The Supreme Court held in Texas Department of Housing and Community Affairs v. Inclusive Communities Project, Inc. (“TDHCA Opinion”) that a State’s “Qualified Allocation Plan” (“QAP”) implemented by an allocating agency violates the Fair Housing Act if its QAP “disparately impacts” a protected minority even though the allocating agency did not have a discriminatory intent. TDHCA, the Texas allocating agency, allocated a disproportionately large amount of low-income housing tax credits (“LIHTC”) to projects located in “Qualified Census Tracts” (“QCTs”) which qualified for an increased level of credit and which were frequently predominantly minority neighborhoods.

The plaintiffs theory is that construction of a disproportionate number of LIHTC units in minority neighborhoods at best maintained current levels of segregation and did not further integration as required by the Fair Housing Act. In the eyes of the plaintiffs, integration would be furthered by constructing more units in “high opportunity” neighborhoods with good schools and responsive governments, and avoiding allocations to areas with high crime rates. These “objective” standards appear tailored to shift the location of LIHTC housing to suburban locations and away from urban core neighborhoods, which appear to be linked with unresponsive governments, high crime and poor schools.

The Supreme Court’s majority opinion notes that resort to mere mathematical analysis of the racial composition of neighborhoods should not be the consequence of the decisions. In terms of statistical analysis, the “disparate impact” noted by the majority opinion did not consider or analyze the racial composition of the tenants in LIHTC projects, nor did it analyze the effect of segregation of the areas surrounding LIHTC projects over time. Indeed, a study entitled “The Low Income Housing Tax Credit and Racial Segregation”, Horn and O’Regan (2011) concludes that “we find no evidence that the LIHTC program is associated on average with greater racial segregation for minorities. Indeed, MSAs with greater construction of LIHTC units experience relative declines in segregation. Focusing on those units which may have the greatest potential for heightening segregation, we again find essentially no evidence to support this concern, but rather, evidence of the reverse. Our empirical examination of three potential mechanisms through which the LIHTC could affect segregation is generally consistent with these mechanisms being primarily neutral or even lowering segregation.”

  1. projects serving the lowest income tenants;
  2. projects serving qualified tenants for the longest period of time; and
  3. projects located in QCTs which contribute to community revitalization.

Allocating agencies are also required by Section 42(m)(1)(C) to implement selection criteria including:

  1. project location;
  2. housing needs;
  3. project characteristics;
  4. sponsor characteristics;
  5. tenant population and special housing needs;
  6. public housing waiting lists;
  7. tenant populations with children;
  8. projects intended for eventual tenant ownership;
  9. energy efficiency; and
  10. historic nature of the project.

These preferences and selection criteria do not identify integration or racial composition. To the extent that a disproportionate number of the lowest income tenants reside in predominantly minority neighborhoods and those neighborhoods have both the greatest housing needs and the largest population of families on public housing waiting lists; it is not surprising that a disproportionate share of LIHTC housing would be concentrated in these neighborhoods.

Under the TDHCA Opinion, these preferences and selection criteria should be implemented in a way that furthers integration and does not merely maintain the current level of segregation. While project location is undoubtedly important, other factors, including impact over time, racial composition of project tenants, historical trends in neighborhood racial composition and the impact of new investment in high poverty neighborhoods should also be considered. All of these factors should be considered by allocating agencies through a methodology that furthers integration without establishing racial quotas. Reducing investment in urban core neighborhoods in favor of increasing investment in affluent suburbs may well not reflect optimal housing and in a broader perspective, community development policy. Allocating agencies will need to evaluate QAPs after the TDHCA Opinion through a nuanced process that balances Fair Housing Act issues and the views of community groups with the business needs of LIHTC developers and investors and the larger goals of the affordable housing industry. These same issues should also be considered by the administrators of state housing incentive programs and by New Markets Tax Credit allocatees that invest in mixed-use projects that include a housing component.