What You Need to Know About the FY 2017 Income Limits

Published by Thomas Stagg on Monday, December 19, 2016 - 12:00am

As 2016 winds to an end, we are quickly approaching my favorite time of year – the day the U.S. Department of Housing and Urban Development (HUD) releases the new income limits. I am sure we all remember the year HUD affirmed its love back to us and released the limits on Valentine’s Day.

Around this time of year I start to get emails and phone calls wondering when the income limits will come out and if I have any inside information about potential increases. The following answers address a few of the most frequently asked questions.

When will the income limits be released?

The income limits could be released as early as February but will likely be released again in mid-to late-March.

As some may remember, in 2011 HUD committed to releasing the income limits on December 1 every year. However, the definition of extremely low-income (ELI) was changed by the 2014 Consolidated Appropriations Act to incorporate the Department of Health and Human Services (HHS) poverty guidelines into the extremely low income limits (30 percent limits). Historically the HHS poverty guidelines have not been released until late January (they were released on January 25 in 2016). After the release of the HHS data, HUD will need time to incorporate the data into their calculation. Therefore, HUD is no longer able to release the limits in December because they have to wait for data from HHS.

Although the poverty adjustment only affects the ELI income limits and does not impact very low-income (VLI) or low-income housing tax credits (LIHTCs), HUD has stated multiple times that they will continue to release the Section 8 and Multifamily Tax Subsidy Project (MTSP) (the income limits used for LIHTC and tax-exempt bond developments) income limits at the same time.

Do you have any predictions of the future?

We do have some preliminary information that makes us think that on a national level both 2017 and 2018 should see strong income limit growth. Novogradac has been engaged by various clients to estimate the 2017 and 2018 income limits and most of the areas that we estimated are showing robust income growth. If you would like Novogradac & Company to run the calculation for an area you are interested in, please let us know.

Change in National Median Income
Novogradac & Company currently estimates that the national median income will increase by around 3.5 percent for 2017 and more than 5 percent for 2018. While the increase for each individual area will vary, and as always there will likely be some areas that see decreases, it appears that 2017 and 2018 will see a general up-tick in income limits. These projected increases are in contrast to the national median income decrease we saw from 2015 to 2016.

Besides providing a general indication of income limit trends overall, the change in national median income is important for another reason. HUD caps increases in MTSP each year to the greater of 5 percent or two times the change in the national median income. Therefore, if national median income increased by 3.5 percent and 5 percent the cap would be 7 percent and 10 percent for 2017 and 2018, respectively, allowing income limits in areas with rising income to increase more rapidly than they have been allowed to in previous years

Predicting County Level AMI
AMI for individual areas can also be predicted. HUD uses the following three factors to determine area median income:

  1. American Community Survey Data (ACS) (similar to census data)
  2. Historical CPI
  3. Projection of future CPI (Congressional Budget Office’s CPI Forecast)

The ACS data and the historical CPI that HUD will use for the 2017 and 2018 area median income have been released. However, the projection of future CPI is not yet available.

The Congressional Budget Office’s (CBO) CPI Forecast has historically been updated twice a year (traditionally in January and August). When calculating the 2017 AMI, HUD will use the January 2017 CBO forecast of the 2017 CPI and for 2018 HUD will use the Jan. 1, 2018 forecast of the 2018 CPI. Because those are not yet available, the CBO August 2016 forecast of the 2017 and 2018 annual CPI can serve as a proxy estimate for future CPI to project the 2017 and 2018 AMI. While the CBO forecast of CPI is likely to change between now and when the income limits are published, it still can give an idea what the CBO is predicting and can serve as a basis for estimating 2017 and 2018 income limits.

Calculating High Housing Cost Areas
When determining MTSP, HUD uses an upward adjustment known as high housing cost that is based on the fair market rent (FMR) for areas where the cost of housing is abnormally high compared to the median income for the area. The FMR for 2017 has been published and therefore we can calculate the 2017 MTSP for areas that fall under the definition of high housing cost areas. Those areas will have an MSTP at least equal to the amount in the calculation. The MTSP may be higher than the calculated amount if the AMI or other HUD adjustment for the county has increased to a level that is greater than the high housing cost adjustment.

The list below shows the top 10 highest cost housing areas for 2017. The full list of 2017 high cost housing areas is here.

Blog Chart Projected 2017 High Housing Cost Areas
Click to Enlarge

 

For example, Panama City, Fla. is showing a 0.18 percent increase in MTSP due to the FMR adjustment. If AMI increased by more than 0.18 percent then Panama City would not be a high housing cost area and the MTSP would be greater than what the chart is showing. However, if the AMI decreased for Panama City or increased in an amount lower than .18 percent the MTSP would still increase due to the high housing cost adjustment.

Note, for the chart Novogradac ran the calculation three different ways. They are as follows:

Uncapped – showing what the MTSP would be if HUD did not cap the increase

5 percent cap – showing what the limits would be if the change in national median income is less than 2.5 percent and HUD applies a 5 percent cap.

7 percent Cap – showing what the limits would be if the national median income increases by the predicted 3.5 percent.