Jan 10 -- The Office of the Assistant Secretary for Policy Development and Research (PD&R), HUD, invites comments by February 8, 2024 regarding Changes to the Methodology Used for Calculating Section 8 Income Limits Under the United States Housing Act of 1937.
The United States Housing Act of 1937 provides for assisted housing for “low-income families” and “very low-income families.” These designations are defined as percentages of area median family income and are known as income limits. Since FY 2010, HUD has limited the increase from year to year in its income limits as the higher of five percent or twice the percentage change in national median family income. This notice adds an express stipulation that the annual income limit increase may never exceed ten percent. HUD further clarifies the definition of national median family income for purposes of setting income limits.
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.
This notice announces a change to the FY 2010 criteria for determining the maximum possible increase in income limits. For FY 2024 income limits and thereafter, HUD intends to set the maximum possible increase in income limits at the higher of five percent or twice the change in national median family income, with an absolute cap of ten percent. HUD believes that this adjustment to the current methodology will align the cap rule with its intended purpose in high income-growth periods. In such periods, doubling the year-to-year change in national median family income produces a cap that is significantly higher than the upper range of income growth experienced by areas while limiting the possibility of overly burdensome rent increases for LIHTC tenants.
Additionally, HUD is formally establishing the definition of “national median family income” used in the calculation of the cap in income limit increases. From FY 2010 to FY 2014 HUD used an estimate of national median family income based on the ACS estimate of national family income adjusted in part with an inflation adjustment and in part on historical trends in national median family income. From FY 2015 to FY 2021 HUD used estimates of ACS national median income adjusted with actual and forecast inflation alone. For FY 2022 and FY 2023, HUD used unadjusted estimates of national median family income from the ACS.
For FY 2024 and thereafter, HUD intends to continue calculating the cap on income limit increases using the most recent unadjusted estimates of median family income provided by the Census Bureau via the ACS. Therefore, for FY 2024 income limits, the cap would be based on the change in national median family income from ACS 2021 to ACS 2022 (see the discussion below regarding HUD's income limit release schedule). By continuing to remove inflation adjustments from its cap calculation, HUD is keeping the calculation in line with its purpose of capturing trends in median family income data addressing survey volatility rather than volatility introduced by accelerating or decelerating inflation. . . .
While HUD invites comments on any aspect of this notice, HUD is particularly interested in receiving comments in response to the following specific questions:
Question for comment #1: 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 #2: 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 #3: 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 #4: 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 #5: 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 #6: 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?
PD&R Income Limits:
https://www.huduser.gov/portal/datasets/il.html
FRN:
https://www.federalregister.gov/d/2024-00279