Working Paper, Brown University, Department of Economics 2007-05
This paper evaluates the impacts of low income housing developments on the neighborhoods in which they are built. A discontinuity in the formula determining the allocation of tax credits to low income housing developments as a function of neighborhood characteristics generates pseudo-random assignment in the number of low income housing units built in similar sets of census tracts. Estimates indicate that a 30 percent increase in the tax credit generates an increase of approximately 6 low income housing units on a base of 9 units per tract. We find that low income housing developments cause median household incomes to decline by about 5 percent in neighborhoods near the 30th percentile of the income distribution and this effect decays monotonically with distance. Further, we provide evidence that developers differentially select gentrifying neighborhoods as locations for their developments. Failure to account for this selection can lead to faulty conclusions about the impact of these developments on local housing values.