Expiring without displacing? Evidence from the first wave of LIHTC affordability exits

Housing policy often feels like a game of whack-a-mole: as one problem is solved, another appears. In the United States, a major tool for creating affordable homes is a program called the Low-Income Housing Tax Credit. For decades, this program has encouraged developers to build apartments for lower-income families by giving them tax breaks. In exchange, these developers sign a contract promising to keep the rents low and the tenants' incomes within a certain limit. This promise lasts for a fixed period, usually thirty years. Once that clock runs out, the owner is legally free to raise the rents to whatever the local market will bear. For a long time, this expiration date was a distant concern, a footnote in a thirty-year agreement. But recently, the first wave of these contracts has reached its end, creating a massive question for cities and policymakers: when these protections vanish, do the people living there get pushed out, and do the neighborhoods change?

A team of researchers set out to answer this by looking at the very first properties to reach their thirty-year deadline. They gathered data on every single Low-Income Housing Tax Credit property in the country, linking over 55,000 buildings to the neighborhoods where they sit. They focused on a specific moment in time: the year a building's contract expired. Because the expiration date is set by the year the building was originally constructed, it acts like a natural experiment, allowing the researchers to see what happens to a neighborhood right before and right after a building loses its affordable status. They looked at whether rents went up, whether long-term residents were forced to leave, and whether the racial or economic makeup of the neighborhood shifted.

The results challenge a common fear. Many people assumed that as soon as these contracts expired, landlords would immediately raise rents to market rates, pricing out the current tenants and turning the neighborhood into a more expensive, gentrified area. The data, however, tells a different story. The researchers found that in the typical neighborhood where these buildings are located, the legal limit on rent was already higher than what people were actually paying. In other words, the "affordable" rent cap was not really a restriction at all; it was higher than the market price. Because the cap was not binding, when the contract expired, the landlords had no financial incentive to raise the rents. The expiration changed the paperwork, but it did not change the rent.

Consequently, the study found no evidence of displacement. When these buildings lost their official affordable status, the median rent in the surrounding neighborhood did not spike; in fact, it dipped slightly. The researchers looked closely at the people living there and found that the share of families struggling to pay rent, the number of renters versus owners, and the income levels, education, and racial composition of the neighborhood all remained exactly the same. The fear that the first wave of expirations would trigger a wave of evictions and neighborhood transformation simply did not happen.

This outcome is not universal, however. The researchers discovered that the effect depends entirely on the local housing market. In areas where the market is already tight and rents are high, the expiration of these contracts had no measurable effect because the buildings were already charging market rates or the owners chose to keep them affordable for other reasons. The slight drop in rent that the study did observe happened only in weaker markets, where the legal rent cap was significantly higher than what the market could support. In these specific cases, the expiration of the contract meant the landlord was no longer required to keep the rent artificially low, but since the market rent was already low, the price didn't need to go up.

The study also looked at why some buildings leave the program while others stay. They found that buildings are much more likely to stop being monitored for affordability if the owner has promised to keep them affordable for longer than thirty years, or if the owner is a non-profit organization. Conversely, buildings are less likely to leave the program if the market rent is already higher than the restricted rent, because the owner has nothing to gain by raising the price. The data suggests that the threat of expiration is targeted rather than universal; it only becomes a real problem in specific situations where the rent cap is actually holding the price down.

For policymakers, these findings offer a clear path forward. The study calculates that keeping a unit affordable by paying the owner just enough to cover the difference between the market rent and the restricted rent costs roughly one-third as much per year as building a brand-new affordable unit from scratch. This suggests that when the next wave of contracts expires, the most effective strategy is not to panic about a mass loss of housing, but to focus preservation funds on the specific buildings where the rent gap is real. By understanding that most of these buildings are not actually at risk of raising rents, cities can save money and protect the neighborhoods that truly need it, ensuring that the expiration of a contract does not become a crisis for the people living inside.