Host of Housing Programs Benefit from HUD's Decision to Maintain Income Limits at Current Levels
The Department of Housing and Urban Development's (HUD) recent decision to maintain the current income limits that determine eligibility requirements for a host of housing assistance programs averts turmoil for now, but NAHB remains concerned about what to expect for 2004.

Income limits, set every year by HUD, are used in many housing programs. These programs include:

• All Section 8 programs
• Section 202 Elderly and Section 811 Handicapped programs
• Section 236 Rental program
• Section 221(d)(3) Below Market Interest Rate rental program
• Community Planning and Development programs
• The HOME Investment Partnerships Act of 1990
• Rural Housing and Community Development rental assistance programs
• The Low Income Housing Tax Credit program
• Rental housing financed with tax-exempt bonds
• “Difficult-to-Develop Area” designations
• “Qualified Census Tract” definitions
• Federal Home Loan Bank rental program funding priorities
• Federal banking regulatory provisions that target loan funds to low-income households and areas

NAHB feared that because this year's limits would, for the first time, be benchmarked to data from the 2000 Census, income limits might fall. In fact, NAHB's analysis found that income limits would have fallen in 116 metropolitan areas and 352 non-metropolitan counties across the country if the 2000 Census benchmarks had been accepted uncritically. In some urban areas, NAHB found, the levels would have dropped significantly. If that had happened, large-scale disruption might have erupted in housing markets across the country, as current residents who no longer qualified for their housing units under the new maximum limits would have had to seek alternative housing when current vouchers expired or when an apartment changes was necessary.

HUD uses median family incomes as part of its formula to calculate income limits. In 2002, HUD raised income limits in many areas, and some of the changes involved were substantial. For example, in 77 counties, the 4-person very-low income limit (based roughly on 50% of the median) increased by more than $5,000 between 2002 and 2003. Table 1 shows all counties where it increased by at least $7,500.  The most extreme case was West Feliciana Parish in Louisiana, where the 4-person very-low income limit jumped from $15,800 to $29,100. 

Unfortunately, from the standpoint of developers looking for major new opportunities to build under government housing programs, most of the really large increases occurred in really small market areas. Middlesex County in Connecticut is by far the most heavily populated county in Table 1, with a total population of 155,000 in 2000. Crawford County, Missouri, is a distant second at 22,000.

Most of the increases shown in Table 1 occurred simply because HUD corrected errors that had accumulated in the income estimates over the period of a decade. In Crawford County, however, the income limits rose primarily because the county was added to the St. Louis metro area. With a few exceptions, estimates of median family income and income limits are the same for all counties within a metropolitan area, under the working assumption that metro areas as defined by the U.S. Office of Management and Budget (OMB) correspond to natural housing markets. 

An income limit is not always a strict fraction of estimated median family income in an area. To compute the very low income limit, for instance, HUD only begins with 50 percent of the area median,  then applies various caps and filters. One of the most powerful of these is a floor, based on incomes in the non-metro counties of a state, which raises income limits substantially in a large number of rural counties
 
Another thing HUD usually has done in order to minimize disruptions in housing programs is to hold income limits at the previous year’s level when some detail in the calculation formula, or a change in estimated median income, would otherwise dictate that they be reduced. Traditionally, however, HUD has departed from this practice and permitted income limits to fall when benchmarking them to a new decennial Census.

Had HUD done that in 2003, when benchmarking to the 2000 Census for the first time, income limits would have fallen in 116 metropolitan areas and 352 non-metropolitan counties. In a number of cases, the estimate of median family income fell dramatically. The 24 counties where it fell by at least $10,000 are shown in Table 2.

Table 2

The most extreme case is Barnwell County, where estimated median family income dropped by more that $22,000. Unlike Table 1, it’s not hard to find heavily populated areas in Table 2. The table includes counties in the New York metropolitan area, where the income estimate fell by $10,900. Some other large metro areas showed fairly big reductions in median family income, but fell somewhat short of the $10,000 threshold needed to qualify for Table 2. In both Washington DC and Chicago, for instance, the estimated median family income fell by $6,700.

Fortunately, HUD made the decision not to let any income limits fall in 2003, correctly fearing the disrupting effect this would have on housing programs in the affected areas. Had they not done so, many current renters suddenly would have become ineligible for the programs, and the rents property owners could charge would fall.

Prospects for 2004

All of the potential dangers, however, have not yet been confronted. This month, OMB used 2000 Census data to redefine metro areas. At least some of the definitions are likely to change substantially (as, among other things, the commuting threshold for including a particular county in a metro area is being raised). When the underlying geography changes, the potential for changes in housing program parameters such as income limits is large. It’s impossible to predict what will occur with any precision, but Figure 1 shows in which direction income limits would move under various changes in metro area definitions.

As the figure shows, the impacts on income limits can be quite complex, and the movement may be upward as well as downward. The most obviously troublesome case is where the more stringent commuting threshold might detach a relatively low-income county from the periphery of a metro area.  Consider, for example, Spalding County in the Atlanta metro area (Figure 2).

This is only a hypothetical example — there is no evidence to suggest that OMB will divide the present Atlanta metro area this way. In fact, the first commuting pattern files available from the 2000 Census indicate a substantial connection between Spalding and other Atlanta-area counties. Were such a split to occur, however, estimated area median family income in the separated county would fall dramatically. Were income limits allowed to fall proportionately, rental properties operating under housing programs, as well as plans to build such properties in the detached county, would clearly suffer.

NAHB will continue to work with HUD in order to minimize any disruption in housing programs that could be caused by changes in metro area definitions or income estimates. NAHB also will continue to monitor developments and inform readers of relevant details in future installments of Multifamily Market Outlook.

The Complete List of Counties

For anyone interested in seeing how income limits changed between 2002 and 2003 in an area not covered by Tables 1 and 2, NAHB has compiled the information for all U.S. counties (and county equivalents). The data are organized three different ways: 1) largest-to-smallest increases in income limits, so counties with greatest increase in potential development opportunities appear at the top of the list; 2) counties listed from largest-to-smallest increase within each state, so developers can look for potential opportunities on a state-by-state basis; 3) counties listed within each state in alphabetical order, so someone interested in a particular county can locate it easily by name.  Any reader interested in this information can obtain the complete spreadsheet by e-mailing multifamily@nahb.com  with a request.

Anyone interested in the details of how HUD computes the income limits can locate this information on the Internet at http://www.huduser.org/intercept.asp?loc=/Datasets/IL/FMR03/BRIEFING-MATERIAL-3-1-03.pdf.

  [ return to top ]