What You Need to Know About the HUD FY 2018 Income Limits
As 2018 begins it is a time to reflect and ask ourselves the important life changing questions like when will HUD publish income limits and will my limits increase or stay the same. Although we don’t have a crystal ball below is some need to know information about the FY 2018 HUD income limits.
When will income limits be released?
As discussed last year, the income limits could be released as early as February but will likely be released in mid-to late-March. The extremely-low income (ELI) limits have to incorporate the Department of Health and Human Services (HHS) poverty guidelines, which has historically been published in the last week of January (they were published on January 26 in 2017). Once the HHS poverty guidelines are published HUD will have to update the ELI limits and then the limits will need to go through HUD’s internal review process. Although the ELI limits do not impact LIHTC income limits, HUD has stated they will continue to release the Section 8 and income limits used for tax credit properties, known as the Multifamily Tax Subsidy Projects (MTSP) at the same time.
The HUD release date for the last three years were March 6, 2015, March 28, 2016 and April 14, 2017.
Novogradac & Company is hopeful that the fact that that limits have been released later every year is a trend that will be broken this year, but we don’t have any insider information.
What can we expect for 2018?
HUD utilizes the American Community Survey (ACS) when calculating Area Median Income (AMI). The 2018 income limits will be based on the 2015 ACS data. Both the 2015 and 2016 ACS data has been released to the public which allows Novogradac & Company to do some fairly robust estimates of AMI for 2018 and 2019. Novogradac has been engaged by various clients to estimate the 2018 and 2019 income limits and most of the areas that we estimated are showing strong year over year 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 estimates the U.S. median income will increase by more than 5.66 percent in 2018 and 5.15 percent in 2019. It is important to note that (as always) there will be some areas that increase by a higher percentage and some areas that will have decreases. When adding in the 3.5 percent increase in 2017, this will mean three years of steady income limit growth as compared to the decreases in national median income that occurred in 2015 and 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 the income limits used for tax credit properties each year to the greater of 5 percent or two times the change in the national median income. Therefore, if national median income increases by 5.66 percent and 5.15 percent the cap would be 11.32 percent and 10.30 percent for 2018 and 2019, respectively, allowing income limits in areas with rising income to increase more rapidly than they have been allowed to in previous years.
High Housing Costs Areas
When determining MTSP, HUD applies a high housing cost adjustment that increases the income limits for areas where the cost of housing is abnormally high compared to the median income for the area. These areas are known as high housing cost areas and the adjustment is based on the 2-bedroom fair market rent (FMR) as published by HUD. The FMR for 2018 has been published and therefore we can calculate the 2018 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.
Novogradac calculated 83 counties that will have an increase in income limits due to high housing costs.
Stated Median Income Changes
Novogradac is also able to estimate the change in state median incomes for 2018 and 2019 as well as the change in national median income.
All 50 states plus Puerto Rico and District of Columbia are predicted to have increases in median income for 2018 over 2017. However, there are three states (Wyoming, Louisiana, and Vermont) that are predicted to have decreases in median income for 2019. For more information and a chart of the change in median income for all states please see the blog post tilted “Estimating Median Income for 2018 and 2019.”
Available for Purchase: Novogradac Rent and Income Estimator
Understanding LIHTC income and rent limit growth is vital to develop and manage successful affordable rental housing properties. Among other things, better understanding how income limits will change in future years can enable developers, investors and lenders to better underwrite LIHTC properties. With Novogradac Rent and Income Estimator you can understand how income and rent limits will change over the next one to two years. While data isn’t available for every area, Novogradac & Company can provide estimates of area median income (AMI) for 2018 and 2019 and very low income (VLI) for 2018 and 2019 for many areas. Learn more about these estimates and for which areas they are available.