The United States began its official foray into public housing in the 1930s. The National Housing Act of 1934 established the Federal Housing Administration (FHA) and authorized its Administrator to federally insure a multitude of financing institutions including banks and mortgage companies. The original purpose of the FHA was to facilitate the funding of “alterations, repairs, and improvements” to real property by various financial institutions. Over time, the Federal government’s role expanded, and the United States Housing Act of 1937 established the first rental subsidies, complete with residential income limits. Income limits are used to determine a family’s eligibility for a variety of programs, including Section 8 homes and privately held housing units that were built with state or federal tax credits.
The 1937 legislation defined “low-income” as a family “whose income does not exceed 80 per centum of the median income.” In addition, “very low-income” was defined as income that is below 50 percent of the area median income (AMI) or Median Family Income (MFI). When the Department of Housing and Urban Development (HUD) was established in the 1960s, it continued using these standards. By law, HUD is required to set, and re-evaluate, income eligibility thresholds for all of its housing programs annually. As a result, HUD releases income limits to the public each year for its various programs. It most recently released updated income limits for Section 8 housing assistance.
HUDs income limits are based on an the Median Family Income (MFI), which is calculated – according to HUD – “for each metropolitan area, parts of some metropolitan areas, and each non-metropolitan county.” In other words, HUD calculates the median income in pre-determined regions, which are generally based on population. So rural regions tend to include larger geographic areas because populations are more sparse. Income data is collected from the region and an average is calculated. That average is used to determine who falls into the low- and very low-income categories. The Fair Market Rent (FMR) for each area is calculated as well.
This year, HUD updated its methodology and is no longer using year-2000 Census data for its calculations. Instead, it now uses the Bureau of the Census’ American Community Survey, which is conducted annually. Though some 2010 Census Data is available, not all of it has been made public. Even so, ten years is a long time, and though the data would be accurate now, populations and housing markets could change dramatically in the next ten years (or less). By using the American Community Survey, HUD has a more accurate count of an area’s population and income, increasing the accuracy of their MFI and subsequent calculations.
Because HUD calculates income limits by region, it is possible for families to qualify for affordable housing in one region, but not in another. These disparities take into account the cost of living and fair market rates for wages, both of which vary widely from one part of the country to another. For example, in Los Angeles County the low income limit for a family of four is $68,300, while in Clay County, Iowa its just $46,800.
In addition to determining eligibility for various programs, HUD’s income limits serve as an indicator of a region’s, and the nation’s, overall economic condition. If income limits suddenly decrease, it means wages in that region have dropped sharply, too. The opposite is, of course, true as well. Income limits also help regions determine how many families qualify for affordable housing, so they can work to meet their residents’ needs. Unfortunately, few communities are able to provide enough low-income housing, and hundreds – or even thousands – of families are placed on waiting lists until more units can be made available.