What is the Difference Between LIHTC and Section 8 Housing?

LIHTC and Section 8 Housing: What's the Difference?

The Low-Income Housing Tax Credit (LIHTC) program incentivizes developers to create affordable housing by providing them with tax credits, which they sell to investors to fund projects, thereby reducing development costs and enabling lower rents. In contrast, the Section 8 Housing program offers rental assistance directly to low-income families through vouchers, allowing them to afford housing in the private market. LIHTC focuses on increasing the supply of affordable housing, while Section 8 focuses on making existing housing more affordable for low-income tenants.

Low-Income Housing Tax Credit (LIHTC)

Purpose‍

LIHTC is a federal tax credit program aimed at encouraging the development and rehabilitation of affordable rental housing for low-income households.

How Does it Work

• It provides tax credits to developers and investors who build or rehabilitate rental housing for low-income tenants.
• Developers sell these tax credits to investors to raise capital for their projects, reducing the amount of debt that the developer must borrow.
• This allows developers to offer lower rents since the need to service large loans is reduced.

Administration

• LIHTC is administered by state housing finance agencies that allocate credits to developers based on a competitive process.
• The credits are typically claimed over a 10-year period.

Rent Levels

• Rents in LIHTC properties are restricted to ensure they are affordable for low-income tenants, typically set at a percentage of the area's median income.

Tenants

• Tenants must meet income eligibility requirements, generally earning no more than 60% of the area median income (AMI).

Section 8 Housing

Purpose

• Section 8 is a federal program that provides rental assistance to low-income households, ensuring they can afford housing in the private market.

Mechanism

• The program offers vouchers to eligible low-income families, which they can use to subsidize their rent in the private market.
• The voucher covers the difference between what the tenant can afford to pay (typically 30% of their income) and the market rent, up to a limit set by the program.

Administration

• Section 8 is administered by local Public Housing Agencies (PHAs) under guidelines from the U.S. Department of Housing and Urban Development (HUD).

Rent Levels

• Rent is based on the market rates for the area, but tenants only pay a portion of their income, making the housing affordable for them.
• There is a maximum rent limit, called the payment standard, which varies by location.

Tenants

• Tenants must meet income eligibility requirements, generally earning no more than 50% of the AMI, with a preference often given to those earning 30% or less.

Key Differences Between LIHTC and Section 8 Housing

Target Audience

• LIHTC focuses on developers and investors to increase the supply of affordable housing.
• Section 8 focuses on tenants, providing them with subsidies to afford housing.

Funding Mechanism

• LIHTC involves tax credits to incentivize housing development.
• Section 8 provides direct rental assistance payments to landlords on behalf of tenants.

Type of Housing

• LIHTC developments are typically new constructions or rehabilitations specifically intended to be affordable rental units.
• Section 8 allows recipients to choose housing in the private market, providing more flexibility in location and housing type.

Administration

• LIHTC is managed at the state level through housing finance agencies.
• Section 8 is managed locally by PHAs but follows federal guidelines.

Both programs help address the affordable housing crisis, but they do so from different angles—one by increasing the supply of affordable units and the other by making existing housing more affordable for low-income families.