Low-Income Housing Tax Credit: Impacts on Rural Housing Development in New York State

These tax credits help create housing affordable to people making under 60% of the Area Median Income (AMI) , and sometimes less. In New York State they are allocated by the Department of Housing and Community Renewal. We analyzed the most recent five years of data available (2019-2023) to see how many of the tax credits were used to build affordable housing in rural areas in New York State, defined as towns and cities with less than 25,000 people.

There are two types of low-income housing tax credits: 9% credits, which are allocated by New York State in a competitive process, and 4% credits, which are allocated as-of-right to low-income housing projects which receive tax-exempt bond financing. We looked at both allocations. Because New York City also has its own process and agencies for allocating both 9% and 4% tax credits, we only looked at those tax credit units built outside of the five boroughs.

When it comes to units built with 4% credits, rural areas lag well behind the rest of the state, with only 20% of these affordable housing units being built in rural areas, even though rural areas contain 36% of the State’s population (excluding New York City).

In many ways this is unsurprising. Affordable housing projects developed with 4% credits and tax-exempt bonds are almost always larger buildings due to the constraints of the program, which can be difficult to build in more rural areas due to lack of infrastructure like sewer and water. The average number of units per project developed with 4% tax credits from 2018-2023 was 136 units, while the average number of units per project developed with 9% tax credits was just 48 units. There were eighty-four 9% tax credit projects of under 50 units, while there were just six 4% tax credit projects of the same size.

With 9% Low-Income Housing Tax Credits, the distribution of this affordable housing is more even and more closely reflects the population distribution of rural and non-rural areas overall, with slightly more units being built in rural areas than their share of the population.

However, because 4% tax credits fund approximately 70% of all tax credit units, this more equitable distribution of 9% credits does not make up for the discrepancies in the 4% allocations.

Created as part of the Tax Reform Act of 1986, Low-Income Housing Tax Credits began contributing to significant production of affordable housing in New York State in the early 1990s. Both 9% credits, and the tax-exempt bonds that allow for 4% credits, are allocated by the Federal government to each state, and both allow their owner to deduct a significant amount off of their federal tax bill in return for the creation of affordable housing. Generally speaking, these tax credits are allocated by each state to aid in the creation of affordable housing projects, with the tax credits themselves being sold (or ​“syndicated”) to entities with significant Federal tax bills in exchange for equity used for these projects’ construction. LIHTC ultimately funds at least part of the vast majority of new affordable housing in every state, and New York State is no exception. New York State also has its own tax-credit program, the State Low-Income Housing Tax Credit (SLIHTC), which allows owners to deduct a certain amount off of their New York State tax bill. This program is generally layered on top of the LIHTC programs to create more and/or deeper affordable housing.

It is important to note that the state Legislature has over the past three years funded new initiatives to build and preserve affordable housing in rural areas. In 2022, the Small Rental Development Initiative (SRDI) was funded at $7 million per year statewide to build and rehab affordable rental units of 4-20 units that are more suitable in size for small and rural communities (although not exclusively). In 2024, the USDA 515 Preservation Program was funded at $10 million to acquire and rehab affordable rental housing built by the U.S. Department of Agriculture in the 1980-1990’s. However, these programs develop a small fraction of the amount of affordable housing that LIHTC does each year.

Developing affordable housing in rural areas can be challenging, especially within the constraints of the LIHTC program, especially the 4% tax credit program. The tools, context, and economy in rural areas differ from those in urban and suburban regions. However, the demand for affordable housing remains equally significant, and addressing these needs in rural areas should be as much of a priority as in the suburban and urban parts of the state.

Work published in partnership with the Rural Housing Coalition.