Contesting Conventional Wisdom: The Link Between Subsidy Layering and Legal Expenses in the LIHTC Program

Abstract

Conventional wisdom in the affordable housing industry and among affordable developers holds that subsidy layering is a source of disproportionately increased legal expenses in LIHTC deals. In this paper, I discuss the available literature on subsidy layering with the LIHTC program (last contributed to in 2000) and that literature’s relationship to the LIHTC program’s growth and development, before evaluating the 728 (nationwide) available Qualified Allocation Plans to establish the Georgia LIHTC program’s suitability as a representative case study. To investigate the layering-expenses relationship claim, I study both the national LIHTC database and a new database of twelve years’ of LIHTC applications in Georgia to empirically test the relationship between layers of additional subsidy and project costs. The lower-quality national data shows no statistically significant relationship is present between subsidy layers and total LIHTC allocation, while the higher-quality (if geographically limited) Georgia data shows a relationship between subsidy layers and legal costs is present, but one with a very small effect size -- less than one-third of a standard deviation.