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How are LIHTC Rents determined?

Household income limitations are determined based on the area's median gross income (AMGI) as determined by HUD.  Each year, HUD adjusts the area's median household income based on a variety of factors such as the area economy and household growth.  Income restrictions are determined on a Metropolitan Statistical Area (MSA) or county level, and are determined for a household of 4 people.  Let's use the Columbus, Ohio MSA as an example to determine who can live in a project at the 60% income level.

To get to the 60% level, we must start with the HUD-determined Very Low Income (50%) number for the area. Because HUD sometimes adjusts eligible incomes based on area incomes and their relation to area housing costs, it is not always accurate to work backwards from the AMGI.

HUD VLI  for a household of 4:

$25,300
Multiply *1.2 to adjust to 60% *1.2
Maximum income for 4-person household at 60% of AMGI $30,360
AMGI $50,600

This figure is adjusted for household size as follows:

Household Size Adjustment Columbus Maximum
One-person household 70% (*0.7) $21,252
Two-person household 80% (*0.8) $24,288
Three-person household 90% (*0.9) $27,324
Four-person household 100% (no adjustment) $30,360
Five-person household 108% (*1.08) $32,789
Six-person household 116% (*1.16) $35,218

Maximum rents are based on tenants at maximum income paying no more than 30% of their income for housing. Maximum rents for unit type are set by the expected occupancy, regardless of the number of people who actually live in the unit.  The following table illustrates:

Unit Type Expected Occupancy Maximum Income Maximum Rent
(Income/12)*.3
Studio 1.0 person $21,252 $531
One-Bedroom 1.5 persons $22,770 $569
Two-Bedroom 3.0 persons $27,354 $683
Three-Bedroom 4.5 persons $31,574 $789
Four-Bedroom 6.0 persons $35,218  $880

It is important to note that adjusting the maximum incomes to expected occupancy totals requires additional calculation.  To determine the maximum income for a one-bedroom unit with an expected occupancy of 1.5 persons (as in the chart above), one can either multiply the unadjusted four-person rate by 75% (*0.75) or add the one-person and two-person incomes and then divide by two to get the average.  Likewise, to calculate the 4.5 person limit, one can either multiply the four-person limit by 104% (*1.04) or take the average of the four- and five-person totals.

A household may live in an LIHTC unit if the household income is no greater than the maximum allowed for that size household.  If a two-person household making the maximum for Columbus ($24,288) wished to live in a three-bedroom unit set at the maximum allowable rent ($789), it is allowable under program guidelines.  Ultimately, it would be up to the property's management to determine whether they wish to accept a household paying 39.0% of their income for rent.  However, given the program's guidelines, all households making less than the maximum for their household size will pay greater than 30% of their income for rent if rent is set at the maximum allowable. We surveyed several communities in the Midwest in 1993 to determine the percentage of rent paid by LIHTC renters.  In our sample survey, 10.9% of all renters were paying over 50% of income toward rent, and 40.3% were paying over 40% of income toward rent.  We have heard of other surveys that have found up to 25% of all LIHTC renters paying over 50% of income toward rent.

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