rapidly diminishing inventory of affordable housing." n23

The federal government first introduced publicly funded housing as an effort "to stimulate the housing industry" after the Great Depression of the 1930s. n24 In 1949, the mission was the removal of urban slums. n25 In 1968, it was to assist very-low-income households. n26 Today, HUD states that its mission is "a decent, safe, and sanitary home and suitable living environment for every American." n27 Even so, government subsidies in the form of public housing have not sufficiently answered affordable housing shortages. Public housing development efforts have  [*135]  generally resulted in an overall decrease in the supply of low-income housing, and there is no indication that this trend is changing. n28 In the mid 1970s, the federal government was building approximately 400,000 units each year. n29 By the early 1990s, that figure had dropped to about 36,000 units each year. n30

At the same time, HUD has implemented a program called Hope VI that will raze 100,000 mismanaged and deteriorated public housing apartments over the next eight years. n31 At its inception, the Hope VI Program intended to demolish substandard units and replace them on a one-for-one basis. n32 However, due to a change in federal administration and subsequent budget cuts, the one-for-one effort has been abandoned. Hope VI's sole task is now to demolish 100,000 units of public housing in 36 cities nation-wide and not to repair or replace them. n33 HUD plans to replace only about 40,000 units. n34 HUD expects Section 8 housing subsidies and the private market to replace sixty percent of the units. n35 However, privately owned housing stock will probably not be able to absorb all of the families currently living in public housing. n36


Low-income families face difficulty in finding affordable homes to buy or rent partly because of the relative inelasticity of the housing market. n37 Because providing housing is only profitable  [*136]  to developers at certain expected sale or rental prices, the development of low-priced housing will not occur even if there is consumer demand for it. n38 This section will discuss how market inelasticity, resulting in a perpetual shortage of affordable housing, is created and sustained by the failure of the "filtering" process (a trickle-down development theory), including abandonment and deterioration of housing due to landlord and tenant practices, and gentrification.

1. Filtering

Builders can command higher sale or rental prices for more luxurious apartments, so it is more profitable and less risky to build for consumers of expensive housing. In other words, low-income housing is not built because "there's no money in it." n39 Housing is not built below certain sale or rental prices because it is a product with a fixed cost, which can only be minimized to a certain level. n40 In addition, costs incurred due to administrative rules and requirements may make it less profitable to build lower-priced housing, especially in large cities. n41 For example, rent control systems, city agency approval requirements, complicated zoning and building code regulations, and union rules may contribute to high administrative costs and time consuming delays, beginning in the approval phase of construction. n42 If financing in the form of public subsidies is required, such administrative costs and delays may reach prohibitive levels. n43 The result is that builders choose to develop high-priced residences  [*137]  over low-priced ones regardless of the demand for low-priced housing.

This result may seem socially unacceptable, but the practice of building only expensive residences has been supported by theorists as a legitimate method for development, given the nature of the housing market. Housing market theorists describe the process known as "filtering" n44 to explain how houses and households sequentially exist in different markets. n45 Theoretically, "households of successively lower incomes sequentially occupy or filter through a dwelling or neighborhood from the relatively well-to-do original owners to the welfare recipients who last occupy the units before final abandonment." n46 In this way, when the rich move into new houses, they free up the older units for households in the next tier of income. The theory is that everyone in the market will move up, thereby freeing units at the bottom for low-income consumption. n47

However, there are several gaps in the process which prevent filtering from working as a method of providing low-income housing. n48 One of the main gaps is the removal of housing from the supply. n49 Houses are removed from the supply when new households are formed, n50 or when there is a change in tenure or land use. n51 In addition, houses are permanently removed from the supply due to abandonment, demolition, or gentrification. n52 The result of these gaps in the filtering process is that actual filtering occurs only in approximately ten to twenty-five percent of stock, and only in certain neighborhoods. n53

 [*138]  2. Abandonment and Deterioration

The National Housing Law Project ("Project") found that much of the supply of public housing was lost throughout the 1980s due to abandonment brought on by poor management and maintenance. n54 The Project explained that the Public Housing Authority ("PHA") and HUD neglected projects and failed to supply adequate financial and management resources. n55 As a result, "routine maintenance is postponed, repairs go undone, security declines and vacancies gradually climb . . . . Soon conditions have deteriorated to such a point that the PHA makes a conscious decision to leave vacant units unrepaired, unrented, and in some cases boarded up." n56

Instead of helping to sustain neighborhoods by rebuilding homes as they are falling apart, private owners and developers may also contribute to neighborhood downfall by failing to maintain their buildings and fleeing deteriorating areas. n57 Owners and investors may leave such neighborhoods for two reasons. First, they may leave because there is a lot of unwanted risk associated with building in a potentially declining area. For example, construction sites may be targets for crime, n58 and few developers and investors are interested in speculative real estate in declining neighborhoods. n59 Second, owners may have a long-term motive to see the area bottom out and then become attractive to a new set of buyers -- a process known as gentrification.

 [*139]  3. Gentrification

is the process of renewal and rebuilding accompanying the influx of middle-class or affluent people into deteriorating areas, forcing out or displacing earlier, usually poorer, residents. n60 Gentrification has positive benefits, but it also has an overall negative impact on low-income families.

"Gentrification," "urban renewal," and "neighborhood revitalization" are catchwords of a process of transition in neighborhoods characterized by politicians, developers, and other interested parties as "blighted," "impoverished," or in "abject poverty." n61 For most people living in affected neighborhoods, urban renewal signals "devaluation and abandonment rather than renewal." n62 In gentrifying neighborhoods, buildings are condemned, sold to speculators, and then rebuilt into more expensive housing, causing inner-city residents to be replaced by more affluent families who can afford the rapidly increasing rents. n63

A newly gentrified neighborhood is often characterized as a kind of middle or upper-class oasis in the decaying urban center. n64 The positive impact of housing funds targeted toward these islands of wealth may be restricted to a small area due to self-imposed isolation. In cities such as Chicago, Cleveland, and Houston, "new housing is being built to accommodate a demand from people who want to move back downtown from the suburbs." n65 Such cities attempted to provide incentives for reinvestment and gentrification.

For example, "Cleveland has been demolishing abandoned city-owned houses and selling the empty lots for $ 100, then giving the owners property tax abatements of 10 to 15 years while  [*140]  promoting a private mortgage program that offers interest rates about one percentage point below market rates." n66 In Detroit, homeowners moved into newly rebuilt city neighborhoods, saying that these neighborhoods "had proved safe, confounding stereo-types of the inner city." n67 However, the new subdivisions had guarded entrances and were fenced off from the adjacent, less prosperous, neighborhoods. n68

Gentrification may also cause a decrease in the number of housing units in neighborhoods. In Charlotte Gardens, a neighborhood in the South Bronx, New York, all of the multi-unit apartment buildings were torn down and replaced by single-family homes, many on quarter-acre lots. n69 Before the demolition, Charlotte Gardens was described as "the definition of urban blight, nearly destroyed by poverty, crime and arson." n70 After the rebuilding, it was described as a setting that "could be any modest, well kept suburb, where a nice little house on a good street would not last long at $ 185,000." n71 "Not only have property values quintupled, but politicians and urban planners say the very audacity -- and the success -- of the development helped change the attitude of government officials and the public about what was possible in the South Bronx." n72 "That, in turn, led to broader renewal efforts and more new homes, raising values all over South Bronx." n73

Politicians, developers, investors, and many other people may support gentrification because it revitalizes neighborhoods and often brings in new businesses and schools. Community leaders and residents, on the other hand, are often opposed to such measures because they tend to raise rents for all residents in the affected areas and price out families with low and moderate incomes. The Charlotte Gardens project was hailed as a success by some because it quadrupled the property values in the area. n74  [*141]  However, the project destroyed thousands of homes, and in many cases replaced them with one house per quarter acre. n75

In addition, gentrification can often change the quality of the neighborhood. For example, in New York City's East Village, when new businesses and residences were being planned and built, some residents worried that "the neighborhood's character [was] being lost: that [certain local businesses] cannot be replaced and that chain stores hardly make an area distinguished." n76

Low-income households in neighborhoods experiencing gentrification bear the social and economic costs in the form of the diminishing supply of available affordable housing. Those who cannot afford to pay the rising rents are forced to look for housing in a shrinking pool. For them, the market is already bad and gets worse as rents rise. Because they are displaced from the neighborhood, these households share none of the benefits that accompany gentrification, such as economic development, neighborhood improvement, additional opportunities for employment, and stabilization of the tax base.

Inadequate production of new units, and gaps in the filtering process for existing units, especially due to abandonment, deterioration, and gentrification, are market inefficiencies that combine to create the need for some form of government intervention if housing is to be created for people with low levels of income. n77 One way in which the federal government encourages certain types of market activity is through the tax code, specifically by lowering taxes, creating special provisions for tax deductions, or by providing a tax credit. n78 The following section will describe  [*142]  one example of such federal encouragement: the Low-income Housing Tax Credit.


The Low-income Housing Tax Credit ("LIHTC") was enacted by Congress in 1986 as an incentive to stimulate private investment in low-income housing. n79 The program is the first federal housing program under the jurisdiction of the IRS and the Department of Treasury rather than the Department of Housing and Urban Development. n80 This difference is significant because it marks a move from federal development and construction programs to federal subsidization of private development programs. n81 The LIHTC program creates a dollar-for-dollar reduction in tax liability for private investors in exchange for their agreement that their rental units will have income and rent restrictions over an extended time period. n82

The U.S. General Accounting Office ("GAO") describes the LIHTC as "the largest federal program for funding the development and rehabilitation of rental housing for low-income households." n83 The federal government spends approximately three billion dollars on the LIHTC program every year. n84 It allows a certain number of credits to each state, in shares, according to the state's population. n85

 [*143]  To understand how the tax credit works, assume that a corporation will owe a significant amount in taxes this year. The corporation may elect to put some of its tax dollars into low-income housing. The corporation then purchases low-income housing credits, usually from a local non-profit LIHTC sponsor. n86 For each dollar of credit purchased, the corporation decreases the tax it owes. n87 The cost to the federal government of approximately three billion dollars consists of tax money that would otherwise have been collected from taxpaying corporations and deposited into the Treasury, but is instead distributed to LIHTC projects.


The LIHTC provides a federal tax credit in exchange for investment in construction, acquisition or rehabilitation of low-income housing. n88 Generally, non-profit corporations use tax credits as a commodity n89 by selling them to corporate investors who receive a dollar-for-dollar tax credit against their regular income in exchange for the investment. n90 The non-profit corporation uses the capital to develop the low-income housing project. n91 LIHTC-sponsored buildings are then rented out to qualified residents. n92

 [*144]  The investor then receives a percentage of the investment in each qualified low-income building as credit against income tax for ten years. n93 For new construction and substantial rehabilitation that is not federally subsidized, a seventy percent present value credit is taken by the investor over ten years at an annual rate of approximately nine percent of the initial investment. n94 The total return on an investment is estimated to be twelve to fifteen percent annually. n95


1. Production of Affordable Housing Units

Over $ 300 million in low-income housing tax credits have been distributed each year since 1986, when the LIHTC was enacted as part of the Tax Reform Act. n96 The credit is a "major component of Federal housing policy," and "has produced more than 600,000 units of rental housing since its enactment." n97 HUD describes the LIHTC as "a key element in the Administration's strategy for adding to the stock of rental housing that is affordable without additional subsidy for families who have low-incomes." n98

 [*145]  2. Provision to Preserve Affordability

Owners of housing built under the LIHTC must continue to lease to low-income tenants for a minimum of fifteen years. n99 In addition, the investing corporation must commit to maintaining the project as low-income housing for an extended period of fifteen years unless the building is sold, in which case the housing authority has a right of first refusal on the sale. n100 The LIHTC thus limits the allowable appreciation value, which ensures that the housing will be available to low-income families at affordable rates for fifteen to thirty years. This is an anti-gentrification measure that caps the rents at low levels throughout the compliance period. n101

Housing experts agree that the LIHTC program "has proven widely successful in building [affordable] housing." n102 The program has been called "the most important subsidization available to the builder of affordable homes over the last five to ten years." n103 In 1997, the United States General Accounting Office reported that the LIHTC program was "one of the most successful and efficient federal initiatives ever." n104 However, as the next section will demonstrate, the LIHTC neglects some key elements that are critical to breaking the subsidy cycle in affordable housing.


Homeownership has long been identified with the "American dream." n105 It is considered to be "a basic value in American society" n106 and a "national good." n107 Most individuals think it is "better to own than to rent," n108 and this is certainly true from a financial  [*146]  standpoint. n109 Most homes appreciate, allowing homeowners to enjoy substantial tax advantages. n110 The federal government now spends $ 66 billion each year on tax deductions for mortgage interest and property tax -- about four times what it spends on low-income housing. n111 In addition, rents have risen faster than wages, so renters are spending more and more of their income for shelter. n112 Conversely, homeownership has become less expensive: in 1980 the average homeowner paid about thirty percent of after-tax income on a mortgage n113 compared to the current average of approximately twenty-three percent. n114 Not only does the average homeowner spend a smaller percentage of income on shelter than does the average renter, but the homeowner is also "accumulating the ultimate prize: equity." n115 In sum, most people would prefer to own their homes than to rent them, and with good (financial) cause.

The existing LIHTC offers no opportunity for homeownership of sponsored units, and consequently no opportunity to build equity. Even if low-income housing credit-funded units were made available to residents for purchase, there would be no possibility for realizing a profit upon resale because of the LIHTC's built-in "appreciation value" control. n116 Such a control is necessary, not only to keep affordable housing available, but also in order to  [*147]  prevent gentrification and displacement of low-income families from already scarce housing resources.

These anti-gentrification measures also create new problems. Where there is no potential profit margin, there is no opportunity for a low-income household to invest in the property over time and to gain equity. Subsequently, there is also no incentive for residents of low-income housing to try to maintain or increase the value of the property. In the next section, a proposal is presented to address the elements of ownership and equity in affordable housing, while balancing the need to preserve the affordability of low-income units, in a way that will promote the goal of freeing low-income households to buy non-subsidized housing.



The purpose of the proposed additional tax credit is twofold. First, the tax credit will build upon the LIHTC's success in encouraging the development of affordable housing. Second, the proposal will address the shortcomings of the LIHTC by creating two new provisions that will give tenants greater control over their homes, and an opportunity to develop equity over time.


1. Stock Option Component

Under this proposal, corporations would be awarded tax credits in exchange for providing a monthly stock option to residents of buildings funded by the corporation under the LIHTC. Residents would exercise the option by paying their rent each month. A portion of the rent payments would then be used to purchase stock in the investing corporation on behalf of the residents. n117 The corporation would put the stock in trust for the  [*148]  residents, until they decided to cash in their shares and move out of the building.

2. Educational Component

Investing corporations would also be required to provide informational seminars to educate tenants about financial management. The information should be designed to teach residents about managing money, financing and buying a home, and the issues involved in home ownership. This component of the proposed tax credit will likely be effective only if corporations voluntarily comply with educational initiatives, since monitoring this activity may not be feasible. It is presented as part of this tax proposal in the hope that private investors will enhance their financial investment by making a personal investment into the lives of the residents in their buildings. However, even a corporation that does not share this goal could follow some basic guidelines set out by this proposed legislation. In the past, the LIHTC has prompted many entrepreneurs to become experts and sell their services to entities using tax credits. n118 It is contemplated that similar initiatives will be demonstrated in response to the proposed tax credit, including the educational component.

The following model illustrates how the proposed tax credit might work in practice. The model is a simple one, intended only to provide a basic sketch of what the proposed tax credit envisions. n119


Corporation X ("Corp. X"), having realized high profits and expecting to continue the trend for the next ten years, chooses to take advantage of the LIHTC. Corp. X decides to invest $ 1 million in a low-income housing project, to be developed by a nonprofit development group ("Developer"). Developer builds a 10-unit apartment building with the $ 1 million and finds ten families to move into the building as tenants.

 [*149]  Developer then forms two entities: a tenants' association ("Association") and a limited partnership, or Z Street Limited Partnership ("Z Street"), in which Developer is the managing partner (holding one percent equity in the project) and Corp. X is a limited partner (holding ninety-nine percent equity in the project). Z Street is the management organization for the building. Tenants of Z Street will exercise control over their residences by virtue of their advisory capacity as members of the Association. The Association will have monthly meetings and will be consulted on matters related to security, maintenance and quality of life. Developer, as equity partner in the project, will then use the tenants' input in the management of the building. n120

Developer will establish a trust fund for the tenants of Z Street to purchase stock in the name of the residents and hold it until such time the tenants opt to "cash out" -- that is, to sell the stock on the market and use the accrued capital to move out of the building, ideally to buy a home of their own. Developer will purchase the stock to be put in trust for the tenants, and will be reimbursed by funds from Corp. X. The government will reimburse Corp. X via tax credits on a dollar-for-dollar basis.

Leases for tenants of Z Street would contain, in addition to the standard language of typical lease arrangements, certain provisions governing the stock purchase and resale portion of their tenancy. First, the lease would inform the tenant that a portion of each month's rent will be used to purchase stock of Corp. X in the tenant's name. n121 Second, the lease would provide that a tenant may sell the shares on the market at any time, and at such time the tenancy will expire. n122

Many contingencies remain unresolved in this basic model. For example, it is not clear what would happen if a tenant decided to sublet or move out after living in the apartment for only  [*150]  a few months. n123 Unresolved issues such as this would have to be decided on a case-by-case basis by the investors, the developers, and the newly formed management entity. Investors and developers may want to ensure that tenants save up their stock until they have enough capital to make a down payment on a home. To accomplish this goal, the lease might provide that the tenant must reside in the apartment for a certain period, and that the stocks must be held in trust for that period or build up to a certain value before the tenant is free to cash out.



The proposed tax credit is presented as an accompaniment to the existing LIHTC, not a substitute. As such, it contributes to the production aspect of the LIHTC by encouraging more companies to take advantage of the tax credit and investment opportunities to build new units of housing for low-income families. In addition, it preserves the anti-gentrification measures of the LIHTC because the equity component of the proposed tax credit is not linked to the property, but to the investing company. In other words, it creates a profit-making opportunity for tenants but does not create an increase in the cost of the housing for future tenants. Therefore, the price of the unit remains affordable throughout the life of the LIHTC project.


Corporations participate in the LIHTC program because of the dollar-for-dollar credit it offers them: they are compensated for every dollar they invest. Similarly, the proposed tax credit provides investing corporations with a dollar-for-dollar credit for every dollar of stock they offer to residents. The tax credit compensates the investing corporation for sacrificing some of the operating  [*151]  capital and profit that might otherwise be derived from rents, but is instead being channeled into the purchase of stock for residents. In addition there remains the possibility of a twelve to fifteen percent return on the investment upon resale after the compliance period. n124

While the trend under the LIHTC has been towards passive investment and management by unrelated nonprofit agencies, no language in the Code requires such division of capital and labor. Under 26 U.S.C.A. 42(h)(5)(B), "a qualified low-income housing project is described in this subparagraph if a qualified nonprofit organization is to own an interest in the project (directly or through a partnership) and materially participate . . . in the development and operation of the project throughout the compliance period." The Code does not prohibit the ongoing involvement of the investor (here, a for-profit corporation) in the low-income housing project. Similarly, the Code does not require the project itself to be maintained as a nonprofit entity.

The proposed stock-option tax credit could involve the investing corporation by using a model of ownership similar to the cooperative model, in which the tenant purchases shares in the investing corporation and is involved in the management in an advisory capacity. It is contemplated that investors will benefit from the ongoing contact with their tenants because the tenants will be involved in the management of the building and will be cooperative in efforts to preserve its value. In addition, corporations may "gain some public relations benefit from being seen as investors in affordable housing." n125


1. Opportunity for Equity Accumulation and Transition Out of Subsidized Housing

Historically, public housing rules have created "lifetime residential dead-ends." n126 Many families move in to public housing and stay there for decades. n127 Even when their building has deteriorated  [*152]  beyond repair, they may remain there because they cannot afford other housing options. n128 In order to move from subsidized to unsubsidized housing, low-income tenants need opportunities to build up capital resources for moving costs and the down payment on a home, and to secure a mortgage.

The proposed tax credit creates an opportunity for families to build up equity towards the purchase of a home of their own through the purchase of corporate stock. Families that accumulate stock could sell it and use the proceeds to buy a home on the real estate market, independent of any government assistance. A "cash out" limitation could be created by the corporation to encourage residents to wait until they have enough stock built up to fund an investment in the housing market.

Each month the tenant could receive a certificate of stock representing potential future wealth. The stock certificate may incidentally serve as a tangible reminder that the tenant is indirectly a part-owner of his or her own apartment. In addition, the tenant would be entitled to receive yearly stock dividends, if any.

2. Ownership Component

Most people would rather own their homes than rent them, as noted above. n129 In addition, owners take better care of their property than renters. n130 First, while renters' interests are limited to occupancy during the lease, the interest of the owner is to maximize the value of her property until resale. n131 Owners cannot afford to be negligent with their homes because, unlike renters, they face the possible consequences of eventually paying large repair bills. n132 Second, owners have greater control over their environment -- they can make changes to their homes as they choose. n133 Owners do not fear landlord abandonment or  [*153]  their own displacement due to sudden changes in federal housing policy. Tenants do not have this control, and consequently there is no incentive to put time and energy into the maintenance of their homes and neighborhoods. n134

Affordable housing projects often suffer the consequences of tenants who feel no investment in their homes. For example, Mercy Housing Inc., a Denver non-profit corporation, sponsored a rehabilitation project in the city's East Colfax neighborhood. In this neighborhood, "housing stock consisted mostly of rentals; only ten percent of the area's units were owner occupied, compared to nearly sixty-two percent city wide." n135 According to Richard Birkey, the property manager of the rehabilitated building, "after less than three years occupancy, many of the rehabbed units had already been badly trashed." n136 Damage to the units included "burned carpeting, person-sized holes in the walls, burns on walls, empty ammunition cases strewn about, extreme filth, [and] bad smells." n137

The proposed tax model seeks to give tenants some form of personal investment in their homes, even if they are not owners. To accomplish this goal, the proposal suggests a cooperative housing-style model. In cooperative housing, the corporation is the owner of the real estate, and the residents are shareholders in the corporation. n138 The housing is operated and governed by an organization whose members are drawn exclusively from those who occupy the apartments in a multi-unit building. n139 Instead of purchasing shares in the corporation up front, in this proposal, the corporate sponsor applies a certain percentage of the tenant's monthly rent toward the purchase of corporate stock, which accrues as equity for each tenant. The housing is operated and governed by the investor and developer, and the tenants' association is consulted on matters involving operations. n140

 [*154]  Cooperative housing has proved a successful model for resident ownership. In New York City, the Ownership Transfer Project ("OTP") was created "to keep buildings permanently affordable to low-income residents by transferring properties from private to co-op ownership before they were abandoned by landlords, taken over by the city, or sold to real estate speculators or gentrifiers." n141

One of the first buildings acquired by residents through OTP was 507 W. 140th Street, in Manhattan. A local community law office provided management training and coordinated the participation of various technical assistance providers. While rents increased, residents felt the rents were "not steep for what we're getting. These are going to be our apartments, and if we maintain them, we'll live very well for the money." n142 After years of dealing with landlord neglect, the tenants understood the benefits of their ownership interest immediately, and they have maintained the building's physical structure as well as appearance and safety.

3. Management and Control

The proposed tax credit creates an organization that mimics cooperative housing, in that the residents have a stake in the operations of the project. However, the residents purchase shares in the investing corporation, rather than in the housing corporation. The element of cooperative housing that is preserved is tenant management and control.

An example of a low-income housing project that has created tenant-control mechanisms without ownership, as the proposed tax credit creates, may be found in Boston's Egleston Square area of Jamaica Plain. In that neighborhood, a local non-profit corporation, Urban Edge, approached tenants to gather opinions about structure before they acquired Bancroft Apartments, a three-building complex of forty-five units. n143 Executive Director  [*155]  Mossik Hacobian explained, "our involvement in homeownership was based on a belief that residents should have control of their housing and the development that happens within their community. When we turned to multifamily rental housing we were still trying to capture the same concept." n144 Urban Edge's Board of Directors thus has fifteen regular members and seven alternates, of whom ten are tenants. The board reaches management decisions by consensus. In this way, "tenants know the management cares . . . . Before that [management's responsiveness], tenants didn't care . . . there was lots of drug dealing, and people were behind in rent." n145 Ten years later, the buildings are "modest yet respectable," and "residents genuinely feel a special commitment to Urban Edge, the community, and the building." n146

Residents of low-income housing know the problems in their neighborhoods. n147 They want some kind of personal investment in their homes. For example, in Chicago, the Cabrini Green Public Housing Apartment Complex was scheduled for demolition under the Hope VI program, due to substandard conditions. n148 Carol Steele, a tenant and member of the tenant's association, suggested that residents wanted to play a role in improving -- instead of being pushed out of -- their neighborhood. n149 Steele felt that the solution would be "to empower more residents to do resident management." n150 She argued that nobody "knows more about what residents need than the residents themselves," and that if they "can untangle the bureaucracy and make [their] own decisions . . . [they] can rehabilitate the homes better." n151 Unfortunately, the demolition plan remains in place, without any testing to see what the residents might have done if they had been given the chance. n152 The demolition is expected to  [*156]  displace approximately 675 families. n153


Providing low-income housing and opportunities for building equity is feasible through a partnership of investors, developers, and low-income residents who want a chance to be homeowners. In a nation that encourages self-help and the entrepreneurial spirit, government subsidies ought to contemplate future self-sufficiency, rather than fostering a cycle of dependency. An incentive that promotes the gradual transition of the poor from subsidized to unsubsidized housing may help more companies see the social benefits in community investment. An incentive that encourages investors to offer corporate stock to low-income households creates a real opportunity for such households to build equity over time. In so doing, such households can potentially gather enough wealth to enter the housing market at the non-subsidized level, providing them with the freedom to choose the type of living conditions they prefer. Freedoms like these are often taken for granted by those who purchase housing on the free market. They should be made available for people of all income levels.

n1 See David L. Kirp et al., Our Town: Race, Housing, and the Soul of Suburbia 82 (1995). The federal government defines shelter as "affordable" if rent and utilities constitute no more than 30% of a household's income. Jason DeParle, Slamming the Door, N.Y. Times, Oct. 20, 1996, Section 6 (magazine) at 52.

n2 See Q&As About HUD (last modified: Jan. 30, 1998) <>. "Very-low-income" households are those earning less than 50% of the local median income.

n3 See id. See also DeParle, supra note 1, at 52.

n4 See Lifeline for Low-Cost Housing, N.Y. Times, Jan. 18, 1998, 4, at 16.

n5 See Penny Loeb, A Modest Boost in Housing for the Poor, U.S. News and World Report, Aug. 3, 1998 at 5.

n6 See U.S. Bureau of the Census, Poverty Rate Down, Household Income Up -- Both Return to 1989 Pre-Recession Levels, Census Bureau Reports (visited Jan. 19, 1999) <>.

n7 See DeParle, supra note 1, at 52; Janet E. Stearns, Voluntary Bonds: The Impact of Habitat II on U.S. Housing Policy, 16 St. Louis U. Pub. L. Rev. No. 2, 419 (1997).

n8 Jean Hopfensperger, Low-Cost Housing Supply Gap Widens; Study Shows Severe Shortage, Minneapolis Star Trib., Aug. 3, 1992, at 1B, available in LEXIS, Regnws Library; STRIB file (for example, in Minneapolis-St. Paul, five out of six poor renters and homeowners pay more than the federal guideline of 30% of their income on housing; in Chicago the figure is seven out of eight, and in L.A. it is nine out of ten).

n9 See Charles E. Daye et al., eds., Housing and Community Development: Cases and Materials 113 (2nd ed. 1989); DeParle, supra note 1, at 54.

n10 Some examples include Community Development Block Grants ("CDBG"), 42 U.S.C. §§ 5301-03, to help communities with economic development, job opportunities, and housing rehabilitation; subsidized housing in the form of Section 8 certificates or vouchers for low-income households, 42 U.S.C. 1437(f); subsidized public housing for low-income individuals and families; the HOME Investment Partnership Act, 42 U.S.C. 12741; [and] mortgage and loan insurance through the Federal Housing Administration, 12 U.S.C. 1707-1724. See Q&As, supra note 2.

n11 Homes for the Homeless: A Handbook for Action 3 (Adam Berger et al. eds., 1990).

n12 See id.

n13 See id.

n14 Id.

n15 See Razing the Slums to Rescue the Residents, N.Y. Times, Sept. 6, 1998, at A1. For examples of management problems in public housing, see Senator Sam Brownback, Resolving HUD's Existing Problems Should Take Precedence Over Implementing New Policies, 16 St. Louis U. Pub. L. Rev. No. 2, 235, 245-46 (1997); F. Willis Caruso and Mark Brennan, Public Housing Privatization Using Section 8 Vouchers and I.R.C. Section 42 Low-income Housing Tax Credits in Connection with the Use of Lease to Purchase Options, 16 St. Louis U. Pub. L. Rev. No. 2, 355, 362 (1997).

n16 See Robert Halpern, Rebuilding the Inner City, A History of Neighborhood Initiatives to Address Poverty in the United States 82 (1995). See also President Bill Clinton, Between Hope and History: Meeting America's Challenges for the 21st Century 91-92 (1996); Henry G. Cisneros, The State of American Cities, 16 St. Louis U. Pub. L. Rev. No. 2, 251, 259-60 (1997); Caruso and Brennan, supra note 15, at 356-58.

n17 26 U.S.C.A. 42. Other examples include Section 8 vouchers and Hope VI. Both programs are discussed in Part II infra. In the 1980s Project HOPE, another privatization initiative, was created. Project HOPE envisioned the sale of public housing units to the residents. However, due to lack of tenants' financial means and interest in the low-valued property, only about one in four units was ultimately sold. Halpern, supra note 16, at 82.

n18 See Steve Bergsman, Corporate Taxation: Taking Credit, CFO Mag. for Senior Fin. Executives, Nov. 1, 1997, at 21. See also J.A. Lobbia, Pataki's Seven Deadly Sins, Village Voice, Nov. 25, 1997, at 50.

n19 See Bradford McKee, Public Housing's Last Hope, Architecture, Aug. 1997, at 94, 96.

n20 See Caruso and Brennan, supra note 15, at 362. See also William G. Grigsby, Housing Markets and Public Policy 174 (1963) (stating that a major goal of federal housing policy has been to raise the volume of residential building activity).

n21 Kirp et al., supra note 1, at 83 (citing Charles Abrams, Forbidden Neighbors: A Study of Prejudice in Housing 3 (1955)).

n22 Saving Affordable Housing: Introduction (last modified: Oct. 1, 1998) <>.

n23 Id.

n24 Berger, supra note 11, at 88; Daye et al., supra note 9, at 111. See also 42 U.S.C.A. 1401-40.

n25 See Berger, supra note 11, at 88. Efforts to counter slum clearance and public housing construction plans were made without input from neighborhood residents. Halpern, supra note 16, at 58.

n26 See Berger, supra note 11, at 88.

n27 HUD's Missions and Priorities (last modified: June 23, 1998) <>.

n28 See Kirp et al., supra note 1, at 28; Jenifer J. Curhan, The HUD Reinvention: A Critical Analysis, 5 B.U. Pub. Int. L.J. 239, 251 (1996).

n29 See DeParle, supra note 1, at 52.

n30 See id.

n31 See Razing the Slums to Rescue the Residents, supra note 15, at A14; W. David Koeninger, A Room of One's Own and Five Hundred Pounds Becomes a Piece of Paper and "Get a Job": Evaluating Changes in Public Housing Policy from a Feminist Perspective, 16 St. Louis U. Pub. L. Rev. No. 2, 445, 450 (1997); Don Terry, Chicagoans Split on Housing Plan, N.Y. Times, June 29, 1996 at A1.

n32 See Koeninger, supra note 31, at 451-54.

n33 See id. at 446-47; Curhan, supra note 28, at 252; Terry, supra note 31, at 1; McKee, supra note 19, at 95.

n34 See Housing Maverick (Interview with Andrew Cuomo), Architecture, Aug. 1997, at 47.

n35 See id. Section 8 provides vouchers equivalent to the difference between market rent and 30% of their adjusted gross income, to help low-income people gain access to the private rental market. Halpern, supra note 16, at 82.

n36 See Curhan, supra note 28, at 252; Grigsby, supra note 20, at 174.

n37 See Grigsby, supra note 20, at 82 ("Supply . . . may be singularly unaffected by the actions of the [housing] producers."). A market is characterized as "inelastic" when demand does not increase or decrease significantly with an increase or decrease in price. Mark Seidenfeld, Microeconomic Predicates to Law and Economics 15 (1996).

n38 See Leonard F. Heumann, A Structuring of Social Policy Planning Issues Resulting From Imperfections in the Private Housing Market (course materials for 1994 Housing and Urban Planning Seminar, on file with the author).

n39 DeParle, supra note 1, at 52. See also Curhan, supra note 28, at 254 (developers are deterred from building low-cost housing because they are not assured of a steady income stream).

n40 See Heumann, supra note 38, at 3; Grigsby, supra note 20, at 166.

n41 See Charles Orlebeke, New Life at Ground Zero 119 (1997).

n42 See id.

n43 For example, Mother Theresa's order of nuns, the Missionaries of Charity, wanted to build a homeless shelter in New York City. In 1988, they found two fire-damaged buildings that the city agreed to turn over for one dollar each. However after a year and a half of administrative delays followed by the discovery of several expensive building code requirements that the city would not waive, Mother Theresa and the order abandoned their effort. See Philip K. Howard, The Death of Common Sense 3 (1994).

n44 Alternatively, the process is known as the "trickle-down theory" of the housing market. See Kirp et al., supra note 1, at 90, 96; Moore, et al., Woodlawn: The Zone of Destruction, 30 Public Interest 41 (1973). Filtering is a complicated theory and is the subject of many books and articles. It is introduced here only to help explain why the supply of affordable housing falls short of demand. For a more detailed analysis, see generally Grigsby, supra note 20.

n45 See Daye et al., supra note 9, at 15.

n46 Id.

n47 See Grigsby, supra note 20, at 86.

n48 See id. at 130, 285.

n49 See id. at 107. Another of the main gaps is lack of family mobility. See id. at 76-77.

n50 See id. at 61. This may occur, for example, due to divorce or the creation of new households.

n51 See id. at 107-10. For example, a unit is converted to two or more dwellings.

n52 See id. at 107.

n53 See id. at 142-55, 164-65.

n54 See Gideon Anders et al., Public Housing in Peril: A Report on the Demolition and Sale of Public Housing Projects 10 (1990). See also Terry, supra note 31, at 25 (Chicago Housing Authority allowed the Cabrini-Green housing complex to crumble away over the years, ignoring glaring maintenance problems until people had to leave); Grigsby, supra note 20, at 288 ("The quality of housing accommodations is below acceptable standards because insufficient amounts of money are spent to maintain, improve, and expand the stock of dwelling units.").

n55 See Anders, supra note 54, at 1.

n56 Id.

n57 See Halpern, supra note 16, at 63; Grigsby, supra note 20, at 100 (stating that undermaintenance is a "reasonable response of a landlord to a declining market").

n58 See generally Construction Sites See More Vandalism, Kan. City Star, Jan. 22, 1997 at 5, available in LEXIS, News Library, KCSTAR File; See also Mark Bixler, Thieves, Vandals Cost Builders, Atlanta J. and Const., Sept. 25, 1997 at 3Q, available in LEXIS, News Library, ATLJNL File; Dionne Searcy and Desiree Chen, Northwest Suburban Crime Drops, But Officials Wary, Chi. Trib. Apr. 27, 1997 at 1, available in LEXIS, News Library, CHTRIB File; Beth Feinstein-Bartl, Building Equipment Easy Prey, The Sun-Sentinel (Ft. Lauderdale), Apr. 24, 1994 at 3, available in LEXIS, Market Library, PROMT File.

n59 See Grigsby, supra note 20, at 144-45.

n60 See Curhan, supra note 28, at 262-63; Teresa Cordova, Community Intervention Efforts to Oppose Gentrification, in Challenging Uneven Development 25, 27 (Philip W. Nyden and Wim Wiewel, eds., 1991); Grigsby, supra note 20, at 286.

n61 Philip W. Nyden and Wim Wiewel, eds., Challenging Uneven Development 1 (1991); Mel King, A Framework For Action, in Challenging Uneven Development 17 (Philip W. Nyden and Wim Wiewel, eds., 1991).

n62 Halpern, supra note 16, at 68.

n63 See Cordova, supra note 60, at 25; Curhan, supra note 28, at 263 (stating that when gentrification occurs, landlords steadily raise their rents and force lower-income families out of their current apartments).

n64 See Cordova, supra note 60, at 25; Curhan, supra note 28, at 263 (concluding that gentrification transforms once lower-income areas into "middle-income enclaves").

n65 Barbara Stewart, Market's Nod to a Rebirth; in South Bronx Enclave, Rising Property Values and Suburban Living, N.Y. Times, Nov. 2, 1997, 1, at 37.

n66 Robyn Meredith, Demand For Single-Family Homes Helps Fuel Inner-City Resurgence, N.Y. Times, July 5, 1997, 1, at 1.

n67 Meredith, supra note 66, at 1.

n68 See id.

n69 See Stewart, supra note 65, at 37.

n70 Id.

n71 Id.

n72 Id.

n73 Id. at 43. The article does not explain what happened to all the residents of the multi-family units that were torn down. In addition, it is not clear what will happen to the current residents if property values and tax rates continue to rise.

n74 See id. at 37.

n75 See id. at 43. Generally, a density of less than 100 dwellings per acre is considered too low for cities. A density of 4 houses per acre, like Charlotte Gardens, would be suitable for suburbs. However, in healthy cities, artificially induced dispersion may cause a "loss in total efficiency and productivity." Jane Jacobs, The Death and Life of Great American Cities 165-66, 209, 212 (1961). Higher-density housing is not only less expensive to build than lower-density housing, it is also usually better than "suburbanstyle transplants." McKee, supra note 19, at 104.

n76 Janet Allon, On East 14th Street, the Edge is Fading Away, N.Y. Times, Nov. 23, 1997, 14, at 6.

n77 See Stanley S. Surrey, Pathways to Tax Reform: The Concept of Tax Expenditures 239 (1973) (finding that the goal of increasing the supply of low-income housing "will require considerable federal assistance"); Grigsby, supra note 20, at 130 ("The role of the private sector must be increased . . . [to] facilitate and encourage higher levels of construction, maintenance, repair and rehabilitation through regular market processes.").

n78 See Surrey, supra note 77, at 126-34, 155.

n79 See 26 U.S.C.A. 42 (1986 & Supp. 1998). Congress has also tried other measures, such as shortening the depreciation schedules for new apartment buildings in 1981. This had the effect of doubling new apartment construction by 1985, which raised vacancy rates in many local markets. In 1986, Congress stripped away the incentive and replaced it with the LIHTC. See Orlebeke, supra note 41, at 191.

n80 See Jeanne L. Peterson, The Low-income Housing Tax Credit, 73 Mich. B.J. 1154, 1154 (1994).

n81 See Clinton, supra note 16, at 94. See also Cisneros, supra note 16, at 254; Caruso and Brennan, supra note 15, at 356-58.

n82 Peterson, supra note 80, at 1154.

n83 Lynn Stevens Hume, House Panel Wants to Strengthen Low-income Housing Credit, Bond Buyer, Apr. 24, 1997 at 5.

n84 See id. See also Low-income Housing Tax Credit (LIHTC) Database, (last modified: Jan. 23, 1998) <>. A tax credit amounts to a tax expense because it is an "imputed tax payment that would have been made," but for the credit. Surrey, supra note 77, at 6. A tax incentive does involve the expenditure of government funds. Id. at 130. For a more detailed explanation of why tax credits are equivalent to direct tax expenditures, see generally Surrey, supra note 77.

n85 See Charles Linn, Affordable Housing Credit's Future?, Architectural Rec., July 1997, at 107.

n86 See infra text accompanying notes 89-91 for a more detailed explanation of the flow of cash from corporate sponsors to low-income housing projects.

n87 For details on how corporations recover their investment capital, see infra text accompanying notes 93-95.

n88 See Berger et al., supra note 11, at 105.

n89 See Caruso and Brennan, supra note 15, at 359.

n90 See id. For a description of how developers generally sell tax deductions to investors under a tax credit model, see Surrey, supra note 77, at 240. Typically, investors are passive and have no relationship to the developer. For more information on using syndication through limited partnerships to allow pooling of investments to fund a development while permitting gains and losses to pass through to the investors, see Berger et al., supra note 11, at 109. It is estimated that nonprofit companies finance about 40,000 affordable housing units each year. Loeb, supra note 5, at 5.

n91 See Linn, supra note 85, at 107.

n92 Residents qualify based on income depending on which option the LIHTC-sponsor chose under 26 U.S.C. 42(g) (1994). This subsection reads in part as follows:

Qualified low-income housing project. -- For purposes of this section -- (1) In general. -- The term "qualified low-income housing project" means any project for residential rental property if the project meets the requirements of subparagraph (A) or (B) whichever is elected by the taxpayer: (A) 20-50 test. -- The project meets the requirements of this subparagraph if 20% or more of the residential units in such project are both rent- restricted and occupied by individuals whose income is 50% or less of area median gross income. (B) 40-60 test. -- The project meets the requirements of this subparagraph if 40% or more of the residential units in such project are both rent-restricted and occupied by individuals whose income is 60% or less of area median gross income.

n93 See 26 U.S.C. 42(a) (1994). See also Caruso and Brennan, supra note 15, at 359.

n94 See 26 U.S.C. 42(a) (1994). See also Berger et al., supra note 11, at 105. There are many restrictions and limitations that condition the availability of the credit, including certain standards for buildings, rent restrictions, recapture provisions (if the units do not remain low-income for 15 years), and other rules governing who can rent and how much credit investors can use. For example, a housing project could be funded partially by the LIHTC and partially by other HUD subsidies, in which case a 30% present value credit is taken by the investor over ten years at an annual rate of approximately 4% of the initial investment. See generally 26 U.S.C. 42 (1994). In some cases the investor may also deduct additional amounts for "passive real estate losses." Orlebeke, supra note 41, at 191.

n95 See Orlebeke, supra note 41 at 191.

n96 See Steve Bergsman, supra note 18, at 21.

n97 HUD Strategic Plan, Strategic Objective #3, (last modified: Jan. 29, 1998) <>.

n98 Id.

n99 See 26 U.S.C. 42 (1994); see also Caruso and Brennan, supra note 15, at 378.

n100 See 26 U.S.C. 42 (1994); see also Caruso and Brennan, supra note 15, at 378.

n101 Caruso and Brennan, supra note 15, at 378.

n102 J.A. Lobbia, supra note 18, at 50.

n103 Caruso and Brennan, supra note 15, at 377. On average, New York State receives about $ 30 million a year in tax credits.

n104 See Bergsman, supra note 18, at 21.

n105 The New Math: Is Buying Always Better than Rentig [sic]? Chicago Tribune, Nov. 26, 1993, at D19.

n106 Lee Daniels, About Real Estate: Holding Down Costs at a Complex in Sullivan County, N.Y. Times, June 22, 1984, at A17.

n107 Dan Tracy, Home Ownership Gets a Federal Push, Orlando Sentinel, June 27, 1996, at D3.

n108 Rachelle Garbarine, Condo Conversions: A Glimmer of Confidence in Manhattan, N.Y. Times, Oct. 5, 1990, at A26; Jane Bryant Quinn, Tandem Buyers Need Double Advance Work, Washington Post, Jan. 23, 1982 at E4.

n109 See The New Math, supra note 105, at 19.

n110 See Marsha Kay Seff, Although Many Must Rent, Some Prefer It That Way, San Diego Union-Tribune, Nov. 22, 1987, at F11, available in LEXIS, News Library: SDVT File.

n111 See DeParle, supra note 1, at 52. For an explanation of why tax credits are equivalent to direct tax expenditures, see supra note 84, and see generally Surrey, supra note 77. More than two thirds of the $ 66 billion budget goes to families with incomes in excess of $ 75,000. See id. "The Congressional Budget Office has acknowledged that the mortgage interest deduction amounts to 'a generous subsidy even for relatively expensive homes.'" Peter W. Salsich, Jr., Welfare Reform: Is Self Sufficiency Feasible Without Affordable Housing?, 2 Mich. L. & Pol'y Rev. 43, 66 (1997) (citing Congressional Budget Office, Reducing the Deficit: Spending and Revenue Options 25 (1996)). The home mortgage deduction accounts for 78% of the $ 85 billion total federal budget for housing -- the remaining 22%, approximately $ 19 billion, supports all HUD assistance and public housing programs. See id at 45. The result of the current home mortgage deduction is that the wealthier a home-owning household is, the more financial assistance the federal government provides. Surrey, supra note 77, at 233-36.

n112 See DeParle, supra note 1, at 52.

n113 See id.

n114 See id.

n115 Id.

n116 See supra text accompanying notes 99-104.

n117 The stock could be bought at current market prices, or additional tax credits could be allowed in exchange for the corporation offering its stock at below-market rates.

n118 For example, many individuals and companies offer their services on the internet, see (last modified July 16, 1998) <>; (visited Oct. 22, 1998) <>.

n119 There are many rules, regulations and restrictions that would affect the corporate structuring and financial outcome for investors, developers and tenants in an LIHTC-funded project.

n120 The Abyssinian Development Corporation uses this model of establishing tenants' associations in all buildings they develop under the LIHTC as a method of involving tenants in building operations despite their lack of equity stake. Conversation with Darren Walker, Vice President, Abyssinian Development Corporation, New York, N.Y. (Oct. 7, 1998).

n121 If the investor and/or developer desires, the lease may also contain some contingency language to stop the purchase of stock in the event the rent is consistently paid late, the tenant is subletting, or the tenant is in default on the lease.

n122 Investors and/or developers may also want to ensure that tenants do not decide to "opt out" of the stock option by staying in the building interminably. The lease would then contain a specified expiration date, and could also provide that on that date the stock will be sold on the market and the proceeds will be given to the tenant.

n123 During the compliance period of the LIHTC, the building must remain available to low-income families. See supra text accompanying note 99. Similarly, the Proposed Tax Credit would require that tenants be given the stock option throughout the compliance period, whether they move in at the beginning of the project or follow after initial tenants move out.

n124 See Orlebeke, supra note 41, at 191.

n125 Linn, supra note 85, at 107.

n126 Cisneros, supra note 16, at 260.

n127 See Razing the Slums to Rescue the Residents, supra note 15, at 14.

n128 See id.

n129 See supra text accompanying note 105-109.

n130 See Tracy, supra note 107, at D3; McKee, supra note 19, at 96; Grigsby, supra note 20, at 100, 235-36 (describing the different maintenance styles for rental and owner-occupied markets).

n131 Professor Andrezj Rapaczynski, Lecture at Columbia University Law School (Nov. 3, 1997).

n132 See id. See also Halpern, supra note 16, at 81 (stating that the cost of neglecting public housing property "weighs lightly on any individual resident"); Grigsby, supra note 20, at 100 (finding that owners do not benefit by reducing expenditures on maintenance).

n133 See The New Math, supra note 105, at 19.

n134 See McKee, supra note 19, at 96.

n135 Grace Apartments Denver: A Rental Project in a Marginal Location, (visited Oct. 22, 1998) <>.

n136 Id. (citations omitted).

n137 Id.

n138 See John E. Davis, ed., The Affordable City: Toward a Third Sector Housing Policy 84 (1994).

n139 See id.

n140 See supra text accompanying note 120. The Tenants' Association cannot participate as a limited partner unless they provide an equity investment in the project. However the consultation function is presented as a proxy for membership in the corporation itself. Conversation with Darren Walker, Vice President, Abyssinian Development Corporation, New York, N.Y. (Oct. 7, 1998).

n141 Cooperative Housing in Harlem, (visited Oct. 22, 1998) <>.

n142 Id.

n143 See Bancroft Apartments: Resident-Controlled Subsidized Rental Project, (visited Oct. 22, 1998) <>.

n144 Id.

n145 Id.

n146 Id.

n147 See Halpern, supra note 16, at 67.

n148 See Koeninger, supra note 31, at 469.

n149 See Priorities for the Nation: Education and Housing, N.Y. Times, Jan. 21, 1997, at A14.

n150 Id.

n151 Id.

n152 See Koeninger, supra note 31, at 471-74. See also Halpern, supra note 16, at 67. A similar lack of interaction between the planners of affordable housing and their tenants took place in connection with the Henry Horner Homes, also in Chicago. See McKee, supra note 19, at 97.

n153 See Koeninger, supra note 31, at 471.

Prepared: January 24, 2003 - 5:02:29 PM
Edited and Updated, January 25, 2003

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