Building Optimally: How New Jersey Can Utilize the LIHTC to Facilitate Efficiency in the Affordable Housing Market

Abstract

President Lydon B. Johnson’s Great Society established a public-private relationship in the U.S. welfare state. Through the devolution of Great Society programs, the Low-Income Housing Tax Credit was created. This credit incentivized private sector investment into the welfare state beginning in 1986. For the past three decades the LIHTC has proved to be the most effective policy in creating affordable housing. The onset of the LIHTC initiated the period of state-led housing policy. Alongside the rise of state housing authorities, community-based organizations formed throughout states to assist in facilitating state funding to people in need. New Jersey has been a leader and innovator in state housing policy but is currently experiencing a massive affordable housing shortage. Through quantitative analysis, it can be demonstrated that racial prejudice in high-opportunity areas has forced LIHTC projects to be located in areas of consolidated poverty. Flooding highly concentrated impoverished area with LIHTC properties has shown to have adverse effects. Furthermore, through data collected in New Jerseys Point-in-Time count, homelessness in New Jersey is racially overrepresented. Through analyzing polices aimed to restrict homeless movement and exclusionary landlord practices, black households are increasingly more likely to experience homelessness than any other racial group or group in poverty. New Jersey’s severe affordable housing deficit will not be solved by simply creating more affordable housing. Affordable housing projects need to be commissioned in high opportunity areas that can effectively raise people out of poverty. If individuals reside in affordable housing units in a highopportunity areas, theoretically the availability of economic opportunities can thrust individuals out of need for affordable housing and can create a system where affordable housing acts as a propellant providing households with the social mobility to escape poverty. This challenges the idea that the state needs to solve its deficit by building more affordable housing units but rather construct units in meaningful places that allow impoverished households the ability to obtain social mobility. This will create a stream that lowers the total impoverished population and as the population total goes down and the number of affordable housing units goes up an equilibrium can be reached.