Green building and policy innovation in the US Low-Income Housing Tax Credit program

Criteria set by QAPs have significant impacts on the location and quality of LIHTC developments.

What components of green building are promoted in the Low-Income Housing Tax Credit (LIHTC) program? What happens to innovative green building criteria after adoption? Are all US states contributing equally to environmental sustainability through the LIHTC program? Why are some LIHTC-allocating agencies more innovative than others in adopting and maintaining green building criteria? In the paper "Green building and policy innovation in the US Low-Income Housing Tax Credit program", Drs. Andrew McCoy, Georg Reichard, Steve Hankey, Todd Schenk, and Armin Yeganeh aim to provide a better understanding of state-led housing policy innovation.

In 1986, the US Congress enacted the Low-Income Housing Tax Credit (LIHTC) program, providing state and local LIHTC-allocating agencies an equivalent of $8 billion per year to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing for low-income households by private investors. With more than 2.4 million active units, the LIHTC program is the principal federal affordable housing production program, which incentivizes the production of a significant portion of below-market-rate multi-family rental units for extremely low-income to low-income households based on an indirect federal subsidy. Siting and building LIHTC developments according to green building standards have the potential to reduce operating costs, increase the assisted families’ access to education and employment, promote the residents’ health and safety, and mitigate negative environmental impacts of LIHTC developments.

Empirical models developed in the state policy innovation literature can help explain drivers of subnational environmental initiatives, including green building, sustainable development, and climate change. Studies of policy innovation have explored innovation-driving forces to explain why some state or local governments adopt policies or programs while others do not. Major classic models of policy innovation that describe causal processes involved in the adoption of innovative policies are classified into the two categories of internal determinants models and diffusion models. Internal determinants models presume economic, environmental, political, and social characteristics of states – thus, not pressures created from other states – act as primary driving forces of innovation.

Using panel data and information from seven years of collaboration between Global Green and LIHTC-allocating agencies, the authors of this study developed an empirical framework, showing interstate variations in the adoption of green building criteria are, to a large extent, explained by state-level data of housing agency resources, motivations, and obstacles. The adoption momentum of green building criteria has decreased since 2010 and now is on a slight upward trajectory. Significant between-state differences in policy innovation in LIHTC persist. The LIHTC housing agencies can be divided into role-model, strongly committed, committed, moderately committed, and weakly committed organizations.

This study shows that agencies that adopt a set of green building criteria do not always maintain the adopted criteria in the long term. Apart from a cost-benefit analysis, there are trials and errors involved in adopting new policies, allowing agencies to experiment with various methods of dealing with environmental concerns until the agencies find the most practical solution. The empirical model examined here corroborates Mohr’s motivation-resource obstacle hypothesis, showing positive and statistically significant relationships exist between policy innovation and the presence of economic, environmental, political, and societal resources and motivations. The results suggest that the determinants influencing the propensity of LIHTC-allocating agencies to require green construction options can include organization-level (e.g. leadership, maturity, resources, structure) and individual-level (e.g. attitudes, autonomy, entrepreneurship, motivations) factors.

Further research is needed to explore factors that impact the utility of policy innovation and barriers the environmental sustainability movement faces at the organization level and beyond. Qualified Allocation Plans (QAPs) outline the criteria based on which state housing agencies allocate financial incentives in the form of tax credits to multifamily residential developers. Since QAPs have significant impacts on the location and quality of LIHTC developments, housing agencies can use QAPs as effective policy tools to drive planned evolutionary change to residential developments. Since buildings represent up to 40% of global energy use and 30% of greenhouse gas emissions, the LIHTC program can provide considerable opportunities for national and subnational governments to promote global environmental sustainability and climate change mitigation through policy interventions.

To read or cite the full article: Armin Yeganeh, Andrew P. McCoy, Georg Reichard, Todd Schenk & Steve Hankey (2020): Green building and policy innovation in the US Low-Income Housing Tax Credit programme, Building Research & Information, DOI: 10.1080/09613218.2020.1842165

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