The U.S. Department of Housing and Urban Development (HUD) is required by law to set income limits that determine the eligibility of tenants for many federal housing programs such as Section 8, Section 202, Section 236, Section 221(d)(3), public housing, HOME and rural housing, as well as housing financed with low-income housing tax credits (LIHTCs) and tax-exempt bonds. One of the data sets that HUD publishes as part of its annual area median income (AMI) estimates is very-low-income (VLI) limit data, which is used to calculate rent and income limits for properties financed with LIHTCs and bonds.

On March 20, 2007, HUD released AMI and related income limit data for metropolitan and nonmetropolitan areas. The 2007 AMI amounts released by HUD were significantly lower than 2006 AMI levels in numerous areas throughout the country and this decrease caused considerable concern in the affordable housing community. However, the majority of VLIs did not decrease in 2007 from 2006 levels, which served to allay some of the initial concern about the immediate impact on LIHTC properties. In fact, VLI data for some areas increased.

The primary reason for the decreases in AMIs is that in calculating the 2007 estimates, HUD began using a new methodology intended to take advantage of the first full Census American Community Survey (ACS) samples collected in 2005. Using the ACS data, which HUD says is more accurate, was expected to detect real changes in local median family incomes since the 2000 Census. However, HUD says, the ACS also is known to provide generally lower estimates of incomes than the 2000 Census, and HUD’s 2007 area median income estimates reflect that difference.

Novogradac analyzed and forecasted the impacts these changes would have across the county. An emphasis was placed on the 3,433 areas (73.4 percent of the country) receiving an historical exception, as these were areas that did not meet any of the four other criteria for rent growth. It is in these areas that Novogradac’s research found that when assuming a 3 percent annual growth rate in AMI, state AMI and FMR, 2,069 areas (60.3 percent) would recover by 2008; 1,324 areas (38.6 percent) would recover in the following two to five years; and the remaining 25 areas would take as many as 10 years to recover fully.

Related Legislation

H.R. 5270 Housing Assistance Tax Act of 2008
Introduced April 8, 2008 by Rep. Charles Rangel
LIHTC modernization and housing stimulus package includes provision to address the AMGI issue starting in 2009, by giving projects held harmless in 2007 and 2008 an adjustment equal to the nominal increase in AMI.