On December 2, Jabal Companies and Calvary University filed a federal complaint alleging that the City of Belton discriminated in rejecting a proposed 252-unit affordable housing project on city-owned land. The plaintiffs argue that public opposition included racially coded language and that the city council’s decision violated the Fair Housing Act by relying on stereotypes about prospective tenants.

The project was modest in scale, encompassing just over eight acres near Westover Road and Bong Avenue, across from Calvary University and adjacent to a public golf course. Plans included a mix of one-, two-, and three-bedroom apartments, along with amenities such as a pool, playgrounds, and a community clubhouse. The site had remained undeveloped for decades.

Belton’s own community development staff had described the parcel as “an underutilized property not being used for its highest and best use.” The city was expected to contribute nearly seven acres, with Calvary selling an adjacent one-acre parcel. Jabal Companies had already secured low-income housing tax credits and begun engineering and design work.

Public opposition quickly emerged. During rezoning hearings, residents raised concerns about crime, school overcrowding, and declining property values—common themes in debates over subsidized housing. According to the lawsuit, many of these objections, and the council’s response to them, reflected coded language around race and socioeconomic status.

Whether the legal claims succeed remains uncertain. But from a policy standpoint, this case illustrates a broader challenge: what political scientist Francis Fukuyama termed a “vetocracy,” in which a small number of actors can block change, even when there is widespread recognition that change is necessary.

Across the country, similar dynamics play out in neighborhood meetings, zoning boards, and advisory councils. These forums are intended to enhance democratic participation. In practice, they often amplify the voices of politically engaged homeowners who oppose new housing near their properties.

In Belton, the developers spent months working with city officials and cleared several early procedural steps. Yet because no binding approvals had been secured, a single up-or-down vote by the city council effectively killed the project—despite prior staff support and what the plaintiffs contend was a complete and compliant application.

These decisions carry real consequences. Projects that are blocked or delayed leave more families searching for housing that doesn’t exist. Each additional layer of discretionary approval adds uncertainty and expense, discouraging developer investment.

The current system also distorts the market. Developers recognize that affordable housing proposals often face the most resistance and may instead pursue higher-end projects with fewer political risks—or leave the market altogether. Or, as is too often the case, developers seek public subsidies to offset the additional costs of delays and red tape. In contrast, cities such as Raleigh, North Carolina, which have restructured local review boards and relaxed zoning restrictions, have seen measurable increases in “missing middle” housing options such as duplexes and townhomes.

Community input remains essential, and many developers are willing to engage with residents. But Missouri’s approval process, which features duplicative reviews, ambiguous standards, and politicized hearings, is simply too burdensome.

The post Legal Challenge over Belton Housing Project Highlights Flawed Approval Process appeared first on Show-Me Institute.

That result should raise alarms—but not eyebrows. Set-aside requirements like this often function less as solutions and more as stumbling blocks. Rather than spur construction, Kansas City’s policy has become something to work around. Developers have leaned on other incentive-granting agencies or opted for minimal in-lieu payments instead. Meanwhile, regulation continues to inflate costs and suppress supply. As I’ve written before, regulation can be a root cause of unaffordability.

The KCBJ analysis looked at 114 development incentive applications since 2021. None resulted in affordable units under the set-aside rule. Many projects qualified for exemptions—using low-income housing tax credits (LIHTCs), being historic rehabs, or receiving incentives from agencies outside the city’s economic development corporation (EDCKC).

Examples:

• Of six qualifying EDCKC projects since August 2022, just one plans to meet the 20% set-aside (16 of 78 units at 60% MFI).
• Larger developments often went through the Port Authority of Kansas City (Port KC) or other entities, thereby sidestepping the requirement entirely.

The result is a policy with good intentions but poor results—and plenty of incentive for developers to seek workarounds.

Two themes stand out.

First: Incentives, not mandates, are doing the real work. Port KC has become the go-to agency for developers. Since mid-2023, it’s reviewed 17 housing proposals totaling over 5,000 units and $2.6 billion in investment. Because Port KC isn’t bound by the set-aside ordinance, many developers simply pay a lower in-lieu fee and move forward. A city spokesperson even admitted that some of these workarounds were done “at the request or with the blessing of city leaders.”

Second: Regulation continues to push costs up. Developers cited permitting delays, costly energy codes, and other burdens as key barriers. As one put it, requiring reduced rent on top of high costs is a “double negative.”

This tracks with previous findings: When regulation increases costs, it restricts the market’s ability to deliver lower-priced housing. If the goal is more affordability, then cities must lower the baseline costs—not just impose mandates.

The post Shocker! Kansas City’s Affordable Housing Set-Asides Nets Zero Housing Units appeared first on Show-Me Institute.

Soltas takes a close look at New York City’s 421-a tax incentive, a voluntary program meant to coax developers into adding affordable units to new construction. His conclusion? The marginal cost of delivering just one of those “affordable” units is about $1.6 million. Not per building—per unit.

To put that in perspective, housing vouchers or programs like the Low-Income Housing Tax Credit (LIHTC) can often serve a family for a fraction of that price. In fact, Soltas finds that the 421-a program is about six times more expensive than either LIHTC or Section 8 on a per-unit basis.

Supporters of these policies often say the premium is worth it because it moves low-income households into higher-income neighborhoods, opening up long-term opportunities. But even that goal comes with trade-offs. We can’t pretend money is infinite. When we choose to spend $1.6 million to house one family in a high-rent ZIP code, we are choosing not to house five or ten families elsewhere. Every dollar we overpay in one neighborhood is a dollar not spent reducing waitlists, repairing existing housing stock, or investing in other services.

The more we subsidize these costly outcomes, the more we distort the market—and not in subtle ways. Developers are rational. When inclusionary mandates make a project unprofitable, they don’t build. When they can get tax breaks for minimal public benefit, they take the deal. Soltas’s paper even shows that developer “windfalls” aren’t the biggest issue—it’s the simple fact that it costs far more to make units “affordable” in already expensive neighborhoods.

What this all points to is a deeper issue in housing policy: the unwillingness of lawmakers to prioritize. Inclusionary housing tries to solve everything at once—cost, segregation, opportunity—but ends up creating a system where we pay top dollar for minimal benefit. It’s the public policy equivalent of spending a fortune on a single winning lottery ticket while others go hungry.

We don’t have to take that path. There are more cost-effective ways to support housing affordability that don’t rely on distorting incentives or showering subsidies on high-income developments. Targeted vouchers, flexible zoning reforms, and letting supply meet demand are all better places to start.

Policymakers should stop asking, “How can we mandate more affordable housing?” and start asking, “What’s the most effective way to help the most people with the dollars we have?”

The post The Real Price of “Affordable Housing” appeared first on Show-Me Institute.

Whether this is a good thing or a bad thing depends on why it happened. If rents are up due to increased demand to live, work, study, and invest in Missouri, then it is a good thing. If rents are up because we are not allowing enough housing to be built, it is a bad thing. Which is it? Well, we don’t know for sure, and it certainly could be both. It might be the former—increased demand—and it might be the latter—restricted supply. I think it’s unlikely that it is primarily the latter. Overall, Missouri does not have especially strict zoning rules, environmental rules, or building restrictions to limit housing. For example, the Institute has published papers on the lack of centralized planning and resulting affordable prices in the St. Louis and Kansas City housing markets. But we can always be better as a state. Our cities have made mistakes in this regard and our counties have made some questionable choices, too.

There is a downside, of course, with higher rent costs—the rent for your apartment or office is higher. For landlords, that may result in higher property taxes. Similarly, there are benefits and downsides to increases in housing prices. But, overall, I think the increases in rental rates in our two major cities are a beneficial sign. It’s important to remind people that housing throughout Missouri is affordable, including in our big cities. Perhaps some of this increase is simply that there is more “room to grow” here than elsewhere. Perhaps we haven’t done anything at all, but limited housing supply and high housing costs elsewhere have driven some people to Missouri. We don’t really know for certain.

I do know for certain that some groups will take this “fastest rental increase in the country” news as an opportunity to try to add more government mandates in the name of “affordable” housing. That is the last thing our state needs. We don’t need more “source-of-income” rules or attempts to initiate rent control (which is, thankfully, illegal in Missouri). We don’t need affordable housing mandates on developers or further expansion of the low-income housing tax credit. (Although, to be fair, developers can avoid most of that by simply not asking for a tax subsidy in the first place.)

If you think housing or rental costs are too high, one can trust the free market to help lower the cost of housing in St. Louis and Kansas City if we let it. One of the reasons housing costs (buying and renting) in the United States have risen so much recently is constraints on supply, primarily via zoning limits. In recent years, Minneapolis and Austin have both made a point to increase the housing supply by substantially reducing their zoning rules. Housing costs and rental rates have significantly decreased in both cities as housing supply has increased. If we want rental and housing costs to decrease in Missouri, zoning reform is the way forward for St. Louis and Kansas City, not new government regulations or mandates.

The post Ask Famous Missourian Bob Barker if the Price Is Right? appeared first on Show-Me Institute.

The concerns people have over housing affordability raise a number of policy questions ranging from zoning to the fees Fannie Mae and Freddie Mac charge for new mortgages to the minimum wage, vouchers, and the low-income housing tax credit (LIHTC). In Missouri, the largest state-funded tax subsidy is the LIHTC program. The analysis in the previous two blog posts helps reveal why Missouri’s current LIHTC program is not designed to meaningfully improve housing affordability in Kansas City.

As I explained in the previous post in this series, Kansas City has a surplus of affordable housing for all income groups except those at the very bottom. But does the LIHTC program actually help those at the bottom of the income ladder?

There are numerous problems with the LIHTC program, such as the fact that it inflates construction costs. But arguably the biggest problem is that the criteria it imposes for developers to receive subsidies do nothing to promote additional housing at the cheapest rent levels. The most common arrangement for LIHTC developments is for 40% of the units to be reserved for those earning below 60% of the area median income (AMI). But the rents for the LIHTC units are not based on the income of the potential residents; rents are set based on the income in the surrounding area (the AMI). Because of this, even LIHTC-subsidized housing would likely not be affordable enough for the lowest-income families.

To use some numbers to illustrate this example: As explained above, rent needs to be no more than 30% of your income to be considered affordable, and LIHTC units considered “affordable” can be reserved for those making 60% of the AMI. So rent for that “affordable” unit in a LIHTC development will be 18% of the AMI (30% x 60% of AMI). Based on the $78,000 AMI in Kansas City, this means that the monthly rent for a family of 3 in that LIHTC unit is about $1,170 per month ($78,000 x 18% / 12). But as was described previously in this blog series, a family of three in Kansas City making 30% of the AMI needs rent to be about $585 per month to be considered affordable—and the cost of the LIHTC unit is nearly double that figure. Because of this, LIHTC tends to offer little to no help to the poorest residents.

In future work, the Show-Me Institute will provide more insights into not just the LIHTC program but the broader array of policies that have been discussed—or even new proposals that have not garnered as much attention—to promote a dynamic housing market that serves the needs of all Missourians.

The post Affordable Housing and Kansas City: Further Thoughts appeared first on Show-Me Institute.

In the last post in this series, I talked about how to estimate potential housing demand. Now it’s time to talk about the supply. Since the majority of households earning below the area median income (AMI) are renters (as the graph in the last post showed), we can use census data to determine the number of units rented in Kansas City and how much they cost, which should give us a pretty good estimate of the supply of rental housing.

As the figure below shows, there weren’t many rental units available for less than $500/month at the time the survey was conducted, but there are more than 123,000 available between $500–999 per month. Moreover, the data below are not broken down by the number of bedrooms. Undertaking an even more granular analysis of the balance between housing demand and supply through a decomposition by family and unit size is left for future analysis.

With that in mind, we can combine the data we’ve put together in the last two posts to strictly compare the estimates of affordable housing supply with demand. This allows us to establish a potential surplus or shortage for any income group. Using the table below, we can see for each income bracket the supply of affordable housing. Then, by subtracting the demand for units from the supply, we can determine whether there’s a surplus or shortage of housing at the 30%-of-income affordability threshold for households at each income level.

The table above shows that there is a shortage of housing under the 30%-of-income affordability threshold in the Kansas City area for those making less than approximately 30% of the AMI but a significant surplus for all remaining income groups

The results in the table above are similar to what I referenced in part 5 of this series about a supply and demand analysis of St. Louis City and County contained in a report commissioned by the Community Builders Network of Metro St. Louis for the Affordable Housing Trust Fund Coalition. It’s not that Kansas City clearly lacks rental housing, but it may lack sufficiently affordable rental housing for the city’s poorest residents. And when “affordable” in this instance means rents lower than $580/month for a family of three, it’s somewhat understandable that such places could be hard to come by.

It is important to remember that these estimates for the potential housing supply and demand in Kansas City are only as good as the assumptions made to create them. In the next post, I’ll dive a little deeper into how different examinations of the same data can lead to different results for what should be done in Kansas City.

The post Part 7: Does Kansas City Have an Affordable Housing Problem? appeared first on Show-Me Institute.

How affordable is housing in Kansas City? The answer depends not only on how you define “affordable” for individuals, but also for a city or region as a whole. Earlier posts in this series discussed housing affordability for individuals, and how factors other than income can affect what housing is attainable. But when it comes to regions, the question of affordability becomes much more complicated.

For most people, when they say housing is unaffordable, they mean that it’s too hard to find a suitable place to live in an area they want for a price they can afford. For a region, the affordability discussion can take many different shapes. Are there enough places to live? Is the cost of renting or purchasing housing too expensive everywhere, or in specific areas only? How many people are struggling to find affordable housing? What is causing the unaffordability? And what could be done to address the issue?

A few months ago, I wrote about a report that tried to assess the housing affordability situation in St. Louis, and the results were illuminating. Like Kansas City, St. Louis and the surrounding region score fairly well on most affordability metrics. Nevertheless, this particular report gave St. Louis a “C” grade. According to the report, the way to determine whether a region has an affordability problem is by taking the number of people earning different incomes and comparing that to the number of housing options that would be affordable for them. The idea seems straightforward enough, but the grades require a bit of nuance because of the way housing affordability is defined, which is residents spending 30% or less of their income on housing.

The middling grade for St. Louis was not a result of the region having too few places to live. In fact, there are more places to live in St. Louis than people to live in them. Nor was the issue that those earning around the area median income were having too hard of a time finding affordable places to live. The problem was specifically an inadequate supply of housing with low enough rents to be affordable for people making less than 30% of the area’s median income, which for St. Louis represents a family of three making less than $23,000 per year. To put that in context, affordable housing for this specific family would mean a 2–3-bedroom residence that costs (with utilities) less than $560 per month, which is understandably hard to find.

So, when does a region have a housing affordability problem? Tying the definition of “affordable” to the income of residents assures that some amount of housing will always be considered unaffordable to someone. Ultimately, when you’re not talking about places like San Francisco or New York City, the answer for most regions is likely a subjective one that local officials and their communities may be best equipped to handle. Regardless of what’s decided, it’s important that elected officials have a good idea of what they’re trying to solve and how they’re going to solve it before they start enacting policies or throwing tax dollars at the apparent problem.

The next post in the series will discuss some of the ways in which the government has tried to address housing affordability.

The post Part 5: Does Kansas City Have an Affordable Housing Problem? appeared first on Show-Me Institute.

The low-income housing tax credit (LIHTC) program is the federal government’s largest tax expenditure on affordable rental housing. In Missouri, LIHTC is the state’s primary housing policy tool and its most expensive tax credit program. Despite the program’s cost and political durability, the question remains: is the LIHTC program an effective and cost-efficient approach to improving housing affordability? This report explores this question, providing details on the structure of Missouri’s LIHTC program and the economic incentives it creates, along with a discussion of the conclusions that can be drawn following the temporary suspension of Missouri’s LIHTC program from 2017 to 2019.

Click here to read the full report.

The post Missouri’s Low-income Housing Tax Credit appeared first on Show-Me Institute.

Some policymakers are starting to deal with the challenge of housing inflation thoughtfully. But some cities, like Pittsburgh, are adopting half-baked (but trendy) policies from elsewhere to solve a problem that, practically speaking, may not exist locally. As reported in the Wall Street Journal:

On Monday the mayor signed an ordinance . . . to expand the city’s inclusionary zoning requirements. Developers building 20 or more units in the gentrifying Bloomfield and Polish Hill neighborhoods will have to set aside at least 10% for affordable housing. Under the rules, a designated studio apartment could rent for no more than $742 a month, though the average rent for one is $1,300 in Pittsburgh, according to the housing search website Rent.com. . . .

[I]nclusionary zoning forces developers to set aside affordable housing whether or not they receive government incentives, so “the other 90% of the units have to subsidize that cost,” Mr. Eichenlaub says. “They are making the developer and the owners of those units, or renters, absorb those costs. Effectively, it’s a tax on housing.”

And when you tax something, you get less of it. Portland, Ore., introduced inclusionary zoning in 2017. Permits for residential buildings with 20 or more units plummeted 64% in 25 months as developers went smaller to get around the mandate. The nonprofit Up for Growth concluded that “rather than increasing the number of affordable units,” the zoning scheme “appears to be diminishing the supply of housing at nearly all income levels.” [Emphasis mine]

My colleague Elias Tsapelas has done, and continues to do, outstanding work digging into LIHTC. The Pittsburgh “inclusionary zoning” mandate is the same sort of government burden as the LIHTC, minus the incentives. As the Wall Street Journal editorial board astutely observes, Pittsburgh’s newly mandated costs are likely to metastasize not only into higher housing prices for other renters and owners, but also into overall housing supply degradations.

But Pittsburgh’s housing policy change is notable for another reason: by one prominent metric, the city is the only major metropolitan area in America that doesn’t appear to have an affordability problem. Wendell Cox is a prominent researcher on the issue of housing affordability, and he has published his “median multiple” index for many years now, ranking metropolitan areas worldwide based on how affordable their housing markets are. His 2022 edition of the index is illuminating, not only for the other findings (which I’ll get into in another blog post) but especially for Pittsburgh—which now ranks as the only purely “affordable” housing market in the United States. In other words, Pittsburgh is trying to fix a problem it doesn’t really have.

My colleagues and I will pull apart why housing costs can be artificially inflated by government interventions and why those interventions can nonetheless be politically popular, but Pittsburgh stands as a cautionary tale that Kansas City and St. Louis policymakers must be aware of and must refuse to emulate. There are numerous reasons that housing costs have risen nationally, and the solution to that challenge is neither simple nor monolithic. In its case, Pittsburgh should go back to the drawing board and ensure it isn’t about to create a problem that doesn’t meaningfully exist. Yet.

The post Pittsburgh, Poster Child for Sloppy Housing Policy appeared first on Show-Me Institute.

St. Louis has a very specific housing affordability problem. There are plenty of places to live, but there aren’t enough places with rents low enough to be affordable to those making less than 30% of the area’s median income (AMI). Affordable, per the report’s definition, also means only spending 30% of your income on housing. For St. Louis, a family of three making 30% of the area’s median income earns approximately $23,000 per year ($76,000 (the St. Louis AMI) X 30%). So, an affordable place to live for that family would be approximately $560 per month. ($23,000 X 30% (to find what yearly rent is considered affordable for them) / 12 (to convert to monthly rent).)

Despite being Missouri’s primary tool for addressing housing affordability, the LIHTC program is ill-suited to address the described housing affordability issue in St. Louis. The first and most obvious reason is that LIHTC is an already expensive way to subsidize the development of new housing

Another supposed benefit of LIHTC developments is that they come with rent controls. Remember, LIHTC developments, in exchange for ten generous years of tax subsidies, agree to set aside a portion of units for those with low incomes. The most common arrangement for LIHTC developments is for 40% of the units to be reserved for those earning below 60% of the AMI. But the rents for the LIHTC units are not based on the income of the potential residents; rents are set based on the income in the surrounding area (the AMI). Because of this, even LIHTC-subsidized housing would likely not be affordable enough for the family mentioned above.

To use some numbers to illustrate this example: As explained above, rent needs to be no more than 30% of your income to be considered affordable, and LIHTC units considered “affordable” can be reserved for those making 60% of the AMI. So rent for that “affordable” unit in a LIHTC development will be 18% of the AMI (30% x 60% of AMI). Based on the $73,000 AMI in St. Louis, this means that the monthly rent for a family of 3 in that LIHTC unit is about $1,100 per month ($73,000 x 18% / 12). But as was described above, a family of three in St. Louis making 30% of the AMI needs rent to be about $560 per month to be considered affordable—and the cost of the LIHTC unit is nearly double that figure. Because of this, LIHTC tends to offer little to no help to the poorest residents.

Housing policy is incredibly complicated, but it’s time to stop thinking of LIHTC as the answer to every problem. St. Louis may have an affordability problem, but LIHTC is clearly not the best solution.

The post A Problem LIHTC Won’t Fix appeared first on Show-Me Institute.

First, there’s the question of what makes housing “affordable.” Academic research on housing (and this report) typically defines “affordable” as housing where the resident spends less than 30% of their income on rent and utilities. This is a key point, because instead of affordability being solely measured by the price of housing, it is also dependent on the income of the people who live there.

Tying affordability to resident income also helps researchers explain how a region can be affordable for some but not all income groups, which is exactly what the report shows for St. Louis. For the wealthiest in the region, finding an affordable place to live is easy—St. Louis earns an “A” grade for this demographic. There’s also sufficient affordable housing for those making around and somewhat below the area’s median income (AMI). The same cannot be said for those making less than 30% of the AMI, which represents a family of three making less than $23,000 per year in total.

One problem with tying affordability to income is that it’s yet another imperfect measure for gaining insight into what residents find affordable, especially for those with lower incomes. For example, if you don’t have a car or another means of transportation, housing that’s miles away from your place of work that costs 30% of your income is likely not affordable once you account for daily commute costs. Or, if your income is low enough to qualify for other government programs (food stamps, housing vouchers, etc.) paying more than 30% of your monthly income may still be affordable for you despite what the income guidelines suggest.

So, what does it mean for a region to have an affordability problem? According to the report, you have to look at the number of people earning different incomes and compare that to the number of housing options that would be affordable for them. For example, the wealthiest St. Louisans have an enormous surplus of affordable housing options. But the poorest (<30% AMI) face a shortage of approximately 35,000 units, which is why St. Louis received an “F” for this group. To put this in context, affordable housing for the family described above would mean a 2–3-bedroom residence that costs (with utilities) less than $560 per month, which is understandably hard to find. Given the limitations of the income figures provided above, it’s hard to tell whether this estimated shortage is under or overestimating the housing affordability situation in St. Louis.

Perhaps the toughest question is what should be done given all this information. At the very least, before our elected officials start talking about solutions, they should get a better grip on the extent of the problem.

The post Does St. Louis Have a Housing Problem? appeared first on Show-Me Institute.

In late December, the MHDC met to dole out the state’s LIHTCs for 2021, and there was reason to believe some measurable improvements were on the way. As I’ve written multiple times, when Missouri’s program returned from its brief hiatus in 2020, we were told this time it’d be different. The tax credit with a history of dismal performance was receiving reforms that would add accountability and allow each state tax dollar spent to go a little further. A pilot program that increases payout rates was being expanded because of its apparent popularity and supposed success.

Recently, Missouri State Treasurer Scott Fitzpatrick released a statement showing that the average sale price for state LIHTCs increased by nearly $0.10 in 2021. But this increase did not translate to more affordable housing being built. According to the MHDC’s newest project approval data, the number of projects and the number of units in projects approved for LIHTCs in 2021 decreased compared to 2020.

In fact, even the number of applications for LIHTCs declined in 2021. This means that while the recipients of these credits received more money than ever, those gains failed to translate into any improvement for state taxpayers. This new year of data also serves as a cruel reminder of the lessons Missouri should have learned during the program’s recent suspension. For two consecutive years, Missouri saved millions by forgoing the state’s investment in the LIHTC program. The federal program continued in its absence, and the same amount of affordable housing was built each year, but at a lower cost. Now the program’s back and we’re told that the way to improve it is to make it more lucrative for developers. In return, the amount of new housing being built remains the same.

Year after year, Missouri is reminded why the LIHTC program is such a bad deal for state taxpayers. How much more money must be lost before our elected officials start seeing the program for what it is and end it for good?

The post Another LIHTC Letdown appeared first on Show-Me Institute.

From the story:

The city’s new mayor vetoed two developer tax breaks that she said were too generous. And then she held up final approval of incentive packages for two other projects that had long enjoyed almost unwavering political support — the City Foundry food hall complex and another phase of development in the Cortex tech district.

We have commended these changes to the old way of doing business. For too long, the city has pumped subsidies into the parts of the city that need them the least. So, points given for being more disciplined with the subsidies.

However, it seems that the quick and easy way for developers to get the subsidies they want is simply to make a “donation” to affordable housing. From the story (emphasis and note added):

Of the deals negotiated so far by the Jones administration, a theme has emerged: developers who want incentives are likely to be pushed to include a contribution to affordable housing.

• The City Foundry deal required the developer to contribute $1.8 million to the city’s affordable housing trust fund, which helps finance affordable projects around the city. [Three other examples follow in the article.]

We love our subsidies in Missouri for affordable/low-income housing. At the state level, low-income housing tax credits have been abused for years. Now the city’s affordable housing trust fund is all the rage. But you know what? St. Louis (and Missouri) don’t have an affordable housing issue. In fact, a report just came out that says that St. Louis is the only metro area in the country where rents are declining. From the report:

There is one outlier among major American cities bucking this trend. Rents fell 4 percent in St. Louis, and it was the only metro to see a decrease in rent in October compared to a year earlier.

The low housing costs here are a result of many factors, both good (limited land-use regulations) and bad (high crime, etc.). But increasing the subsidies for affordable housing is the least of our region’s needs. And that, come to think of it, may be exactly the point. Solving crime in a high-crime area is very hard. Addressing housing costs in an area with low housing costs is, well, easy.

There are many good reasons for the City of St. Louis to substantially tighten up the tax subsidy process. Using it as a pressure point to get added “donations” to a fund that purports to solve the one problem the city doesn’t have is not one of them.

The post Changes to Tax Incentives in the City of St. Louis? appeared first on Show-Me Institute.

As I’ve written before, the LIHTC program awards tax credits to housing developers to offset construction costs. In exchange, the developers are required to rent a fraction of their units to low-income tenants. Missouri’s program is a supplement to the federal LIHTC and has a long history of poor returns on investment. When Missouri’s version of LIHTC was revived last year after a three-year hiatus, LIHTC boosters promised reforms to address some of the program’s much-discussed shortcomings. This pilot program was one of those reforms.

The purpose of the pilot program is to increase the sales price of LIHTCs by allowing housing developers to claim them more quickly. One of the biggest problems with these credits is that they’re awarded to developers over ten years—but upon being rewarded, developers often immediately sell the credits to investors to raise the capital necessary to fund the project’s construction. When something is sold today that can’t be claimed for a decade, it has to be sold at a discount, in part because of the time value of money. In many cases, Missouri’s LIHTCs have sold for as little as forty cents on the dollar. This means is state taxpayers are basically guaranteed a bad return on investment, because the thing they’re paying $1 for is being immediately sold for less.

The new pilot program allowed 20 percent of the state’s approved projects to claim their credits more quickly over the first five years, and more slowly the final five. The total cost to state taxpayers remains the same, the value of the credits for investors is increased because of the time value of money. Initial reports suggest this change worked and increased the market value of each credit by roughly $0.10. However, if credits were previously selling for $0.40 and now are selling for $0.50, that still means taxpayers are still losing half of their investment immediately.

Going into next year, the number of projects eligible for this pilot will be bumped up to 50 percent. And with more projects receiving accelerated redemptions, that should mean more credits are sold for higher prices, which in turn could slightly improve the dismal return on investment for state taxpayers. Supporters of the pilot also say that higher sales prices will allow the MHDC to subsidize more projects, because each developer will request fewer credits. It remains to be seen whether these claims will hold true with additional years of data.

Make no mistake, I still think the LIHTC program is a bad deal for Missouri. It is truly remarkable that such a meager improvement in credit sale price is being celebrated as a big win for the troubled program, when taxpayers are still expected to lose so much of each credit sold.  Much more needs to be done before LIHTC even comes close to being considered a worthwhile investment for our state.

The post LIHTC Pilot Finds Permanence appeared first on Show-Me Institute.

A Missouri Times article explains what the expired economic development tax credits are:

The New Generation Cooperative Incentive Tax Credit, Meat Processing Facility Investment Tax Credit, and Agricultural Product Utilization Contributor Tax Credit programs offered by the Missouri Agriculture and Small Business Development Authority (MASBDA) that sunset in 2021.

What kind of effect do they have? Well, that depends on whom you listen to. According to the Missouri Farm Bureau, the effects would have a larger impact than discovering a giant oil field in rural Missouri and turning Cuba, Paris, and Lebanon (MO) into the next Kuwait (note: there is no Missouri city named Kuwait). From a Farm Bureau commentary in favor of the programs (emphasis added):

The largest of these programs is the New Generation Cooperative Incentive. This tax credit helps investors draw in private investment for value-added processing. To date, $63 million in tax incentives have generated over $501 million in private investment.

For those of you keeping score at home, that statement claims an economic impact eight times the government investment. Whether you call it an economic multiplier, a cost-benefit analysis, or whatever, the claim that it generated an eightfold impact is absurd.  Even the Missouri state economic development agency makes much lower economic impact claims for this credit (and their claims are also almost certainly way too high). If you are asking yourself if an obscure Missouri state agency funded with other people’s money is capable of creating an economic return eight times the cost of the program, the answer is no, it isn’t.

Government officials cannot predict the future (which often makes the credits useless), and are often influenced by political calculations (which is what can turn the credits from useless to harmful). Missouri should let these tax credits remain dead, and the same thing goes for the film tax credit (wasteful), the low-income housing tax credit (rampantly abused by developers), and just about every state and local tax credit program we have.

Investment in rural Missouri is absolutely needed. State tax credit programs are not the way to do it.

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Despite having some of the most affordable housing costs in the country, historically Missouri spent the second most of any state on LIHTC, which is consistent with research finding that the LIHTC program is poorly targeted. What’s worse, multiple state audits in Missouri have found that less than $0.42 cents of each dollar are spent on actual construction. It wasn’t until 2017 that Missouri finally faced up to the failures of its LIHTC program and suspended it. But no longer.

After a three-year shutdown, Missouri is now reviving its LIHTC program with grand promises of reform. Specifically, the Missouri Housing Development Commission (MHDC) stated that it will cap the state’s yearly LIHTC awards at 70 percent of the annual federal allotment, and the legislature is considering enshrining the cap into law. The benefit of the cap is that instead of state taxpayers being on the hook for $180 million per year, they might only be out $135 million. However, a smaller loss is still a loss, and good stewardship of taxpayer funds means insisting that programs deliver value and achieve results.

Given the structure of the LIHTC program, even the aforementioned savings are likely to take years to materialize, if ever, assuming that legislators don’t backtrack on reforms. In particular, the LIHTC awards credits not all at once but rather in equal allotments over ten years. As a result, the savings from any reduction in credits will also take a decade to gradually phase-in.

The tendency of the federal allotment to rise each year and the creation of a new MHDC pilot program that increases the payout rate for some state projects both may lead to further backloading of savings. Specifically, the pilot program will allow 20 percent of projects awarded credits to redeem the awards on an accelerated schedule that matches the federal yearly allotment at the full 100 percent in the first five years before evenly spreading out the remaining funds over the final five years.

The table below gives a concrete illustration. Before 2017, a project that was eligible for $1 million in federal credits would also have been eligible for $1 million in state credits with awards distributed over ten years. Under the new cap, the total state credit falls to $700,000, which amounts to $70,000 each year. However, under the pilot, the project could receive $500,000 of the $700,000 in just the first five years—matching the $100,000 per year that it would have received before 2017—and then claim the final $200,000 in the last five years. In short, taxpayers would not see any savings from the cap until after five years, which gives vested interests more time to reverse reforms before they ever take hold. Though the idea behind the pilot program may have some merit, the bottom line for taxpayers is still delayed and potentially uncertain savings.

Spending less on an inefficient LIHTC program is better than spending more, but it will do taxpayers a disservice if lawmakers use this superficial change as an excuse to declare success, move on, and not undertake more fundamental reforms.

The post Capping LIHTC Isn’t Enough appeared first on Show-Me Institute.

The post Senate Bill 85 and Low-Income Housing Tax Credits appeared first on Show-Me Institute.

Prior to being halted in 2017, the state’s LIHTC program was plagued by several serious problems. As I’ve written many times before, Missouri’s program was one of the biggest in the country and was repeatedly shown to be ineffective, costly, and utterly lacking in accountability. Sufficiently addressing each of the program’s shortcomings has proven to be elusive for the state’s elected officials, with legislative attempts to reform the program failing over the past three years. Absent any legislative action, the governor and MHDC decided to bring the program back on their own terms by administratively implementing changes.

The MHDC’s changes include a yearly cap on state credits, a scoring rubric for project applications, and a new pilot program that allows more credits to be redeemed over the first five years (of ten total) of the project. At first glance, the changes seem to touch on each of the major issues with the program outlined above. But do they make the program worthy of taxpayer expense?

In theory, the yearly cap should make the program less costly because Missouri used to match each federal LIHTC on a dollar-for-dollar basis. A cap would mean that is no longer possible. The scoring rubric could add some accountability by showing how the chosen projects stack up against those that aren’t awarded funding. And the pilot program should make the credits more enticing to investors, and in turn, increase the value for which they can be sold.

After details of the revived program were made public, an optimistic real estate developer was quoted saying he expected the new state LIHTCs to sell for roughly sixty cents on the dollar. It is important to keep in mind what this means: Developers are happy to trade each taxpayer dollar they receive for a little more than half its value. How can LIHTC be a good investment for Missourians if the people who profit off the program believe what they’re receiving is worth much less than what state taxpayers are paying? It will be some time before there are enough data to determine the full effect of these changes, but even if this estimate of improved sale value is proven true, Missourians would still be receiving a very poor return on their investment.

The program’s revival is certainly a good deal for already-wealthy developers. But shouldn’t the governor and MHDC instead ensure that Missourians have an affordable housing policy that’s good for everyone?

The post More to Be Done on LIHTC appeared first on Show-Me Institute.

Of course, our state is in the middle of an unprecedented pandemic, which has been especially hard on low-income Missourians. But the LIHTC program does nothing to make housing more affordable for those who need a place to live right now. Assuming the MHDC starts awarding tax credits this year, the subsidized housing will still need to be built before it can provide any additional relief for Missourians.

Research has shown that, even in normal economic times, LIHTC is not effective at making housing more affordable. Not only does less than fifty cents of each dollar in tax credits go toward the construction of affordable housing, Missouri’s program also doesn’t increase the supply of affordable housing. For years, Missouri had one of the most generous state LIHTC programs in the country, matching each federal dollar on a one-to-one basis. Yet, in the years after the state match was halted, the number of affordable housing projects across the state remained largely unchanged.

Missouri’s state government is also struggling to deal with the pandemic and facing a serious budget crunch. To keep the budget balanced, the governor has already restricted more than $400 million in state spending. This means that there will be hundreds of millions less in funding this year for things such as education and public safety. And the outlook for next year’s budget isn’t any better.

There’s no doubt that many Missourians are facing housing issues during this unprecedented time. But if our elected officials’ goal is to address this problem, shouldn’t they be searching for a solution that is going to help people now instead of reviving a costly and ineffective program?

The post The LIHTC Program Is Back Again appeared first on Show-Me Institute.

In 2018, Missouri lost out on nearly $600 million dollars in state revenues due to its numerous tax credit programs. The worst offender was the Low-Income Housing Tax Credit (LIHTC). As I’ve written before, LIHTC has been a historically bad investment for Missouri taxpayers. Not only does less than half of LIHTC spending go toward building affordable housing, Missouri’s program doesn’t even increase the supply of available housing for low-income residents.

Missouri stopped matching federal LIHTCs after 2017, yet developers are still building affordable housing in Missouri. In the two following years, data from the Missouri Housing Development Commission show the number of affordable housing projects has remained largely unchanged. In other words, housing developers have found ways to build the same amount of housing units with half (Missouri previously matched federal LIHTCs on a one to one basis) the government investment. Despite the many claims that Missouri’s portion of the program was necessary to spur investment, our state’s experience is now the perfect example of how one-size-fits-all economic development policy fails to deliver.

Lessons from Missouri’s LIHTC program should also guide our policymaker’s tough budgetary decisions going forward. Scaling back or ending many of Missouri’s tax credit programs won’t necessarily be easy, and it won’t completely fix the state’s ongoing revenue problems, but it’s the right decision for state taxpayers. Many Missourians are currently finding ways to get by with less, and it’s only reasonable to expect their government to do the same. By leaving LIHTC dormant and reforming Missouri’s tax credit programs today, policymakers can improve our state’s financial outlook for years to come.

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