James Etzkorn: Low-Income Housing — A Better Way
We are subsidizing an industry of middlemen instead of building homes. It’s time to prioritize construction over compliance.
Congressional candidate James Etzkorn (Dist 1) argues that the Low-Income Housing Tax Credit (LIHTC) program fuels bureaucratic inefficiency, diverting up to 20% of funds to consultants rather than construction. Etzkorn calls for modernizing the system into direct funding to eliminate middlemen and prioritize affordable housing construction over compliance costs.
Low-income housing programs perfectly illustrate how misaligned incentives and bureaucracy turn good intentions into a leaky system where middlemen exploit loopholes for profit.
Created in 1986, the Low-Income Housing Tax Credit (LIHTC) aims to subsidize the construction of affordable housing. My opponent, Representative Suzan DelBene, routinely pushes to expand this program, exemplifying a career politician’s playbook of throwing money at a problem without assessing results.
LIHTC suffers from the classic failure of Congress refusing to write clear laws.
Instead of tying incentives to specific housing outcomes, Section 42 of the tax code vaguely delegates rules to the states. This negligence opens the door for muddied bureaucracy and administrative social engineering.
In Washington State, developers must compete for this funding through the Washington State Housing Finance Commission (WSHFC) . Winners aren’t selected based on who can efficiently build affordable units, but by a complex point system outlined in the Qualified Allocation Plan (QAP) .
While points are awarded for standard criteria like location, significant weight is given to forming complex legal partnerships with Community Based Organizations (CBOs). These partners face mandatory WSHFC interviews to prove their “value.” Additional points are awarded based on the racial identity (BIPOC) of the project’s owner, plus the inclusion of solar cells and EV charging stations.
These are noble intentions but they come at a cost.
The intricate process requires consultants to navigate applications and lawyers to form complex legal partnerships. These are significant hurdles for builders to overcome all because Congress abdicated their duty to write clear laws.
The program is funding an industry of consultants and lawyers as much as it is funding low-income housing.
The "Capital Stack" Scam
The dysfunction of Congress goes far beyond their inability to write clear laws. They also refuse to clearly fund programs.
Career politicians hide spending with tax credits that fuel our deficit and allow initiatives to limp along without review. Annual budgets require the hard work of compromise, prioritization and justification to the American people. Congress abdicates its constitutional duty, which costs us substantially more money through a bloated, inefficient process. Low-income housing is only one of many examples of how these tax credits create perverse incentives contrary to the goals of the program.
Builders can’t build with tax credits. They need money to buy materials and pay their workers. After the complicated process of being awarded tax credits, builders must sell them to banks. To create demand, Congress passed the Community Reinvestment Act (CRA) to effectively require financial institutions to buy them. Because the tax code is so complex, expensive “Syndicators” are required to match developers with investors.
Is your head spinning yet?
By the time the financial maneuvering is done, 15-20% of the taxpayer’s money evaporates before a single shovel hits the dirt .
To make matters worse, these tax credits don’t cover the full cost, so developers often layer up to seven different funding sources — each with its own application, regulations and legal fees.
The Engineer’s Solution
Let me be clear. The programs and sponsors have good intentions and I’m not calling for their demise. The system has responded to the perverse incentives set by Congress. It is human nature to respond to incentives. I am proposing a different mindset to governing.
Instead of writing endless mandates trying to micromanage the process, we must align the incentives with outcomes we actually want. Then, we empower the local experts to innovate and deliver solutions. Low-income housing serves as a great example of how this approach can be applied across our government.
It is time to stop subsidizing the process and start housing the people.
We must end the tax credit circus. The most direct solution is to modernize LIHTC into a direct funding program. Instead of an indirect system where up to 20% of our tax dollars are siphoned away, Congress should approve funding for qualified developers to deliver housing.
Let builders build. Let non-profits focus on helping people move up the economic ladder, rather than filling out endless compliance forms. Organizations like the National Low Income Housing Coalition have already noted that the current model is economically inefficient. We want 100% of our tax dollars going directly into building and not into the pockets of middlemen.
This is about more than numbers. When housing is scarce, it becomes expensive. When it becomes expensive, the most vulnerable fall onto the street.
We must stop funding compliance and start demanding outcomes. I am an engineer, and my job is to optimize complex systems. Government is desperate for this mindset. It is time to reward results, not the lobbyists who wrote the loopholes.
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