The Tennessee Housing Development Agency gave a developer more than $5 million in tax credits to renovate the Presidential West Apartments, which abuts I-55 just north of the Mississippi state line. Photo by Andrea Morales for MLK50

The concept of subsidizing affordable housing is relatively simple: the government pays developers to build and then rent housing at affordable rates to low-income residents.

The execution is far more complex. 

The federal government subsidizes affordable housing primarily through Low-Income Housing Tax Credits. These are federal tax credits, but state agencies allocate them to developers, who then sell them to banks or other investors.

And the credits themselves come in different forms, each of which has different requirements and systems for who gets one, which sometimes account for a neighborhood’s level of “opportunity.”

In MLK50: Justice Through Journalism’s investigation into Tennessee’s low-income housing tax credit system, we didn’t have room to explain all of these complexities. 

Below we go into five of them, in case any of our readers are aspiring housing policy nerds like we are.

1) What is a tax credit and why do developers sell them?

When the federal government wants to encourage something — from adopting a child to solar panels to housing — it sometimes offers a tax credit in return. The tax credits reduce the recipient’s taxes dollar-for-dollar.

The Tennessee Housing Development Agency awards developers Low-Income Housing Tax Credits on behalf of the federal government. The credit allows developers to reduce their federal tax burden by a set amount over a 10-year period. For this example, let’s say the tax credit is $1 million per year for 10 years.  

However, developers don’t want $10 million spread over the next decade. They prefer money immediately, even if it’s a lesser amount.

So the developers take the tax credits and sell them to banks for about 90 cents on the dollar. That allows the developers to get $9 million for building the apartments, and the banks get a safe, government-backed investment. Plus, buying LIHTCs helps banks fulfill their federal Community Reinvestment Act obligations to invest in low-income neighborhoods. 

2) What kind of low-income housing tax credits are available?

The federal government provides two types of low-income housing tax credits — one that’s approximately equivalent to 4% of a project’s construction cost and another that’s basically 9% of a project’s cost.  

The 9% credits make developers more money, are in higher demand and are much harder to obtain. That’s why they’re called “competitive” credits.

MLK50’s investigation focused solely on the competitive credits, for a few reasons. They’re easier to direct to certain areas, cost the government more in lost tax revenue and are far more common. In Tennessee, there are currently about twice as many properties participating in the competitive 9% program as in the 4% program. 

3) What requirements do LIHTC developers have to follow?

In exchange for the tax credits, Tennessee and the federal government require developers to set aside a certain percentage of units for low-income residents at affordable rental rates. Affordability means the rent can’t exceed 30% of the tenant’s income. 

To qualify for LIHTC, developers can either commit 20% of their project’s units to house people making less than 50% of the local median household income, or commit 40% of the units to house people making less than 60% of the median household income.

However, LIHTC developments often end up housing a far higher share of low-income residents than that for multiple reasons.

For one, Tennessee gives preference to developers who agree to house a higher share of low-income residents. Also, LIHTC landlords must be willing to accept Section 8 vouchers as payment for housing. Since housing authorities often struggle — especially recently — to find apartment complexes that will accept the vouchers, LIHTC properties often end up housing many Section 8 residents.

Typically, LIHTC apartments are priced for people who make about half of the local median income. In Shelby County, that’s about $32,000 for a family of four, which means rent can’t exceed roughly $800/month.

4) How does the state decide which developers will get a low-income housing tax credit? 

States publish new Qualified Allocation Plans almost every year. These QAPs, as they are commonly called, tell developers the requirements for applying for credits and the rubric the state will use to judge applications. 

In our investigation, we referred to QAPs as Tennessee’s “system” or  “guidelines.”  Tennessee’s current QAP lays out different ways applications can score points starting on page 38.

These include using certain building materials, constructing gazebos and working in counties the THDA decides need more development. The competition for 9% credits is so fierce that developers need perfect or near-perfect scores, according to former Tennessee Housing Development Agency board chair Mike Hedges. 

“If it says you get half a point for standing on your head, you better stand on your head,” Hedges said.

Almost two years ago, Tennessee considered awarding points based on the census tracts within counties where children would be best equipped to succeed. The draft QAP would have replaced the state’s county-level scoring with a system for evaluating tracts based on the economic and educational opportunities they provide residents. The system was designed by Enterprise Community Partners, a massive nonprofit focused on affordable housing.
As explained elsewhere in our investigation, that piece of the draft QAP was removed after developers pushed back.

5) What is a “high-opportunity” area?

When describing neighborhoods, housing experts often speak of “high-opportunity” and “low-opportunity” areas. 

“High-opportunity” neighborhoods are those where the children of low-income parents have a good chance to earn significantly higher incomes than their parents. 

Harvard University economist Raj Chetty’s research shows a strong connection between the neighborhood a child grew up in and how much they earn at age 35. For example, a 35-year-old who grew up in Whitehaven tends to make half the income of someone who grew up in the more affluent Germantown — even if both had low-income parents. 

The term “high opportunity” is sometimes applied to neighborhoods that have proven they provide this economic mobility. Other times, it’s applied to neighborhoods that have the right ingredients for providing mobility because they have high-quality schools, low poverty rates and access to high-paying jobs.

Jacob Steimer is a corps member with Report for America, a national service program that places journalists in local newsrooms. Email him at

This story is brought to you by MLK50: Justice Through Journalism, a nonprofit newsroom focused on poverty, power and policy in Memphis. Support independent journalism by making a tax-deductible donation today. MLK50 is also supported by these generous donors.

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