Tax Credits

GAO reported in 1997 on the characteristics of the residents and properties that have benefited from the Low-Income Housing Tax Credit program and recommended improvements to the program. (See GAO/GGD/RCED-97-55, Mar. 1997.) In that report, GAO estimated that the average cost of developing tax credit units was about $60,000. GAO later estimated that the average cost of units built by nonprofit developers was about $18,000 higher than the average cost of for-profit developers' units. To understand these differences, GAO analyzed unit cost data collected for its 1997 report and 1990 Census data on distressed Census tracts. GAO found that although tax credit units built by nonprofit developers cost more, on average, than do units built by for-profit developers, nonprofit developers' costs were not necessarily higher when differences in the units' characteristics were taken into account. GAO identified four characteristics that both increased average costs and were more likely to be associated with units built by nonprofit developers. These characteristics were (1) location in areas with high poverty and unemployment rates, (2) location in areas eligible for additional tax credits (because the development costs were high relative to incomes in these areas), (3) large units, and (4) units in the Northeast or Pacific regions. When these and other characteristics were taken into account, GAO found that the estimated per-unit cost was $5,600 more for nonprofit developers than for for-profit developers.

GAO noted that: (1) while tax credit units built by nonprofit developers cost more, on average, than units built by for-profit developers, nonprofit developers' costs were not necessarily higher when differences in the units' characteristics were taken into account; (2) GAO identified four characteristics that both increased average costs and were more likely to be associated with units built by nonprofit developers; (3) these characteristics were: (a) location in areas with high poverty and unemployment rates; (b) location in areas eligible for additional tax credits (because the costs of development were high relative to incomes in these areas); (c) large units; and (d) units in the Northeast or Pacific regions; (4) taking these and the other characteristics GAO studied into consideration, GAO found that the estimated per-unit cost was $5,600 more for nonprofit developers than for for-profit developers; (5) however, because the analysis was based on a sample and sampling introduces uncertainty, this cost difference could range from $1,600 less to $12,700 more for units built by nonprofit developers; and (6) consequently, the difference in estimated per-unit costs for nonprofit and for-profit developers was not statistically significant.