Sign Up For Novogradac Industry Alert Emails

Release of 2022 ACS Data Poses Questions as to How HUD Will Calculate 2024 Income Limits

Published by Thomas Stagg on Wednesday, December 6, 2023

Journal Cover December 2023   Download PDF

The U.S. Census Bureau released data in September showing one of the strongest periods of growth in the history of the American Community Survey (ACS) data, with national median income up 7.39%.

The release of 2022 ACS data marks the first step in the formula the U.S. Department of Housing and Urban Development (HUD) uses to determine 2024 rent and income limits for low-income housing tax credit (LIHTC) properties. The income limits correspond to the maximum rents property managers and owners can charge renters living in tax-credit-supported affordable rental housing properties. 

However, a 7.39% spike in ACS growth will not equate to a 7.39% increase in HUD’s calculation of income limits. HUD’s formula for determining 2024 income limits will take the 2022 ACS data and trend the data forward using the change between the 2022 consumer price index (CPI) and the Congressional Budget Office’s 2024 estimated CPI. The CPI factor is slower than prior years and results in a slowing down of the growth of area median income (AMI) by nearly 5%, resulting in a 2% increase in area median incomes.

Still, a 2% increase isn’t the figure property owners and managers will want to fixate on either. For tax credit-supported developments, HUD adds the Multifamily Tax Subsidy Projects (MTSP) income limits, also known as very low income (VLI) limits. This figure is up 7% due to a combination of high housing cost areas driven by fair-market rents and income limit caps.

Approximately 85% of areas were capped for the 2023 income limits.

Various Approaches

The trend factors up and down make guessing the change in income limits for 2024 complicated. HUD has adopted various methods to determine the maximum percentage increase in income in a given area. The cap is typically the greater of 5% or two times the change in national median income.

Two years ago, HUD changed how it defines “change in national median income.” If HUD uses the same definition as last year, two times the change in the national median income would mean doubling the 7.39% figure from the ACS data, which would result in a 14.78% limit on income limit increases.

Conversely, the change in national median income is approximately 2%, which, even multiplied by two (4%) would fall below the 5% figure. Therefore, if HUD uses this methodology, the cap would be 5%.

Which method HUD will choose to use is speculative. When HUD changed the cap in 2021, one of the motivations was the fear that household incomes were not keeping up with inflation and by proxy, not increasing in accordance with income limits. The 2022 ACS data shows incomes rising.

Another factor to consider in why HUD changed the cap methodology is the COVID-19 pandemic. The cap for 2021 could have been 25% had HUD not changed its interpretation of national median income.

Developers, property owners and managers working to ascertain what this means for developments in progress is a gulf between a possible 5% increase and as much as nearly 15%.

Contact

Those interested in participating in the discussion about how HUD decides its calculations can join Novogradac’s Income Limits Working Group. Industry professionals gather to discuss issues, answer questions, recommend practices and share information. 

Learn more about Novogradac's expertise and many services