What You Need to Know About the HUD FY 2019 Income Limits

Published by Thomas Stagg on Monday, January 21, 2019 - 12:00am

Like little children on the eve of their birthday, from tenant to landlord to investor, people around the country are anxiously awaiting the 2019 Department of Housing and Urban Development (HUD) income limits (or maybe it is just the few of us who have chosen to read this blog post). Either way as the calendar turns to a new year, our thoughts turn to HUD income limits.

When will income limits be released?

Early last year, HUD stated that its target release date for income limits would be April 1 for each year. In 2018, April 1 was on a weekend so HUD released the income limits on March 30. This was an encouraging sign that HUD was committed to meeting this deadline for future years. However, it should be noted that the current government shutdown will likely impact HUD’s ability to release the income limits on April 1. It is unknown if HUD has built in enough buffer into its release schedule to still be able to release the limits on time. Suffice it to say it would be a pleasant surprise if HUD were to release the income limits on April 1. However, what is unknown is how long the shutdown will delay the limits – if income limits are delayed for one day for each day of the shutdown it could be late April or May before 2019 figures are released.

As discussed in previous years, HUD must incorporate the Department of Health and Human Services (HHS) poverty guidelines into their extremely low income (ELI) limits. Historically the poverty guidelines have been published in the last week of January, however, they were published on January 11 for 2019. (Note, although the guidelines have been published on HHS’ website, the site also features this note: “Federal Register notice forthcoming. Publication is delayed due to temporary closure of federal offices.”)

Now that the HHS poverty guidelines are published HUD will update the ELI limits and then the Section 8 and MTSP income limit data sets will need to go through HUD’s internal review process. Although the ELI limits o not impact LIHTC income limits, HUD has stated it 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 dates for the last four years were March 6, 2015, March 28, 2016 April 14, 2017 and March 30, 2018. 

What can we expect for 2019?

HUD utilizes the American Community Survey (ACS) when calculating Area Median Income (AMI). The 2019 income limits will be based on the 2016 ACS data. Both the 2016 and 2017 ACS data has been released to the public which allows Novogradac & Company to do some fairly robust estimates of AMI for 2019 and 2020. During 2018 Novogradac launched an income limit estimator tool. More information is available in this blog post about how the estimates are generated.

Novogradac estimates that 2019 and 2020 will have very robust growth. On a macro level, more than 15 percent of the areas for which we can make estimates will have an increase of greater than 7.5 percent in each of the next two years! However, on the other side of the coin more than 10 percent of the areas will have a decrease. This is why it is so important to understand what is happening with a specific area as opposed to just using historical averages of some other data point. The graph below plots the growth rate and percentage or estimated areas that fall within that growth rate. For example, 5 percent of all areas estimated for 2019 will have a decrease in income limits between -2.5 and -5 percent.

 

Blog Graph Estimated Changes in VLI (All Areas)
Click to Enlarge

 

Change in National Median Income

Novogradac estimates the U.S. median income will increase by more than 5.15 percent in 2019 and 4.37 percent in 2020. 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. Based on these estimates, the national median income will have four straight years of increase (2017-2020) 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 5.15 percent and 4.37 percent the cap would be 11.30 percent and 9.74 percent for 2019 and 2020, 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 2019 has been published and therefore we can calculate the 2019 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. There may be other adjustments that result in the income limits being even higher than the amount calculated by the change in FMR, however, after taking into account the cap on increases discussed above, the income limit would never be lower than the amount calculated by the FMR.

Novogradac calculated that more than 72 counties will have an increase in income limits due to high housing costs and 10 of these areas will have an increase in income limits over 10 percent! Of those 72 areas, 19 are located in California and 12 are located in Florida.

These 72 areas include areas with large populations such as the following:

  • Los Angeles-Long Beach-Glendale, Calif. HUD Metro FMR Area
  • San Diego-Carlsbad, Calif. MSA
  • Santa Ana-Anaheim-Irvine, Calif. HUD Metro FMR Area
  • Miami-Miami Beach-Kendall, Fla. HUD Metro FMR Area
  • Riverside-San Bernardino-Ontario, Calif. MSA
  • Seattle-Bellevue, Wash. HUD Metro FMR Area
  • San Jose-Sunnyvale-Santa Clara, Calif. HUD Metro FMR Area
  • Fort Lauderdale, Fla. HUD Metro FMR Area
  • Oakland-Fremont, Calif. HUD Metro FMR Area
  • New York, N.Y. HUD Metro FMR Area
  • West Palm Beach-Boca Raton, Fla. HUD Metro FMR Area
  • Urban Honolulu, Hawaii MSA

Please visit the Novogradac Rent and Income Limit Estimator © page if you would like to purchase an income limit estimate or more detail on these areas.

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.

Forty-six states plus District of Columbia are estimated to have increases in state median income for 2019 over 2018. The three states estimated to have decreases in 2019 are Wyoming, Louisiana and Vermont (Delaware is estimated to be flat). Oregon is estimated to have the largest increase in 2019.

Forty-six states plus District of Columbia are estimated to have increases in state median income for 2020 over 2019. The four states estimated to have decreases in 2020 are Alaska, Connecticut, Vermont and West Virginia. Vermont is the only state that is estimated to have decreases in both years. Rhode Island is estimated to have the largest increase in 2020.

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 the 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 2019 and 2020 and very low income (VLI) for 2019 and 2020 for many areas. Learn more about these estimates and for which areas they are available.