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2024 HUD Income Limits: A Closer Look

Published by Thomas Stagg on Friday, April 5, 2024 - 4:06PM

The U.S. Department of Housing and Urban Development (HUD) issued April 1 the Fiscal Year (FY) 2024 income limits. HUD issues two sets of income limits, one set that is applicable to HUD programs such as Section 8 and one set for Multi Family Tax Subsidy Projects (MTSP) that is used for low-income housing tax credit (LIHTC) and tax-exempt bond developments.

The upward trend seen in recent years has continued, with most areas having an increase in income limits. The average increase across all counties was just under 6%.

Income Limit Caps

Once again, income limit caps are a big part of the story. HUD has had a cap on income limit increases for its Very Low Income (VLI) limit since 2010 but for FY 2024 HUD changed its methodology to include a ceiling component of the cap. Starting with 2024, VLI will never be able to increase by greater than 10%. The 10% ceiling is especially meaningful because without the ceiling the cap would have been 14.8% for FY 2024.

Cape Coral-Fort Myers, Florida, metropolitan statistical area (MSA) is a good example to illustrate how the ceiling works. If HUD did not institute the 10% ceiling, the income limit for this area would have increased to $48,800–however–due to the 10% ceiling, the income limit is $46,800. 

For FY 2024, about 20% of areas are capped at 10%. As stated earlier, if HUD had not instituted the 10% ceiling, the cap for FY 2024 would have been 14.8%. If HUD had continued to use a cap of 14.8%, Novogradac calculates that more than 9% of areas would have been capped. Therefore, slightly more than 12% of areas fall between the new 10% ceiling and the old cap of 14.8% without the ceiling. Said another way, the new ceiling caps about 20% of all counties, but if HUD had stuck with the old method, only about 9% of areas would have been capped.

There are some areas that had very large increases in the uncapped VLI. The following are the areas with population greater than 250,000 that had an increase of greater than 14.8%, as reminder although the uncapped VLI increased by more than 10% all of these areas were capped at 10% by HUD:

Blog Graphic: Areas with at Least 250,000 Residents with the Largest Increase in Uncapped VLI

The cap on income limits impacted areas in some states more than others. The following eight states and five territories had more than a third of their counties capped:

Blog Graphic: States and Territories with the Most Capped Counties

On its website HUD shared its reasoning on the cap and responses to various industry comment letters, including the letter written by the Income Limit Working Group in a FAQ. As discussed above, the 10% ceiling is meaningful for 2024 since without the ceiling, the cap would have been 14.8%. However, in the past 14 years, the cap has only been above 10% three times. The historical caps are as follows:

Blog Graphic: VLI Limit Caps Over the Years

Areas with Decreases

On the opposite end of the spectrum from areas that were capped are the areas that had a decrease in their income limits. About 6% of all counties had a decrease in VLI. It is interesting to look at what is driving the decreases in VLI. The areas are split almost equally between two different drivers. About 50% of the counties with decreases are caused by decreases in the underlying area median income (AMI) for the county. The remining 50% are being caused by decreases in one of the adjustments HUD applies when calculating VLI. The adjustment that is having the largest impact is the state non-metro median income adjustment. HUD does not allow an area in a state to have an income limit that is lower than the state non-metro median income. The state non-metro median income decreased in 17 states. Decreasing state non-metro median income was the driver for 48% of counties with decreases. 

The following table shows the 18 states with decreases in state non-metro median income and the number and percentage of areas that had a decrease in VLI:

Blog Graphic: State with Decreases in State Non-Metro Median Income

For LIHTC developments, once a property is in service, the income limit is held harmless, meaning that if the income limits for your area decrease, a property would still be able to use the higher limit from the previous year.

To be held harmless, a development must be placed in service. However, the IRS has a 45-day grace period between when the limits are released and when they must implemented. Therefore, if a property is placed in service between April 1, 2024, and May 15, 2024, a property can choose to use either the 2023 or 2024 limits, whichever is higher. If a property is being placed in service in one of the areas that had a decrease in income limits, if possible, the owner will want to place the development in service prior to May 15, 2024.

Overall Income Limit Trends

As mentioned earlier, the average increase in VLI for 2024 was just under 6% for all counties. The average change in VLI was slightly higher for metropolitan counties (6.14%) than non-metropolitical counties (5.73%).

The following table shows the percentage of areas that had changes at each percentage increment:

Blog Graphic: A Closer Look at VLI Changes in 2024

The table shows that the biggest grouping of areas is between the 8%-10% range. Slightly more than 6% of areas had a decrease.  

The following table shows the average change in VLI for each state:

Blog Graphic: Average Change in VLI for Each State, U.S. Territory

HERA Special Income Limits

HERA Special income limits are only available for properties that placed in service prior to 2009. HERA Special income limits are calculated based on the change in AMI. There is no cap or other adjustments to HERA Special income limits–the increase is tied solely to the change in AMI. In 2023, AMI grew by double digits so many areas had HERA Special income limits that were growing faster than the cap. However, for 2024, AMI is only growing at 2.3%, and therefore, HERA Special income limits are growing at a much lower rate than in 2023. The average increase for counties that are designated as HERA Special for 2023 is only 3.16%. However, since there is no cap on the increase for HERA Special income limits, there are 130 counties that have an increase in HERA Special income limits of greater than 10%. 

Conclusion

Income limits continued their upward trend again for 2024. Owners in areas with income limits that decreased will want to pay close attention to the impact of hold harmless rules.

The Novogradac Rent and Income Limit Estimator © is a great resource for developers, investors and lenders to better underwrite LIHTC properties.

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