Area Median Family Income (AMI) is a critical benchmark used by the U.S. Department of Housing and Urban Development (HUD) to determine income eligibility for various housing assistance programs. This metric serves as the foundation for calculating income limits, which in turn dictate who qualifies for subsidized housing, low-income housing tax credits, and other forms of housing support. Understanding AMI is essential for developers, landlords, housing authorities, and anyone interested in affordable housing initiatives. This guide provides a comprehensive overview of area median family income, how it’s calculated, and its significance in the housing landscape.
What is Area Median Family Income (AMI)?
Often used interchangeably with HUD’s Median Family Income (MFI), Area Median Income (AMI) is a term widely recognized in the affordable housing sector. When used without qualification, AMI is synonymous with HUD’s MFI. However, it’s important to note that references to percentages of AMI or AMI adjusted for family size typically refer to HUD’s income limits, which are derived from the median income and adjusted for family size variations.
HUD annually estimates Median Family Income (MFI) for every metropolitan area and non-metropolitan county across the United States. These metropolitan area definitions, consistent with those used for Fair Market Rents (FMRs), are based on the Office of Management and Budget (OMB) standards, unless statutory requirements dictate otherwise. The core data source for HUD’s median family income calculations is the American Community Survey (ACS), specifically table B19113 – MEDIAN FAMILY INCOME IN THE PAST 12 MONTHS.
How HUD Calculates Median Family Income (MFI)
To determine the Fiscal Year (FY) 2024 median incomes, HUD primarily relies on 2022 Census Bureau American Community Survey (ACS) data. The process involves a statistical validity assessment of ACS median family income estimates. For an ACS estimate to be deemed statistically valid, it must meet two criteria: the margin of error must be less than half the estimate’s size, and it must be based on a minimum of 100 observations.
In areas where the 2022 one-year ACS data yields a statistically valid estimate, that data is utilized directly. If not, HUD turns to statistically valid 2022 five-year data. Should statistically valid five-year data also be unavailable, HUD employs an averaging method, using minimally statistically valid income estimates from the preceding three years of ACS data (2022, 2021, and 2020). Minimal statistical validity is defined as ACS estimates with a margin of error less than half the size of the estimate.
When averaging minimally statistically valid 5-year data, it’s adjusted to 2022 dollars using the national Consumer Price Index (CPI) change between the ACS data year and 2022. Finally, for all U.S. locations, including Puerto Rico, these estimates (whether from one-year or five-year data) are inflated from 2022 to Fiscal Year 2024 using the Consumer Price Index forecast provided by the Congressional Budget Office.
For a deeper understanding of ACS data utilization in HUD’s MFI calculations, refer to the FY 2024 Median Family Income methodology document available on the HUDUser website. Detailed documentation of all Median Family Income calculations can be found in the FY 2024 Median Family Income and the FY 2024 Income Limits Documentation System, also accessible through the HUDUser portal.
Income Limits and AMI
Income limits, derived from Area Median Family Income, are crucial for determining eligibility for numerous HUD programs, including Section 8 Housing Choice Vouchers, Low-Income Housing Tax Credit (LIHTC) properties, and other affordable housing initiatives. These limits are set as percentages of the AMI, such as very low-income limits (50% of AMI) and low-income limits (80% of AMI).
Several income limit categories are directly linked to AMI:
- Section 8 Income Limits: These are fundamental for the Section 8 Housing Choice Voucher program, ensuring assistance reaches low-income families.
- Section 221(d)(3) BMIR, Section 235, and Section 236 Income Limits: These limits apply to specific HUD programs aimed at providing affordable housing through different financing mechanisms.
- HUD 30% Income Limit for ALL Areas: This limit is used for programs like the Emergency Solutions Grant (ESG) and represents a very low-income threshold.
Income Limit Caps and Floors
To manage fluctuations in income limits, HUD implements annual caps and floors on changes. Since FY 2010, annual decreases in low- and very low-income limits have been capped at five percent. Conversely, annual increases are capped at the greater of five percent or twice the change in the national median family income.
For 2024 onwards, HUD has refined the methodology for the increase cap. It is now measured using the annual change in the unadjusted national median family income, with an absolute cap of 10 percent. This change was formalized in a Federal Register Notice on January 10, 2024. For FY 2024, the annual change is assessed from 2021 to 2022 ACS data. Twice this change was approximately 14.8 percent, thus the 10 percent absolute cap was applied for FY 2024 income limit increases.
These caps are designed to provide stability and prevent drastic year-over-year changes in income limits, protecting both tenants and property owners.
Adjustments and Exceptions to Income Limits
It’s important to note that income limits are not always a straightforward arithmetic calculation based solely on percentages of AMI. Several adjustments and exceptions are applied:
- High Housing Cost Adjustments: In areas with high housing costs relative to income, income limits may be adjusted upwards to reflect the local housing market.
- State Nonmetropolitan Income Limits: In low-income nonmetropolitan areas, state-level nonmetropolitan income limits may be applied if they are higher than the area’s calculated limits.
- National Maximums: Conversely, in high-income areas, national maximum income limits may be imposed to ensure limits do not exceed certain thresholds.
These exceptions are detailed in the FY 2024 Income Limits Methodology Document available on HUDUser. For specific adjustments in any given area, the FY 2024 Income Limits Documentation System provides comprehensive details once an area is selected.
Extremely Low-Income Limits
Extremely Low-Income (ELI) Limits, set at 30% of the median family income, were established to target assistance to households with the lowest incomes. Initially tied to Section 8 very low-income limits, ELI limits are further refined by legislation to ensure they do not fall below the poverty guidelines set by the Department of Health and Human Services.
Specifically, ELI limits are the greater of either the poverty guidelines or 30 percent income limits calculated by HUD. Notably, Puerto Rico and other territories are excluded from this poverty guideline adjustment. For the contiguous 48 states and Washington D.C., the same poverty guidelines are used, while Alaska and Hawaii have separate guidelines.
The calculation process begins by setting ELI limits at 30/50ths (60 percent) of the Section 8 very low-income limits. This value is then compared to the applicable poverty guideline. If the poverty guideline is higher, it becomes the ELI limit, capped at the very low-income limit.
Since FY 2023, HUD has set the ELI limit at the very low-income limit level for Puerto Rico to broaden eligibility for targeted assistance programs within HUD. This adjustment recognizes the unique economic challenges faced by Puerto Rico.
Area Definitions and Income Limits
Area definitions, primarily based on Office of Management and Budget (OMB) metropolitan area standards, play a crucial role in determining median incomes and income limits. HUD generally adheres to OMB definitions, which are updated based on Census commuting patterns.
How Area Definitions Impact Income Limits
Changes in area definitions can affect median incomes and subsequently income limits. In 2006, when OMB implemented significant area definition changes based on the 2000 Decennial Census, HUD made exceptions to mitigate drastic changes. These exceptions led to the creation of HUD Metro FMR Areas (HMFAs). HMFAs were established when new OMB area definitions caused Fair Market Rent (FMR) or MFI changes exceeding five percent.
While HMFA subareas persist, the five percent FMR or median income change test is no longer applied. Counties newly added to metropolitan areas become HMFAs, with rents and incomes based on their county data where available. The Area Definitions report on HUDUser provides a complete list of county dispositions.
Relationship Between Fair Market Rent (FMR) and Income Limit Areas
For the most part, FMR areas and Income Limit areas are identical. HUD aligns these areas because FMRs are necessary for calculating certain income limit adjustments, particularly high and low housing cost adjustments. This linkage is also rooted in statutory history. The primary exception is Rockland County, NY, where income limits are calculated separately by statute, but separate FMRs are not.
Understanding HMFA
HMFA stands for HUD Metro FMR Area. This designation signifies that only a portion of an OMB-defined Metropolitan Statistical Area (MSA) is included in the area to which income limits or FMRs are applied. HUD is required by OMB to modify the names of metropolitan geographic entities when their boundaries differ from those established by OMB.
Multifamily Tax Subsidy Projects (MTSPs) and LIHTC
Multifamily Tax Subsidy Projects (MTSPs), a HUD term encompassing Low-Income Housing Tax Credit (LIHTC) projects and tax-exempt bond-financed multifamily projects, have specific income limit considerations. These projects may be subject to income limits established by statute, necessitating a separate webpage for their publication. Developers and residents of MTSP properties should consult the HUDUser MTSP webpage to ascertain applicable income limits.
National Non-Metro Median for Rural LIHTC Rents
The Housing and Economic Recovery Act (HERA) Section 3004 mandates that residential rental properties in rural areas (defined by Section 520 of the Housing Act of 1949) use the greater of the area median gross income or the national non-metropolitan median income. The current year’s non-metropolitan median income and associated 50-percent income limits are available on the HUDUser website.
Calculating 60 Percent Income Limits for LIHTC
For the Low-Income Housing Tax Credit program, the FY 2024 Multifamily Tax Subsidy Project income limits on HUDUser should be consulted. To estimate 60 percent income limits, take 120 percent of the Very Low-Income Limit. Direct arithmetic calculations based on median family income percentages are discouraged due to numerous exceptions in income limit computations.
Deriving Maximum Rents for LIHTC Projects
For official maximum rental rate determinations for Low-Income Housing Tax Credit projects, consult the relevant state housing financing agency. A directory of these agencies is available on HUDUser. While the LIHTC program is administered by the U.S. Treasury Department, and HUD does not officially set maximum rents, HUD provides a table for informational purposes, outlining how maximum rents are derived from Very Low-Income Limits (VLILs).
This table illustrates how maximum monthly rents for both 50% and 60% MFI units are calculated based on VLILs for different household sizes, ensuring rents do not exceed 30% of the imputed income limitation (60% of median income) as per 26 U.S.C. Sec. 42(g)(2).
Other Important Questions
Is HUD Raising Rents on Low-Income Tenants?
No, HUD is not mandating or suggesting rent increases. The impact of changing income limits varies across programs. Many tenants in federally supported housing will not be directly affected as their rents are often tied to their incomes. For programs like LIHTC, while maximum allowed rents are based on HUD income limits, the federal government does not control individual landlord rent settings within these limits. Any rent increases by LIHTC landlords should be minimal, phased in, and only to the extent necessary for the property’s financial viability.
Why Don’t Income Limits Reflect Recent Economic Changes?
Income limits are calculated using the most recent available data, but there is an inherent data lag. For example, FY 2024 Income Limits are based on 2017-2021 5-year ACS data and 2021 one-year data where possible. This two-year lag means that the most current income trends may not be immediately reflected in the income limits.
Accessing FY 2024 Income Limits Documentation System
Difficulties accessing the FY 2024 Income Limits Documentation System via old bookmarks or web searches are often due to the system’s parameter-dependent nature. Always use the official FY 2024 Income Limits Documentation System link provided on the HUDUser website to ensure correct calculations and access.
Conclusion
Area Median Family Income is a cornerstone of affordable housing policy in the United States. It underpins income limits that determine eligibility for a wide array of housing assistance programs. Understanding how AMI is calculated, the nuances of income limits, and the various adjustments and exceptions is crucial for stakeholders across the housing spectrum. By providing clear and accessible information, HUD aims to ensure that these vital metrics are understood and correctly applied to support affordable housing initiatives nationwide. For the most detailed and up-to-date information, always refer to the official resources and documentation available on the HUDUser website.
