What You Need to Know About HUD’s FY 2020 Income Limits

Published by Thomas Stagg on Monday, February 17, 2020 - 12:00am

It’s that time of year again: the countdown phase for the release of the 2020 U.S. Department of Housing and Urban Development (HUD) income limits.

Looking ahead, here are some key questions and answers about the income limits.

When will income limits be released?

In early 2018, HUD stated that its target release date for income limits would be April 1 for each year. That year, HUD released the income limits on March 30. In 2019, the government shutdown early in the year pushed deadlines back and the income limits were released April 24.  This year April 1 is a Wednesday, so we are hopeful that income limits will be released on April 1 again this year.

As discussed previously, HUD must incorporate the Department of Health and Human Services (HHS) poverty guidelines into their extremely low income (ELI) limit. Those were released in the Jan. 17 Federal Register.

With the HHS poverty guidelines 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 do not affect 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;
  • March 30, 2018 and
  • April 24, 2019.

What can we expect for 2020?

HUD uses the American Community Survey (ACS) when calculating area median income (AMI). The 2020 income limits will be based on the 2017 ACS data. Both the 2017 and 2018 ACS data has been released to the public, which allows Novogradac to do some fairly robust estimates of AMI for 2020 and 2021. Novogradac launched an income limit estimator tool in 2018. More information about how the estimates are generated is available in this blog post.

Novogradac estimates that 2019 and particularly 2020 will have much more volatility that has been seen in the last couple of years. Although, median incomes continue to trend up,  the growth will be lower than in past years. On a macro level, more than 25 percent of the areas for which Novogradac can make estimates will have an increase of greater than 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 in 2020 and more than 20 percent of the areas will have a decrease in 2021. This is why it is so important to understand what is happening with a specific area as opposed to just using historical averages or some other data point. The graph below plots the growth rate and percentage or estimated areas that fall within that growth rate. For example, 7 percent of all areas estimated for 2020 will have a decrease in income limits between -2.5 and -5 percent.

Estimated Change in VLI 2020-2021
Click to Enlarge

Will the income limits finally incorporate the average income minimum set aside?

Historically, for LIHTC properties HUD has only published the 50 and 60 percent income limits. However, now that the IRS has issued guidance on how to calculate income limits for the average income minimum set aside, HUD has updated its website to reflect the income limits for the 20, 30, 40, 50, 60, 70 and 80 percent income limits for 2020. HUD had informally stated that it was waiting for guidance from Treasury before it could publish the additional calculations. 

Change in National Median Income

Novogradac estimates the U.S. median income will increase by just less than 4 percent for 2020 and just less than 3.5 percent for 2021. This is compared to a change in national median income of 5 percent and 5.75 percent for 2019 and 2018, respectively. As always, there will be some areas that increase by a higher percentage and some areas that will have decreases. Although the increase is slowing, based on these estimates, the national median income will have five straight years of increase (2017-2021) 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 3.97 percent and 3.44 percent the cap would be 7.9 percent and 6.9 percent for 2020 and 2021, respectively. (Note: HUD has historically rounded the cap to the nearest tenth of a percent.)

High Housing Cost 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 two-bedroom fair market rent (FMR) as published by HUD. The FMR for 2019 has been published and therefore Novogradac 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 40 counties will have an increase in income limits due to high housing costs and 18 of these areas will have an increase in income limits over 7.5 percent. Of those more than 40 areas, 12 are located in California and eight are located in Florida.

These 40 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
  • 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 to purchase an income limit estimate or more detail on these areas.

State Median Income Changes

In addition to the change in national median income, Novogradac is also able to estimate the change in state median incomes for 2019 and 2020.

Forty-five states plus the District of Columbia are estimated to have increases in state median income for 2020 over 2019. The five states estimated to have decreases in 2020 are Alaska, Connecticut, Oklahoma, Vermont and West Virginia. Rhode Island is forecast to have the largest increase in 2020, at 8.45 percent.

Forty-seven states plus District of Columbia are estimated to have increases in state median income for 2021 over 2020. The three states estimated to have decreases in 2020 are Montana, Rhode Island (after the big 2020 increase) and South Dakota. No state is forecast to have decreases both years and the District of Columbia is estimated to have the largest increase in 2021(10.51 percent).

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 can provide estimates of area median income (AMI) for 2020 and 2021 and very low income (VLI) for 2020 and 2021 for many areas. Learn more about these estimates and for which areas they are available.