NAHMA is requesting member feedback on the notice, Changes to the Methodology Used for Calculating Section 8 Income Limits Under the United States Housing Act of 1937. This notice was published in the Federal Register last week, and HUD included several questions for industry input. I have provided Background and Questions from the Notice below for member review and please reply to this email with your feedback, by Tuesday, February 6th.
The United States Housing Act of 1937 (the 1937 Act) provides for assisted housing for “low-income families” and “very low-income families.” Section 3(b)(2) of the 1937 Act defines “low-income families” and “very low-income families” as families whose incomes are below 80 percent and 50 percent, respectively, of the area median family income, with adjustments for family size. These income limits are referred to as “Section 8 income limits” because of the historical and statutory links with that program, although the same income limits are also used as eligibility criteria for several other federal programs. The 1937 Act specifies conditions under which Section 8 income limits are to be adjusted either on a designated area basis or because of family incomes or housing-cost-to-income relationships that are unusually high or low. Section 8 income limits use the same area definitions as Section 8 Fair Market Rent (FMR) area definitions, which in turn are based on Office of Management and Budget (OMB) metropolitan statistical area definitions.
HUD issues updated area median family income estimates and Section 8 income limits annually. Since Fiscal Year (FY) 2010, HUD has limited the amount that the income limit for an area could increase or decrease. Prior to FY 2010, income limits could not decrease at all and there was no limitation on annual increases. Under the current methodology, HUD does not allow income limits to decrease by more than 5 percent from the prior year’s level and does not allow income limits to increase by more than the higher of 5 percent or twice the change in the national median family income.
There are several reasons for these limits on increases and decreases. First, HUD’s calculation of area median family income estimates is based on survey data from the Census Bureau’s American Community Survey (ACS). Survey estimates of income are subject to measurement error and may fluctuate from year to year even when the true median income for a given area is unchanged. The limits on increases and decreases ensure that outlier estimates of area median family income changes do not cause undue administrative burden or negatively impact program participants through wildly fluctuating income limit levels.
Second, several programs, most notably the Low-Income Housing Tax Credit (LIHTC), use Section 8 income limits to determine eligibility and rent levels for low-income households. By limiting decreases in income limits to no more than 5 percent, HUD helps ensure the financial viability of affordable housing properties. By limiting increases in income limits, HUD decreases the burden on low-income households who may face large rent increases resulting from higher income limits.
- Question for comment: Is a cap of ten percent appropriate for HUD’s income limit calculation methodology? If not, is there an alternative cap that would be more appropriate? Would such a cap harm planned or in development LIHTC-financed properties ( i.e., do such properties assume rent growth in excess of 10 percent)?
- Question for comment: In updating its income limits each year, HUD’s goal is to allow income limits to rise with prevailing income growth, thus allowing similar numbers of households to be eligible for assistance each year. Many HUD eligible households receive fixed incomes. A number of fixed income programs, such as social security and veteran disability benefits, are adjusted for inflation in a different way than HUD income limits. Have income limits kept pace in your community with other social programs that provide basic income for individuals and households who would also need housing assistance such as elderly, disabled, and homeless veterans? That is, are individuals or families that would have been eligible in previous years now no longer eligible because income limits have not kept pace in your area? Or are more eligible than had been the case previously?
- Question for comment: In its calculation of income limits, HUD may adjust income limits away from the legislatively defined percentages of Area Median Family Income for places with high and low housing costs relative to Area Median Family Income, or where incomes are otherwise unusually high or low. Currently, beyond the limit on increases and decreases discussed in this notice, HUD also implements high- and low-housing cost adjustments and sets a floor for each State based on the State non-metropolitan median family income (for more information on the current methodology, see https://www.huduser.gov/portal/datasets/il//il23/IncomeLimitsMethodology-FY23.pdf as well as HUD’s online individual area income limit documentation tool available at https://www.huduser.gov/portal/datasets/il.html#query_2023). What other criteria, if any, should HUD use when considering whether to make such adjustments in addition to those in existing policy? For example, should there be a national minimum income limit to reflect a minimum rent needed to operate and maintain rental housing in the lowest cost housing markets? Should the same criteria be used in United States territories?
- Question for comment: HUD recognizes the tension inherent in the use of an income-based measurement for setting rents, where the costs of operating affordable housing rental properties may grow faster or slower than prevailing incomes, due to a number of factors including, for example, recent rises in insurance costs. For LIHTC property owners, in the past have you raised your rents in LIHTC units to the maximum allowable year-over-year increases? For purposes of HUD better understanding the context of your answers, please indicate the location of the property ( e.g., ZIP code, city, or county) to which the answer applies.
- If yes, why have you done so, and have the increases been adequate to operate and maintain your property?
- In the years where you raised rents to the maximum allowable amount, did you see any changes in the turnover of your units as compared with turnover in years when you did not raise rents to the maximum allowable amount?
- If no, what factors do you use in determining how much you raise your rents? In what years have HUD income limit changes been adequate for a LIHTC property to keep up with operating and maintenance costs, and in what years has it not been adequate?
- Question for comment: Should income limits consider direct measures of costs, such as wages or insurance, instead of, or in addition to, its high housing cost adjustment, recognizing that HUD may currently lack the statutory authority to do so? If so, which specific costs should HUD consider, and which measurements or data would you recommend as a reference?
- Question for comment: Does HUD’s income limits methodology help or hinder the use of Housing Choice Vouchers in LIHTC-financed properties? To what extent does this impact vary for places with high and low housing costs
We look forward to your feedback.