Lloyd Boggio doesn’t mince words when he talks about the Department of Housing and Urban Development’s (HUD’s) decision to recalculate area median incomes (AMIs) in 2007 using a new methodology.

“It’s a killer,” said the former CEO of Carlisle Development Group, the biggest affordable housing developer in Florida and one of the largest in the nation. “It’s affecting us [in 2007], and the long-term prospects of it are devastating for the industry.” Boggio remains at Carlisle as a principal handling governmental and partnership relations.

HUD’s switch from using numbers extrapolated from the last Census to using data from the Census Bureau’s American Community Survey caused AMIs to plunge, and the move is affecting communities across the Southeast.

The change “is one of the most actively discussed issues” in the affordable housing industry, said Mark Shelburne, policy coordinator and legal counsel for the North Carolina Housing Finance Agency.

In Birmingham, Ala., the AMI fell 3 percent in 2007 from a year earlier. In Charlotte, N.C., it tumbled 7 percent. In Miami-Dade County, Fla., the AMI plummeted more than 19 percent, to $45,200 from $55,900.

“Florida is one of the hardest-hit states,” said Boggio. “Every market in Florida is affected by this.” The move hurts owners of affordable housing properties because it prevents many of them from raising rents, in turn squeezing profits and undermining the long-term viability of the developments.

Although HUD did explicitly say it would freeze its income limits at 2006 levels in areas where the AMI declined in 2007, that’s cold comfort to developers and owners of affordable housing. Why? Utility costs are exploding, pushing rents down even with the HUD freeze on income limits.

The relationship between utility costs and rents is mandated by HUD. Here’s how it works: Rents at affected properties are set by a formula that starts with a maximum allowable household expenditure on housing.

Landlords can’t charge more than this amount, which is set by HUD. Although without a waiver they can’t charge tenants directly for utility costs, they must take those costs into consideration when setting rents.

That means landlords must come up with an estimated amount that each household would be spending on utilities in a given month, and then subtract that from the HUD cap on housing costs for the household. The resulting figure is the maximum amount the landlord is allowed to charge in rent.

So if income limits are static and utility costs rise, rents have to shrink.

“The industry can’t afford to have three or four years of skyrocketing expenses and no rent increases,” said Boggio.

The National Association of Home Builders (NAHB) calculated that in some of the most extreme cases, the AMI change would keep income limits flat—effectively freezing rents, or pushing them down as utility costs rise—for as long as a decade.

“It is definitely a Catch-22,” said Steve Lawson, an affordable housing developer from Newport News, Va., and chairman of NAHB’s Housing Credit Group, in a prepared statement. “The very income restrictions meant to ensure that these properties are available to serve people in need of affordable housing are actually threatening the longterm sustainability of many of these projects.”

The new calculation method is “devastating to existing properties; it puts existing properties into operating deficits, and it absolutely destroys the underwriting of new developments,” Boggio said. “It’s very hard to get new developments financed if you’re going to assume no rent increases and continuing operating expense increases.”

The consequences could be dire for the low-income housing tax credit industry, he said. “It’s literally an issue which could shut the industry down within the next couple of years if there is no fix.”