Why Low-Income Housing Tax Credits are Flowing to Gentrifying Neighborhoods

The Low-Income Housing Tax Credit (LIHTC) is the federal government’s primary means of encouraging private investment in rental housing that is affordable to low income households. This study uses Philadelphia as a case study to examine whether LIHTC-funded developments are more likely to be constructed in gentrifying neighborhoods. This study finds that LIHTC-funded developments are more likely to be built in gentrifying neighborhoods because developers have strong market incentives to, and may be more likely to receive LIHTCs if they, target gentrifying neighborhoods. While constructing LIHTC-funded developments in gentrifying neighborhoods may more meaningfully impact their tenants, building these developments in poor, non-gentrifying neighborhoods seems to be a more efficient use of government resources.