Despite Reagan-era principles and realworld results, one successful program may remain at risk of being a potential casualty of the deficit wars. For its silver anniversary, the low income housing tax credit (LIHTC) deserves better!

Having fueled the construction and/or renovation of 2 million apartments, which are currently home to more than 5 million Americans of modest means, since being signed into law in 1986 by President Reagan, the housing tax credit demonstrates the efficacy of a successful public/private partnership. It embodies a well-balanced approach to overcoming persistent market failure and the lack of an adequate supply of affordable rental housing.

The Back Story

When the housing credit was crafted, it put into action conservative yet compassionate principles by bipartisan consensus. These included:

• Encouraging private-sector financing: Private capital, not direct public funding, finances new development using LIHTCs.

• Minimizing the role of the federal government: States have the power to decide which projects get funded pursuant to a locally adopted plan created by each state's stakeholders and local needs.

• Mitigating bureaucracy: Private investors getting the tax credits remain at risk for compliance with affordability and tax rules, so they monitor performance.

• Preserving affordability: The program requires long-term affordability for a minimum of 30 years and usually much longer.

• Spurring additional investment: Tax credits leverage other investment, often attracting two or three times their value in capital from private lenders or other sources.

Such features have produced a remarkably low foreclosure rate among tax credit rental projects, at well below 1 percent, according to various studies by Novogradac & Co., Ernst & Young, and others. Moreover, tax credit developments have been major generators of jobs and revenue for cash-strapped communities. According to estimates by the National Association of Home Builders, in its first year, every 100-unit tax credit development generates 122 local jobs, $7.9 million in local income (wages for local workers and profits for proprietors and other small businesses in the area), and $827,000 in taxes and other revenue for local governments. That means that the roughly 120,000 apartments typically built or rehabbed each year using LIHTCs support some 150,000 jobs nationally, along with billions of dollars of economic activity and state and local government revenue.

In fact, during the 2009 collapse of rental housing construction nationally, housing credits were a critical source of jobs that helped counter a down economic cycle: Construction funded by housing credits accounted for nearly half of all apartment development nationally.

On the Chopping Block

Despite these accomplishments and contributions to the nation's economy, the housing credit might be on the federal kill list as Congress pursues deficit reduction and tax reform. The question is: Would this be good for the public?

Some argue that the housing credit must be inefficient, simply because the federal government gets $1 less in federal taxes from corporations that invest in housing credits, while only $0.85 or $0.90 of that dollar ends up invested in the housing itself. But inefficient compared with what?

Previous affordable housing development programs, in which public money flowed through HUD to projects, never put every dollar of federal funds directly into the brick and mortar. Federal employees reviewed applications; oversaw underwriting; and handled cost certification, monitoring, and compliance, absorbing a sizable share of program dollars. In the tax credit system, most of that function is paid for privately and is built into the project funding structure. Moreover, long-term affordability restrictions and minuscule losses through foreclosures mean the public investment is retained longer and better by housing credits than by other alternatives to date.

Others argue that the federal government simply cannot afford to be in the business of funding housing production—or that private economic forces alone will produce enough housing. But the past has shown such claims to be false, with persistent shortages throughout history of decent apartments affordable to working families earning below 60 percent of area median income (about $40,000 for a family of four), according to HUD's figures.

Unfortunately, today we face a perfect storm of demand outpacing supply. Consider the record numbers of foreclosures that are throwing millions back into rentals, or the vast number of Echo Boomers, ages 18 to 30, who are seeking a place of their own. Several years of sharp drops in rental housing starts—from more than 300,000 annually before the Great Recession to barely above 100,000 the past few years—have further constrained the market for affordable housing.

As a result, a record 10 million households are paying more than half of their income just for shelter, according to Harvard's Joint Center for Housing Studies' recent report on the state of the nation's housing. Another 10 million renters are paying more than 30 percent of their income for housing costs. Too much spent for housing contributes to the overall drag on the economy, as consumers cut back severely on other spending just to keep a roof over their heads.

When the next round of deficit reductions occurs, hard choices will have to be made. But facing hard choices doesn't require making bad ones. The housing credit has proven itself a wise, bipartisan program that works. Let's look forward to celebrating its golden anniversary.

DAVID M. ABROMOWITZ is a senior fellow at the Washington, D.C., think tank Center for American Progress and heads the affordable housing practice at Bostonbased Goulston & Storrs.