The G-Index

Agenda Item 2: The G-Index

The Problem:

Through national tax credit programs, the federal government has attempted to preserve affordable housing in neighborhoods across the country. The Low Income Housing Tax Credit is the largest federal subsidy for the construction and preservation of rental affordable housing. Since its creation during the Reagan Era, LIHTC has financed the development and preservation of more than 2.1 million units in over 28,000 developments across the country. However, studies show that state Qualified Allocation Plans are not directing LIHTC development to the areas that need it most. The QAP is a document that government agencies must develop in order to distribute tax credits, which can be awarded only to a building that fits the QAP’s priorities and criteria. Many state QAPs focus efforts on projects that are placed in high opportunity neighborhoods where residents already have access to many amenities. Additionally, the federal government allocates tax credits on the basis of state population, not shortage of affordable housing. Together, these problems mean that gentrifying areas, which have been historically disinvested, are still being neglected by the federal government today.

The Agenda:

The prominence of LIHTC developments in gentrifying areas creates a window of opportunity to balance neighborhood investment, healthy growth, and enough affordable housing to prevent housing instability. We propose a gentrification-index (G-index) to be incorporated at the federal level into allocations for LIHTC, as well as Community Development Block Grants and other federally funded forms of affordable housing creation. The G-index will aim to actively address spatial inequities by directing funding to underinvested areas, thus preventing displacement through the creation of affordable housing.

Getting it Done:

The G-index measure will combine our gentrification index and vulnerable populations index. The overall composite score will be calculated based off of both indices will them be used to determine the type of change a neighborhood is currently experiencing. If a neighborhood’s composite score concludes that it is currently gentrifying or at-risk of gentrifying with higher average levels of vulnerable populations, it will be given special preference and set-asides in a state’s QAP. The special preference will award extra points when scoring applications to proposals that place housing in gentrifying neighborhoods. Similarly, G-index set-asides would create a dedicated pool of LIHTC or CDBG funding for neighborhood experiencing inequitable development.

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Read more about the G-Index:

The Problem

Through national tax credit programs, the federal government has attempted to preserve affordable housing in neighborhoods across the country. The Low Income Housing Tax Credit is the largest federal subsidy for the construction and preservation of rental affordable housing. Since it’s creation during the Reagan Era, LIHTC has financed the development and preservation of more than 2.1 million units in over 28,000 developments across the country.

A recent study by Nathaniel Baum-Snow and Justin Marion, researched the response of developers to the amount of the tax credits received. As a function of location, they found that a thirty percent increase in the tax credit leads to six additional LIHTC units constructed on a base of seven units per census tract. This phenomenon was strongest in areas with rapidly increasing values during the 1980’s, which suggest developers particularly develop in gentrifying areas.

Other studies show that Qualified Allocation Plans are not directing LIHTC development in the areas that need it most. QAP’s have the ability to encourage developers while choosing their LIHTC projects’ location. Currently, QAP’s discourage investment in lower income neighborhood. In a recent study by the Furman Center, they found a positive and statistically significant relationship, showing that overall states which increased the priority given for siting in high opportunity areas also experienced increases in the share of units which were built in low poverty neighborhoods. Many states have decided to focus their efforts on projects that are placed in high opportunity neighborhoods, avoiding high concentrations of affordable housing and investment in areas that already have man amenities. Additionally, the federal government allocates tax credits on the basis of state population, not shortage of affordable housing.

The Agenda

The prominence of LIHTC developments in gentrifying areas creates a window for opportunity to balance neighborhood investment, healthy growth, and enough affordable housing to prevent housing instability.  We propose a gentrification-index (G-index) to be incorporated at the federal level into allocations for LIHTC, as well as Community Development Block Grants and other federally funded forms of affordable housing creation. The G-index will aim to actively address spatial inequities by directing funding to underinvested areas that will, in turn, prevent displacement through the creation of affordable housing.

 It is important to note, that a tweak to federal policy like the one proposed may deduct that the Fair Housing rules need to be altered. Traditional fair housing rules currently encourage the de-concentration of poverty by relocation to high opportunity neighborhoods in the suburbs. This undermines our efforts to create equitable development in the city’s gentrifying communities. In order to intentionally redirect federal money to neighborhoods at risk of and experiencing gentrification, fair housing laws need to have a focus on equitable development happening in rapidly changing neighborhoods within the city and legally recognize people who are experiencing and at-risk of gentrification a federally protected class.

Spatial characteristics of gentrification are legitimate measures and can be used as tools for redirecting the allocation of funds. Gentrification is a very place-based phenomenon and while some characteristics of gentrifying neighborhoods mirror those of other types of neighborhood change, the mix of variables that form the G-index will create distinctive categories of neighborhood typologies. The G-index will collect information that measures neighborhood value and real estate development over time, measures that are key in understanding gentrification and its impact on vulnerable populations as well as its relationship with private market construction. This index is designed to signal different types of neighborhood change using indicators that point to exacerbations of spatial inequality that inform how we create a climate of equitable development.

Getting it Done

The G-index measure will combine our gentrification index and vulnerable populations index. Information for those indices are gathered at the census tract level from the 1980-2010 decennial census, and the 2015 ACS 5-year estimates. The gentrification index is replicated from Lance Freeman’s 2005 methodology to first identify census tracts “eligible” to gentrify over each of the four intercensal time periods. Those census tracts eligible to gentrify were defined as having Median Household Income less than the 40th percentile for all tracts city-wide, Median Home Value also less than the 40th percentile for all tracts city-wide, and total population of more than 500 people. In order to fully determine if a neighborhood actually gentrified over the intercensal period those neighborhoods considered gentrified were defined as having met all the following criteria: The change in college education population was in the top-third city-wide; The Median Home Value at end of period was greater than the Median Home Value at beginning of the period; and the change in Median Home Value was in the top-third city-wide.

 The vulnerable population index is used as an analysis to identify neighborhoods with the highest concentration of “vulnerable populations” to help target priority neighborhoods for stabilization interventions. This index is calculated by first we calculating the percentage of renters in each census tract, using data from the 2015 Census ACS. Secondly, the percent of renter households who have less than $50,000 in annual household income, as well as, the percent of renters with a high school education as their highest level of academic achievement is calculated. Finally, the percent of renter families with children is determined. Any neighborhood that fell above the city-wide average is given a 1 for that category. The composite score of all four categories is added up to get the Index, and any neighborhoods with a score of 3+ were considered a high concentration of vulnerable populations.

 The G-index measure will combine our gentrification index and vulnerable populations index. The overall composite score will be calculated based off of both indices will them be used to determine the type of change a neighborhood is currently experiencing. If a neighborhood’s composite score concludes that it is currently gentrifying or at-risk of gentrifying with higher average levels of vulnerable populations, it will be given special preference and set-asides in a state’s QAP. The special preference will award extra points when scoring applications to proposals that place housing in gentrifying neighborhoods. Similarly, G-index set-asides would create a dedicated pool of LIHTC or CDBG funding for neighborhood experiencing inequitable development.

 Although the G-index, at its core, is a tool created to promote equitable development in areas that are experiencing gentrification, it is no fool-proof plan. In essence, the G-index is a relatively simple method of signifying levels of neighborhood change.  For example, all variables, as displayed in Figure 1 are weighted the same. The index works under the assumption that the percent of residents that are rent burdened has just as much affect on gentrification as the percent of people working in white-collar jobs. The simplicity of the index does not take away from the value of information is illustrated but should be considered when deducting conclusions. The G-index alone also does not address or mitigate the experience of housing loss and instability for those who have already been displaced. Finally, to be truly effective, the G-index must be combined with a reallocation of funding at the inter-state level. In other words, funding must not only be reallocated within a region to gentrifying neighborhoods; to truly increase available funding for historically disinvested communities, funding should be awarded to states on the basis of vulnerable populations living in gentrifying areas, not on the basis of population alone.

 In Chicago, researchers at the the Nathalie P. Voorhees Center for Neighborhood and Community Improvement created a G-index for the city of Chicago. The role of the findings of the Chicago G-index was to prompt elected officials, policy makers, philanthropists, community members, and others invested in improving Chicago’s neighborhoods to come together to find creative solutions to find a balance between neighborhood improvement and quality of life for all.