L.A. Eminent Domain Fight Exposes Fatal LIHTC Affordable Housing Flaw

Ironically, signs like this are usually deployed against 'big business' abuse. In this case, 'the people' are demanding that government employ eminent domain AGAINST business.

The American Federal government’s biggest tool for the creation of affordable housing is designed to help developers have their cake and eat it — building subsidies today, and free market profits in the future.

Low Income Housing Tax Credits (LIHTC) entice developers with tax savings as housing gets built and then for several years afterwards. In exchange a developer and subsequent owners are bound to defer free market profits for up to 30 years by holding rents for that property at below-market values.

Bottom line: affordable housing schemes like LIHTC build affordable housing that is temporary, not permanent. The opportunity for financial relief to build immediately is only part of the attraction. Access to the free market at a later date, is equally important.

Or it was.

Because a proposal gaining interest in Los Angeles would use a city’s power of eminent domain to seize the property before it reverts to market freedom. This, to all intents and purposes, has the effect of reneging on the original agreement.

Activists think the idea is great. No surprise, they have no financial investment in housing. Developers think it’s an utter disaster. And since the nation giveth, but the city taketh away, they may have no recourse to a sue anyone in particular for breech-of-contract or other damages.

Who, developers argue, will in future be prepared to develop affordable housing now in exchange for profit deferral 30 years down the road? Nobody, if there’s a credible threat to use eminent domain to seize the property just when an owner is free to rent at market rates, or redevelop the property as they please.

Schemes like Tax Credit funded affordable housing will simply wither away. Programs that promise, but cannot fulfill, a guaranteed return to the free market will simply collapse for want of participants.

Read more in LAList: Can LA Save Affordable Housing Through Eminent Domain?

Perhaps it’s well past time for a hard look at time-blinkered arrangements that, like LIHTC, create only temporary affordable housing.

Well-funded, well-designed, well-built, well-managed public housing could provide a much more certain source of truly affordable housing that could be kept that way, permanently beyond the reach of speculators in the housing free market.

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