What Is Affordable Housing?
Unfortunately, there is a confusing variety of definitions of affordable housing used in various state, federal, and local programs. This article attempts to sort out some basic concepts.
A. Households should pay no more than 30% of income for housing
All of these programs use the standard, used in the federal public housing and Section 8 programs, that households should pay no more than 30% of their incomes for housing. "Affordable housing" is generally understood to mean housing which is affordable, using the 30% of income standard, to "low income" or "lower income" or "low and moderate income" households. However, various programs differ substantially in the definition of the lower income households covered by the programs.
B. Incomes Are Defined With Reference to "Area Median Income."
All of these program definitions are based on an area median income (AMI), which is calculated annually by HUD. An area's median income is the income which is exactly in the middle of the distribution of all family incomes; half the area's families have lower incomes and half have higher incomes. The Metropolitan Area HUD uses is the thirteen county Minneapolis-Saint Paul Metropolitan Statistical Area made up of Anoka, Carver, Chisago, Dakota, Hennepin, Isanti, Ramsey, Scott, Sherburne, Washington, and Wright counties in Minnesota and Pierce and St. Croix counties in Wisconsin. Note that this area is larger than the seven-county area included in the jurisdiction of the Metropolitan Council (Anoka, Carver, Dakota, Hennepin, Ramsey, Scott, and Washington counties). HUD generally assumes that the median income is for a four-person household, and makes standard adjustments in median income for larger and smaller households. Click here for a detailed explanation of how HUD derives income limits.
C. Programs Vary in Their Definitions of Low Income
Various programs then set income limits as percentages of the HUD-defined area median income. Sometimes these definitions use adjustments for household size and sometimes they do not. Here are the most common definitions:
Metropolitan Council, defines "affordable housing" as that affordable to households with incomes at or below 60% of AMI, with no adjustment for household size.
Federal Low Income Housing Tax Credits. In order to be eligible for tax credits, which are the currently the only real federal affordable housing production program, 20% of the units must be affordable to households at or below 50% of AMI or 40% of the units affordable at 60% of AMI, adjusted for household size. Agencies allocating tax credits often give priority to projects with rents affordable at 30% of AMI.
HUD Housing Programs. These define "moderate income" to mean 95% of AMI, "Low Income" to mean 80% of AMI and "Very Low Income" to mean 50% of AMI, all with adjustments for household size. Some programs additionally target households at or below 30% of median ("Extremely Low Income"). The definitions are actually somewhat more complicated than this, as described at the HUD web site address referenced above. The various HUD housing programs have different income limits and preferences. (See the HUD Occupancy Handbook for a detailed description.)
HUD's Community Development Block Grant (CDBG) and HOME programs. These grant programs to state, county, and local governments require a portion of the funds to benefit "low income" households, defined as those at 50% of AMI, with adjustments for household size.
Note that because its affordable housing standards do not adjust for household size, the Metropolitan Council will count as "affordable" units serving smaller households (less than 4 people) with higher incomes than would be heeligible for the federal tax credit programs, but will exclude some larger units (for more than 4 people) which are within the income eligibility for tax credits.
The following table compares the 2006 income limits for a four person household; a detailed table by household size can be found here.
HUD Income Limits for 4-Person Households, 2007
2007 Median Income $77,600*
95% AMI (HUD moderate income programs) $70,775**
80% AMI (limit for HUD low income programs) $59,600**
60% AMI (Tax Credits; Metropolitan Council goals) $47,100
50% AMI (preference for most HUD programs; CDBG) $39,250
30% AMI $23,550
Notes: *The median for 2007 is down slightly from $78,500 for 2006; HUD has administratively held income limits for 2007 at the 2006 levels because the change in median was the result of change in methodology.
**The 80% of AMI low income limit is capped at 80% of the national median, except in high cost areas, and the 95% limit is calculated based on the 80% limit. Thus these numbers are slightly lower than 80% and 95% of the Twin Cities AMI.
Note that the term "low income" includes a broad range of income levels. Median incomes for police officers and elementary school teachers in the metro area will qualify under some definitions. Note also that housing meeting the Metropolitan Council's goals might well be unaffordable to lower paid workers such as bank tellers and assembly workers. See Who Needs Affordable Housing.
Housing Preservation Project, 2007