HUD Publishes FY 2021 Income Limits; 65% of Counties Will See Increase
The U.S. Department of Housing and Urban Development (HUD) posted fiscal year (FY) 2021 income limits April 1 to determine eligibility for HUD-assisted programs, such as for public housing, Section 8, Section 221(d)(3) and Section 236 properties. HUD also published Multifamily Tax Subsidy Projects (MTSP) income limits to determine eligibility for the low-income housing tax credit (LIHTC) and tax-exempt bond properties.
Income limits are effective immediately and must be used within 45 days of the April 1, 2021 release date, so by May 15, 2021.
Fiscal Year 2021 Data and Changes
The FY 2021 data revealed several interesting changes outlined below, with significant differences in income limit changes when comparing metropolitan and nonmetropolitan areas:
- The FY 2021 national median income is $79,900, a 1.783% increase over 2020.
- Among the 4,766 counties for which HUD publishes limits, 65% will see an increase, 32% have a decrease and 3% have no change.
- The average change nationally is a 1.04% increase.
- The average increase in nonmetropolitan area income limits is 0.69%.
- The average increase in metropolitan area income limits is 1.53%.
- Metropolitan limits grew at a rate that was about 2.5 times that of the nonmetropolitan areas.
State Nonmetro Adjustment
In determining very low-income limits (VLI), which are used by LIHTC, tax-exempt bond developments and many HUD programs, HUD has certain adjustments that impact income limits. One of the adjustments is the state nonmetro median income adjustment. The VLI for an area cannot be less than the state’s nonmetro median income. There were 15 states where the 2021 nonmetro median income decreased when compared to 2020.
In the nation’s most-populous state, California, the nonmetro rate decreased by 1.41%, so 28 of the state’s 58 counties will see a decrease in income limits. However, due to the strong growth in the other 30 areas, the California statewide change in very-low-income was an increase of 1.75%.
Two other notable examples are Maine and South Dakota. Maine had 80% of its counties decrease, with a statewide average change in income of negative 2.67%. South Dakota had 74% of its counties decrease, with a statewide average change in income of negative 2.02%.
What if Income Limits in Your Area Increased?
If income limits increased in your area, you will want to implement the higher income limits immediately to help tenants qualify for housing. More caution is advised when deciding whether to increase the rents being charged to tenants. Remember that rent limits are a ceiling and not a floor.
While raising rents can help properties cover operating expenses and maintenance cost, each property owner should contact an experienced consultant to discuss options if and when to increase rents. In fact, HUD updated its FY 2021 income limits frequently asked questions page to comment on the subject on rent increases: “However, HUD has no control over how LIHTC rents are set and has not required or suggested rent increases. HUD continues to encourage property owners to exercise compassion with respect to tenants affected by the COVID-19 pandemic and would be surprised that an owner would be so out of step with the moment in which we are living to raise rents at this time.”
What if Income Limits in Your Area Decreased?
If income limits decreased in your area, remember that once a development is placed in service, it is held harmless against any future decreases. Due to the gross rent floor, even if income limits decrease between allocation and being placed in service, a project can continue to use rents in effect as of the allocation date. Although rents will not decrease, flat rents still put pressure on a project–it will be important to understand the “hold harmless gap,” which is the gap between your hold harmless income/rent and what the limit would be without the hold harmless provision.
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