By Sophie House
As the largest source of federal funding for affordable rental housing development in the U.S., the Low-Income Housing Tax Credit (LIHTC) plays a critical role in determining where low-income renters live. The Furman Center and Housing Solutions Lab recently collaborated with the Open Communities Alliance to conduct a mixed-methods study of the tenant composition of LIHTC properties in Connecticut and how tenant composition varies by location. Our analysis showed variation in tenant screening practices. Some of these variations reveal troubling practices; others illustrate how developers and property managers attempt to maintain flexibility in their leasing processes, though at times this may make the process more opaque to applicants.
Despite being a federal program, LIHTC is highly decentralized and gives state agencies that allocate tax credits wide latitude to set their own priorities in deciding which housing types to support and which specific projects receive credits. Primarily set by developers and property owners, tenant selection processes are even more decentralized. Tenant selection practices have significant implications for who gains access to LIHTC housing and, ultimately, for LIHTC’s role in racial and economic segregation. The criteria and processes used to screen tenants could significantly limit–potentially along racial lines–which members of the income-eligible tenant population can ultimately live in particular properties. To better understand these practices and their potential effects, we analyzed a limited sample of leasing applications and spoke with a small number of LIHTC developers and property managers, both private and non-profit, who operate throughout Connecticut.
1. Variations in tenant screening practices. We saw variation in how developers and property managers factor criteria like criminal records, credit histories, and eviction histories into the leasing process. One concerning practice is the presence on some applications of questions about tenants’ arrest histories, despite guidance from the U.S. Department of Housing and Urban Development (HUD) in 2016 strongly discouraging the use of arrest records to screen tenants in federally-assisted housing. HUD’s guidance emphasizes that an arrest is not a conviction or “a reliable basis upon which to assess the potential risk to resident safety or property posed by a particular individual,” and that racial disparities are pervasive and well-documented in the criminal justice system. Additionally, at least one large property manager automatically disqualifies tenants who have been parties in eviction proceedings. Eviction filings, like arrests, do not provide proof of past misconduct. Using them as a predicate for automatic exclusion from LIHTC housing risks reproducing racial disparities in eviction filings within the LIHTC tenant selection process.
Our research also showed how some property managers attempt to build flexible and individualized assessments into their tenant screening processes. Some of these practices might promote greater inclusion, though they are largely opaque to tenants. For example, while most applications ask prospective tenants to consent to credit checks, property managers relied on different metrics, including credit scores, debt-to-income ratios, and rent burden analyses to screen tenants. Some interviewees distinguished among sources of debt. One noted that they would not disqualify tenants for student loans, medical debt, or phone bills, while another suggested that medical debt would be less disqualifying than a situation in which someone “just didn’t pay their credit card,” suggesting an effort to focus on those aspects of debt that might be more relevant to whether a tenant pays their rent. Likewise, while applications tend to distinguish between felonies and misdemeanors, interview participants also considered the number of convictions on an applicant’s record and the time since they had taken place. While the flexibility of some owners’ processes may allow them to maintain more inclusive practices, most applications do not inform tenants about any individualized consideration they might receive (or the automatic disqualifications to which they might be subject).
2. Treatment of income. The federal government sets maximum income limits on properties as part of LIHTC eligibility, and developers can also choose to require prospective tenants to meet minimum income requirements. Minimum incomes were not pervasive in our limited sample of applications, but where we observed them, two issues emerged. First, minimum incomes coupled with programmatic income limits can greatly narrow the population of tenants eligible for units at some properties and may lower its racial and ethnic diversity. At one property in northwestern Connecticut, for example, the difference between the minimum and maximum incomes for a single applicant for a one-bedroom unit was just over $500 per month. This difference drops to roughly $100 per month for two people applying for a two-bedroom unit, making nearly all two-person households ineligible for two-bedroom apartments. The volatility of monthly income for low-income households further reduces the population of prospective tenants likely able to qualify, and remain qualified, for these units.
Although the application for that property exempted households with vouchers from minimum income requirements, this is not always true. In one example from southern Connecticut, the minimum incomes for a set of units were equivalent to 50 percent of area median income (AMI). In 2021, 96 percent of households using vouchers in Connecticut had incomes below that minimum. The minimum income requirement, therefore, effectively makes voucher recipients ineligible for those LIHTC units. This despite federal prohibitions against voucher discrimination in LIHTC properties, Connecticut’s prohibition on source of income discrimination, and successful fair housing litigation within the state challenging the application of such minimum income requirements to voucher users.
Our analysis of a limited sample of tenant selection practices in Connecticut LIHTC properties identified some practices that conflict with federal and state fair housing goals. Restrictive minimum income requirements and their potentially exclusionary or discriminatory effects for voucher users raise additional concerns. The decentralized nature of the LIHTC program enables some of these practices to occur “out of sight.” However, the fact that some practices run counter to fair housing and policy goals suggests that state housing finance agencies (HFAs) should, at a minimum, provide guidance on tenant selection plans. State HFAs could also play a larger role by explicitly prohibiting specific practices, such as using arrest records or eviction filings in the selection process. Ohio has adopted specific requirements limiting the use of eviction records, including filings that did not result in a judgment for the plaintiff or evictions for nonpayment during the COVID pandemic. HFAs could lean further into inclusivity, as the City of Chicago has done, by incentivizing inclusive tenant selection processes in LIHTC developments and thus affirmatively furthering fair housing through the LIHTC program. HUD should also play a role in ensuring that LIHTC properties comply with fair housing regulations and might consider issuing guidance on whether HFAs should prohibit the use of minimum incomes for applicants with vouchers to avoid discrimination against voucher holders under LIHTC.