Say what you like about purchasing power, but average dollar incomes mainly increase. Not so, currently, at the Department of Housing and Urban Development (HUD), where many area median income (AMI) estimates plunged in fiscal 2007.
Because HUD used American Community Survey data instead of extrapolating from the last census, many of its AMI estimates dropped from 2006 to 2007. Twenty-nine statewide estimates fell, and the District of Columbia’s AMI declined by $5,800.
A “hold harmless” policy freezes HUD’s AMI-derived income limits at no less than 2006 levels. Thus HUD-subsidized properties apparently won’t have to lower rents, and their tenants won’t suddenly be “over income.”
Unfortunately, protection against a decline in AMI isn’t “harmless” when a project’s underwriting presumes annual increases in rent and income. Economist Paul Emrath, an assistant vice president with the National Association of Home Builders (NAHB), calculated that more than half of the 3,141 U.S. counties will have rents effectively frozen for at least a year, and for 107 counties, those freezes will last four years or longer. To arrive at those figures, Emrath assumed 2 percent annual growth in all income measures and fair market rents.
HUD-set AMIs and income limits determine the rent and eligibility standards for several kinds of federal housing assistance, including Sec. 8; several kinds of supportive housing; and the lowincome housing tax credit (LIHTC). Plus, many local programs without federal funding also tie requirements to HUD AMIs, said David Sobel, a senior development specialist with the San Francisco Redevelopment Agency.
In Oregon, where the AMI fell in 33 of 36 counties, Oregon Housing and Community Services (OHCS) was surveying LIHTC property owners to learn how many were already charging their rent maximums.
Dawn Voelker, manager of OHCS’ asset performance section, said some market rents were below the federal rent caps for 60 percent of AMI, hence many units targeted to the 60 percent AMI level had room to raise rents. But she and spokesman Bob Gillespie said units targeted to those earning up to 30 percent and 40 percent might be at their limits already. OHCS is considering temporarily allowing some projects to accept tenants earning up to 60 percent of AMI in units targeted to those with maximum incomes at 30 percent or 40 percent of AMI—a loss for very low income tenants, he said.
Emrath said he had heard some LIHTC syndicators were having trouble with their portfolios because of the AMI problem, but that they preferred not to advertise it.
“Based on what we have been able to determine, this does not appear to be having a significant impact on our portfolio at this time, in part because many of our projects have rents set below maximum levels,” said Scott Hoekman, senior vice president and chief credit officer at Enterprise Community Investment, in a prepared statement. “However, we are looking at this in underwriting new deals and our asset managers are looking at this and we will continue to watch for an emerging trend.”
NAHB lobbyist Greg Brown said the group was advancing a proposal to let LIHTC projects index their ongoing rent increases to the consumer price index (CPI) instead of AMI. It wasn’t yet clear if NAHB would also seek to separate initial underwriting and rent-setting from AMI.
In San Francisco, Sobel said officials had considered replacing AMI with another standard such as CPI for local programs, but it would require “massive amendments to every document” in 20 to 30 years’ worth of agreements.
Brown, though, argued that for LIHTC projects, extra paperwork might be an acceptable price to protect the program.
Need to Know: Key Regulatory Developments
Some grant application deadlines:
- Sept. 10: Proposed changes and additions to federal banking regulators’ Q&A guidance on the Community Reinvestment Act.
- Sept. 17: Proposed rule to let housing authorities use either capital or operating funds for financing.
- Sept. 17: Internal Revenue Service (IRS) proposal to change low-income housing tax credits (LIHTCs) utility cost estimate methods (see News).
- Oct. 4: The proposed portion of several IRS rules on tax shelters that could affect LIHTCs.
Some upcoming comment deadlines:
- Ongoing: Department of Housing and Urban Development (HUD) Green Initiative offers of advantages in Mark-To-Market refinancing for rehabs using green building techniques.
- Aug. 29: HOPE VI Main Street grants.
- Sept. 6: U.S. Department of Agriculture Rural Community Development Initiative capacity building grants.
- Nov. 7: The main HOPE VI Revitalization Program grants for fiscal 2007.
Other regulatory news:
- Three long-anticipated rules appeared. HUD published Public and Indian Housing Notice 2007-15 on public housing agencies’ affiliated nonprofits, and it published revisions to Handbook 4350.3 on multifamily housing occupancy requirements. The IRS proposed a “qualified contracts” rule for Year 15 LIHTCs properties, with comments due Sept. 17 or Sept. 13, for the Oct. 15 hearing.