Increasing geographic income segregation and rising housing costs have put the issue of the government’s role in promoting affordable housing at the forefront of current policy debates. Subsidized housing policy often focuses on easing low-income households’ housing costs and providing access to financially out of reach neighborhoods. However, subsidized housing is also a place-based policy. Housing subsidies insurance households’ choices of neighborhoods and developers’ choices of where to build. Subsidy induced changes in the locations of households and housing construction can have important spillovers onto the neighborhood residents. Moreover, these place-based spillovers likely have large economic impacts across the US, as federal, state, and local governments spend over $97 billion dollars a year on different forms of housing assistance. A key question is thus how to best allocate affordable housing across neighborhoods.

In this paper, an analysis is provided regarding the costs and benefits of affordable housing construction to surrounding neighborhood residents and how they vary across demographically different neighborhoods. We study the neighborhood impacts of multifamily housing developments funded through the Low-Income Housing Tax Credit (LIHTC). Established in 1986, this program has become an integral component of federal housing policy, funding 21 percent of all multifamily developments over the period 1987-2008. Looking forward, with the construction of publicly run housing projects expected to continue to decline, the LIHTC program is likely to remain one of the main federal government initiatives designed to ensure access to affordable housing by low-income households.