We nonparametrically estimate spillovers of properties financed by the Low Income Housing Tax Credit (LIHTC) onto neighborhood residents by developing a new difference-in-differences style estimator. LIHTC development revitalizes low-income neighborhoods, increasing house prices by 6.5%, lowering crime rates, and attracting racially and income diverse populations. LIHTC development in higher-income areas causes house price declines of 2.5% and attracts lower-income households. Linking these price effects to a hedonic model of preferences, LIHTC developments in low-income areas cause aggregate welfare benefits of $116 million. Affordable housing development acts like a place-based policy and can revitalize low-income communities. 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 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.2 This creates the challenging task of determining how to best allocate affordable housing across neighborhoods.3 In this paper, we provide an analysis of 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.