2026 Theses Master's

Cheap Credit: LIHTC Price Shocks and the Fiscal Cost on New York City

Ni, David

The Low-Income Housing Tax Credit (LIHTC) is the nation's dominant affordable housing production instrument, yet its architecture, routing subsidy through the tax code rather than direct appropriation, introduces a structural asymmetry whose fiscal consequences this thesis examines: the federal government determines the corporate tax rates, competing credit provisions, and bond financing rules that govern investor demand for LIHTC equity, while municipalities bear the residual fiscal burden when credit prices erode.

Using New York City as its primary case study, this thesis traces how post-2016 pricing pressures, driven by corporate tax reform, the expansion of competing renewable energy credits, and the reduction of the bond financed-by test, have compressed equity bids to approximately $0.85 per credit dollar nationally as of mid-2025, generating per-unit shortfalls of $14,000 to $27,000 and aggregate citywide financing gaps of $42 million to $81 million annually under moderate to severe price-shock scenarios.

The central finding is that HPD and HDC function as de facto shock absorbers for federal tax-policy decisions over which the municipality exercises no authority and that resolving this authority-incidence asymmetry requires federal acknowledgement that the cost of underpriced tax credit equity is borne not by the Treasury that forgoes the revenue but by the cities obligated to replace it.