How does low-income housing construction impact the economic outcomes of residents?

The neighborhood of residence matters for lifelong outcomes! Changes in neighborhoods can therefore lead to changes in residents' welfare. While we know that constructing low-income (or subsidized) housing changes the socioeconomic characteristics of a neighborhood, we do not know how these changes impact the lives of its residents.

When it comes to its socioeconomic impact, low-income housing provision is often shrouded with ambiguity. On the one hand, low-income housing construction leads to housing access for the disadvantaged population and can revitalize residential neighborhoods (e.g., increasing housing prices, attracting a racially diverse population, lowering crime, etc.). However, on the other hand, it can also lead to economic losses like higher poverty concentration and reduced private investments.

This study explores the impact of subsidized housing construction (under the low-income housing tax credit program; LIHTC) on residents' labor market outcomes (participation, working hours, income, and dependence on welfare programs). Findings suggest that just like its impact on neighborhoods, LIHTC construction has a heterogenous impact on individuals from different racial groups. When exposed to LIHTC construction, White individuals demonstrate better labor market outcomes, Black individuals demonstrate no change, and Hispanic individuals demonstrate weaker outcomes.

The study attributes these results to selective migration. When exposed to LIHTC construction - White individuals migrate to higher-quality neighborhoods, Black individuals do not move, and Hispanic individuals either migrate to lower-quality neighborhoods or continue to stay in neighborhoods that demonstrate lower rates of gentrification in the near future.