Effective April 1, 2024.
Navigating the landscape of affordable housing often involves understanding complex terms and calculations. One crucial element is Family Income Average, which plays a significant role in determining eligibility for various housing assistance programs. This article aims to clarify how the U.S. Department of Housing and Urban Development (HUD) utilizes family income average, specifically Median Family Income (MFI), to establish income limits for 2024. We will delve into the methodologies, definitions, and implications of these income limits, providing a comprehensive guide for anyone seeking to understand this critical aspect of housing affordability.
Understanding Median Family Incomes
Q1. How does HUD calculate median family incomes to determine the family income average for an area?
HUD’s calculation of the Fiscal Year (FY) 2024 median incomes relies primarily on data from the 2022 Census Bureau American Community Survey (ACS). To ensure statistical reliability when determining the family income average, HUD rigorously evaluates ACS estimates of median family income. An ACS estimate is deemed statistically valid if its margin of error is less than half the estimate’s size and it is based on a minimum of 100 observations.
In regions where the 2022 one-year ACS data provides a statistically valid estimate of family income average, HUD utilizes that data directly. If this criterion isn’t met, HUD then turns to statistically valid 2022 five-year data. In instances where even five-year data lacks statistical validity, HUD employs a method of averaging minimally statistically valid income estimates from the preceding three years of ACS data (2020, 2021, and 2022). Minimal statistical validity is defined as ACS estimates where the margin of error is less than half the estimate itself. These minimally statistically valid 5-year data averages are then adjusted to 2022 dollar values using the national Consumer Price Index (CPI) changes between the data’s ACS year and 2022.
Finally, for all locations within the U.S., including Puerto Rico, these estimates—whether derived from one-year or five-year data—are inflated from 2022 to FY 2024. This inflation adjustment uses Consumer Price Index forecasts provided by the Congressional Budget Office.
For a more in-depth exploration of ACS data usage in HUD’s MFI calculations for family income average, please consult the FY 2024 Median Family Income methodology document, available at https://www.huduser.gov/portal/datasets/il.html#2024_data.
Comprehensive documentation of all calculations for Median Family Incomes is accessible through the FY 2024 Median Family Income and the FY 2024 Income Limits Documentation System, found at https://www.huduser.gov/portal/datasets/il.html#2024_query.
Q2. What distinguishes HUD’s Median Family Income (MFI) from Area Median Income (AMI) when discussing family income average?
HUD annually estimates Median Family Income (MFI) for each metropolitan area and non-metropolitan county to understand the family income average across different regions. These metropolitan area definitions align with those used by HUD for Fair Market Rents, except where statutory requirements dictate otherwise. Income Limits are then calculated by HUD as a function of an area’s MFI, reflecting the local family income average. HUD’s MFI calculations are grounded in data from the American Community Survey, specifically table B19113 – MEDIAN FAMILY INCOME IN THE PAST 12 MONTHS.
The term Area Median Income (AMI) is more commonly used in the affordable housing sector. In general discussions, AMI used without qualification is synonymous with HUD’s MFI, both representing the family income average for a given area. However, when AMI is qualified—typically as percentages of AMI or AMI adjusted for family size—it refers to HUD’s income limits. These income limits are derived as percentages of median incomes and are adjusted to accommodate families of varying sizes. Therefore, while both terms relate to family income average, AMI often encompasses a broader application including income limits.
Income Limits and Their Implications
Q3. What are the limitations on annual increases and decreases to income limits for FY 2024, and how does this affect the family income average thresholds?
Since FY 2010, HUD has implemented caps on annual changes to income limits. Decreases in low- and very low-income limits are capped at five percent, while annual increases are limited to the greater of five percent or twice the change in the national median family income, which influences the family income average benchmarks. For 2024 onwards, HUD has refined this methodology, specifying that the cap should be measured using the annual change in the unadjusted national median family income, subject to an absolute cap of 10 percent. This revised methodology was announced on January 10, 2024, in a Federal Register Notice. The annual change for 2024 is assessed using ACS data from 2021 to 2022. Twice this change approximates 14.8 percent, which exceeds the absolute cap of ten percent. Consequently, the income limits “cap” for FY 2024 is set at 10 percent, impacting how much income limits, derived from family income average, can increase year-over-year.
Q4. Is HUD increasing rents for low-income tenants due to changes in income limits and family income average calculations?
The impact of changing income limits, based on family income average, varies across different housing programs. Many tenants in Federally-supported housing will experience no direct impact because their rents are often directly linked to their incomes. However, programs like Low Income Housing Tax Credits (LIHTC) utilize HUD’s published income limits to determine maximum allowable rents. It’s important to note that the federal government does not dictate how individual LIHTC landlords set rents within these limits.
While HUD has not mandated or suggested rent increases, any owner-initiated rent adjustments should ideally be minimal, implemented gradually, and only to the extent necessary to maintain the property’s financial stability. The changes in income limits, reflecting shifts in family income average, provide a framework for affordability, but the actual rent adjustments are at the discretion of property owners within program guidelines.
Q5. Why might the income limits for a specific area not reflect recent economic changes or shifts in family income average?
Despite HUD’s efforts to utilize the most current data on local area incomes to determine family income average and set income limits, a time lag exists between data collection and its application. For instance, FY 2024 Income Limits are calculated using 2017-2021 5-year American Community Survey (ACS) data, and one-year 2021 data where available. This two-year lag means that more recent trends in median family income levels and therefore family income average are not immediately reflected in the current income limits. This inherent delay should be considered when assessing the responsiveness of income limits to real-time economic fluctuations.
Q6. Why doesn’t the very low-income limit always equate to 50% of the median family income, or the low-income limit to 80% of the median income, when considering family income average?
The arithmetic calculation of income limits, based on family income average, is subject to numerous exceptions. These deviations include adjustments for areas with high housing costs relative to income, the application of state nonmetropolitan income limits in lower-income areas, and national maximums in high-income areas. These exceptions are comprehensively detailed in the FY 2024 Income Limits Methodology Document, available at https://www.huduser.gov/portal/datasets/il.html#2024_data. It’s also important to note that Tables 1 and 2 of HUD documentation indicate that most nonmetropolitan area income limits are based on state nonmetropolitan area medians, further illustrating variations from simple percentage calculations of family income average.
For precise details on the adjustments applied to a specific area, the FY 2024 Income Limits Documentation System provides detailed information. Accessible at https://www.huduser.gov/portal/datasets/il.html#2024_query, this system displays a summary of an area’s median income, Very Low-Income, Extremely Low-Income, and Low-Income Limits upon area selection. Detailed calculation breakdowns are available via relevant links within the system.
Q7. Why is the Extremely Low-Income Limit sometimes identical to the Very Low-Income Limit, and how does this relate to family income average thresholds?
The Quality Housing and Work Responsibility Act of 1998 established a new income limit standard based on 30 percent of median family income, known as extremely low-income limits. These limits were intended to be adjusted for family size and for areas with unusually high or low family income average. A 1999 statutory clarification linked these limits to the Section 8 very low-income limits.
The Consolidated Appropriations Act, 2014, further refined these limits, defining extremely low family income limits to ensure they would not fall below the poverty guidelines set for each family size. Specifically, extremely low-income families are defined as very low-income families with incomes at or above the greater of the Poverty Guidelines (published by the Department of Health and Human Services) or the 30 percent income limits calculated by HUD. This adjustment excludes Puerto Rico and other territories, which have separate poverty guidelines (Alaska and Hawaii also have distinct guidelines; the contiguous 48 states and D.C. use the same guidelines).
The extremely low-income limits are initially calculated as 30/50ths (60 percent) of the Section 8 very low-income limits, which are based on family income average. They are then compared to the applicable poverty guideline. If the poverty guideline is higher, it becomes the extremely low-income limit. However, if the poverty guideline exceeds the very low-income limit for a given family size, the extremely low-income limit is capped at the very low-income limit.
Furthermore, starting in FY 2023, HUD opted to set the extremely low-income limit at the very low-income limit level for Puerto Rico. This decision aimed to increase the number of households eligible for targeted assistance within HUD programs that have targeting requirements based on the extremely low-income limit, recognizing the unique economic context and family income average in Puerto Rico.
Q8. Why might accessing the FY 2024 Income Limits Documentation System via older bookmarks or web search results lead to broken pages?
The Income Limits Documentation System dynamically calculates median family incomes and income limits, which are derived from family income average, for each area. This requires specific parameters to be correctly set for calculations to function properly. To ensure correct access, always use the dedicated FY 2024 Income Limits Documentation System link: https://www.huduser.gov/portal/datasets/il.html#2024_query. Using prior year bookmarks or generic search results may lead to incorrect parameters and thus broken pages, as the system is year-specific and area-dependent in its calculations of family income average and related limits.
Area Definitions and Their Impact on Income Limits
Q9. Why do area definitions for median incomes and income limits, which affect family income average calculations, change?
HUD generally adheres to the Office of Management and Budget (OMB) definitions of metropolitan areas, with some exceptions. In 2006, when OMB’s area definition changes based on the 2000 Decennial Census were implemented, HUD made exceptions for new OMB area definitions if Fair Market Rent (FMR) or MFI changes exceeded five percent. This led to the creation of exception subareas called HUD Metro FMR Areas (HMFA), which are still in use.
The FY 2024 MFIs and income limits are based on metropolitan area definitions defined by OMB using commuting relationships from the Census, updated through 2018. While HMFA subareas are maintained, the five percent FMR or median income test is no longer applied. Counties added to metropolitan areas become HMFAs with rents and incomes based on their own county data, where available. The Area Definitions report at https://www.huduser.gov/portal/datasets/il.html#2024_data provides the disposition of all counties, illustrating how geographic definitions, influencing family income average, are structured.
Q10. What is the relationship between Fair Market Rent areas and Income Limit areas in the context of family income average?
For the most part, Fair Market Rent (FMR) areas and Income Limit areas are identical. HUD uses FMR areas for income limit calculations because FMRs are necessary for determining certain income limit adjustments, particularly for high and low housing cost adjustments, which are related to family income average. The linkage between these area definitions is also rooted in statutory history. The primary exception to this similarity is Rockland County, NY. By statute, income limits are calculated for Rockland County, NY, but separate FMRs are not. This close alignment ensures consistency in how geographic areas are considered for both rent standards and income eligibility based on family income average.
Q11. What does the acronym “HMFA” stand for in HUD documentation concerning income limits and family income average?
HMFA stands for HUD Metro FMR Area. This term signifies that only a portion of the OMB-defined metropolitan statistical area (MSA) is included in the area to which income limits (or FMRs) apply. OMB requires HUD to modify the names of metropolitan geographic entities derived from MSAs when the geography differs from OMB’s established definitions. HMFAs are thus sub-metropolitan areas used by HUD for more precise application of income limits and rent standards, reflecting variations in family income average within larger metropolitan regions.
Multifamily Tax Subsidy Projects (MTSPs) and Income Limits
Q12. What is the national non-metro median income used to calculate the floor for rural LIHTC rents, and how does it relate to family income average in rural areas?
Section 3004 of the Housing and Economic Recovery Act (HERA) mandates that residential rental properties in rural areas (as defined in section 520 of the Housing Act of 1949) must use the maximum of the area median gross income or the national non-metropolitan median income. This provision ensures a minimum income level is considered, even if the local family income average is lower. The current year non-metropolitan median income and the 1-8 person 50-percent income limits based on this non-metropolitan median income are available in the table at https://www.huduser.gov/portal/datasets/il/il24/FY2024-National-Non-Met-Very-Low-Income-Limits.xlsx. This national non-metro median acts as a floor, especially relevant when local family income average is significantly below national rural averages.
Q13. What are Multifamily Tax Subsidy Projects (MTSPs) and how do they utilize family income average and income limits?
Multifamily Tax Subsidy Projects (MTSPs), a HUD term, encompass Low-Income Housing Tax Credit (LIHTC) projects under Section 42 of the Internal Revenue Code and multifamily projects funded by tax-exempt bonds under Section 142 (often also benefiting from LIHTC). These projects may have specific income limits set by statute, which HUD publishes separately. For tax credit developers or MTSP residents, the appropriate income limits are available at https://www.huduser.gov/portal/datasets/mtsp.html. MTSPs are crucial for affordable housing, and their income limits, derived from family income average, are essential for determining resident eligibility and rent affordability within these projects.
Q14. How are 60 percent income limits calculated, particularly for programs like the Low-Income Housing Tax Credit program, in relation to family income average?
For the Low-Income Housing Tax Credit (LIHTC) program, users should refer to the FY 2024 Multifamily Tax Subsidy Project income limits at https://www.huduser.gov/portal/datasets/mtsp.html. The calculation formula involves taking 120 percent of the Very Low-Income Limit. It’s crucial not to calculate income limit percentages based on a direct arithmetic relationship with the median family income, as numerous exceptions exist in computing income limits. These 60 percent limits, while related to family income average through the Very Low-Income Limit, are specifically structured for LIHTC and similar programs.
Q15. How are maximum rents for Low-Income Housing Tax Credit projects computed from the very low-income limits, and what’s their connection to family income average?
For official maximum rental rate determinations for Low-Income Housing Tax Credit (LIHTC) projects, it’s necessary to consult the state housing financing agency governing the specific tax credit project. A directory of state housing finance agencies is available at https://lihtc.huduser.gov/agency_list.htm. The LIHTC program is administered by the U.S. Treasury Department, and HUD does not have direct authority over setting maximum rental rates.
However, for informational purposes, HUD provides a table illustrating the derivation of maximum rents. The imputed income limitation (defined in 26 U.S.C. Sec. 42(g)(2)) is 60 percent of the median income. Rents cannot exceed 30 percent of this imputed income limitation under 26 U.S.C. Sec. 42(g)(2). Unit rents by bedroom count are derived from Very Low-Income Limits (VLILs) for different household sizes, as shown in the table below:
LIHTC Maximum Rent Derivation from HUD Very Low-Income Limits (VLILs)
| Unit Size | 0 Bedroom | 1 Bedroom | 2 Bedroom | 3 Bedroom | 4 Bedroom |
|---|---|---|---|---|---|
| 50% MFI Unit Maximum Monthly Rent is 1/12 of 30% of: | 1-Person VLIL | (1-Person VLIL + 2-Person VLIL)/2 | 3-Person VLIL | (4-Person VLIL + 5-Person VLIL)/2 | 6-Person VLIL |
| 60% MFI Unit Maximum Monthly Rent is 1/12 of 30% of: | 120% of 1-Person VLIL | 120% of [(1-Person VLIL + 2-Person VLIL)/2] | 120% of 3-Person VLIL | 120% of [(4-Person VLIL + 5-Person VLIL)/2] | 120% of 6-Person VLIL |
NOTE: Maximum rents for larger units are set by assuming an additional 1.5 persons per bedroom.
FY24 Income Limit Cap-on-Cap FAQs
What are Income Limits and how are they related to family income average?
Each year, HUD publishes annual income limits, which are primarily used to determine income eligibility for HUD housing assistance programs. These limits are based on data from the American Community Survey and other sources, reflecting the family income average in various regions. The income limit for federal affordable housing programs is the maximum income a household can earn to qualify for or be targeted for assistance. These limits are a critical tool in ensuring that housing assistance reaches those within specific family income average ranges.
What is new regarding the income limit methodology in 2024, particularly concerning the cap on increases related to family income average?
A significant methodological change for 2024 is a modification to the cap on how much income limits can increase annually in any Fair Market Rent (FMR) area (generally metropolitan areas and non-metropolitan counties). This cap directly impacts how income limits, derived from family income average, can fluctuate.
- Existing Cap: Since 2009, HUD has capped year-to-year income limit increases at the higher of five percent or twice the percentage change in the national median family income.
The history of annual caps on year-over-year increases since this policy’s inception is as follows:
| Year | Cap |
|---|---|
| FY 2010 | 5.00% |
| FY 2011 | 5.00% |
| FY 2012 | 5.00% |
| FY 2013 | 5.00% |
| FY 2014 | 5.00% |
| FY 2015 | 5.95% |
| FY 2016 | 5.00% |
| FY 2017 | 7.00% |
| FY 2018 | 11.47% |
| FY 2019 | 10.01% |
| FY 2020 | 7.95% |
| FY 2021 | 5.00% |
| FY 2022 | 11.89% |
| FY 2023 | 5.92% |
HUD, in consultation with the Treasury Department, which administers the LIHTC incentive, sought to refine the income limits methodology as it applies to this incentive and how it reflects changes in family income average.
Why is HUD implementing this “cap-on-cap” change for income limits and their reflection of family income average?
The “cap-on-cap” change is driven by three key reasons:
- Tenant Protection: Income limits influence rent settings in programs like HOME and LIHTC. This change aims to prevent single-year rent spikes exceeding 10 percent in affordable housing properties receiving federal benefits, thus protecting low-income households from substantial rent increases driven by potentially volatile income limit changes related to family income average.
- Statistical Error Mitigation: Data used for income limit determination in some FMR areas may have limited sample sizes, making them susceptible to statistical errors that could misrepresent actual changes in local median income and family income average. Limiting increases provides a buffer against reacting to potentially erroneous data spikes, allowing for smoother income estimate adjustments over time. True income increases are likely to be captured in subsequent years’ data, allowing income limits to “catch up” in periods of slower income growth.
- Stability and Certainty Enhancement: This methodological change aims to enhance stability and predictability in future maximum income limit increases, aiding affordable housing development planning and financial viability. Stakeholder feedback indicated that this certainty is crucial for project planning and financial forecasting, especially concerning the trends in family income average.
How many areas are affected by the 10 percent cap in 2024, in terms of income limits and family income average?
In FY 2024, the 10 percent cap on allowed income limit increases is applicable to 21 percent of FMR areas. This means that in a significant portion of the country, income limit increases, reflecting changes in family income average, are moderated by this new cap.
Does the “cap-on-cap” imply that owners of LIHTC properties will lack sufficient rent revenue for property maintenance, given the constraints on income limits and their relation to family income average?
No, the new “cap-on-cap” is not expected to compromise the ability of LIHTC owners to operate and maintain their properties.
Current Treasury rules do not mandate LIHTC owners to reduce rents when area incomes decline. Similarly, while they may raise rents when income limits increase, they are not obligated to do so. HUD acknowledges the rising operational costs for landlords, including labor, materials, and insurance. HUD’s Operating Cost Adjustment Factors account for these year-to-year cost changes. HUD estimates indicate that combined increases in labor, materials, and insurance costs in 2023 and 2024 did not exceed 10 percent in any state, even during the inflationary period of 2022.
Typically, LIHTC property owners do not project annual rent growth exceeding 10 percent in their financial models; underwriting criteria are generally more conservative, anticipating rent growth in the 2 to 3 percent range annually. While recognizing financial pressures on property owners due to rising development and operating costs, the 10 percent “cap on cap” appropriately balances these economic pressures with the need to mitigate statistical error and protect low-income residents from unsustainable rent increases linked to income limits and family income average.
Furthermore, in areas where income limit increases are capped, property owners can phase in rent increases over multiple years rather than implementing a large, single-year increase. It is anticipated that HUD’s income limits will “catch up” in subsequent years with slower income growth, allowing owners to adjust rents as needed to cover operational costs, while maintaining a stable approach to income limits and family income average considerations.
Does this change mean that developers of LIHTC properties will be discouraged from seeking credits or building housing, due to the cap on income limits and its impact on projected family income average?
No, the “cap-on-cap” is not expected to reduce the national supply of new LIHTC properties. HUD has maintained caps on income limits since 2009, and there has been no evidence suggesting these caps—even those below 10 percent—have curtailed national supply. The demand for LIHTC credits significantly exceeds the current supply, suggesting that the overall development of LIHTC properties will not be hampered by this cap on single-year rent increases in a limited number of areas, influenced by income limits and family income average.
Comments received by HUD in response to the methodology change notice indicated concerns from LIHTC developer advocates that new developments might be most affected, as developers could potentially build more units if higher rents were permissible.
However, HUD emphasizes that the cap on income limit increases is just one element in the financing and operation of LIHTC properties. Future income levels are often uncertain and may result in lower income limits than initially projected, irrespective of the cap. Financial underwriting for LIHTC projects typically assumes conservative annual rent growth rates (2-3 percent), well below the 10 percent cap.
Properties in areas with capped income limit increases have the option to phase in rent increases over several years, rather than implementing a large increase in a single year. The capped increase on income limits is designed to moderate exceptionally high rent growth in a limited number of areas, and likely only for a short period. A 10 percent cap is notably high compared to historical averages, suggesting that income limits using a 10% cap in one year are expected to “catch up” in subsequent years. For instance, over 65% of Income Limit areas capped in FY23 are projected to either catch up and become uncapped or receive the full 10% capped increase in FY24, exceeding their local Area Median Family Income (AMFI) increase.
This cap-on-cap is viewed as a reasonable constraint. Caps have been in place for fifteen years, often at levels significantly below 10 percent, yet national demand for credits has consistently surpassed supply. This policy change does not affect developers opting to build market-rate housing without LIHTC subsidies, and maintains a balance in considering family income average in affordable housing development.
Will the “cap on cap” result in individuals with incomes that are low but rising faster than income limits becoming ineligible for federal housing assistance, considering the dynamics of family income average?
This may affect a small segment of potentially eligible households. A significant portion of those needing housing assistance are on fixed incomes. Generally, a 10 percent cap on year-to-year income limit increases exceeds likely income growth for households on fixed incomes receiving Cost of Living Adjustments (COLA). The largest Social Security COLA adjustment in recent years was 8.7 percent in 2022; only in 1980 and 1981 did it surpass 10 percent. Therefore, while some individuals with slightly increasing incomes might be marginally impacted, the cap is structured to largely accommodate the income realities of the majority of those reliant on federal housing assistance and reflective of broader trends in family income average.
Note: 1. Prior to FY 2022, the change in national median family income relied on American Community Survey (ACS) year-to-year change adjusted by inflation. Beginning in FY 2022 and continuing, the year-to-year change only uses ACS change. 2. Since 2009, HUD has put a “floor” on the “cap” at 5%. Without that floor, the 5% cap in years with slower income growth would’ve been significantly lower. 3. In areas where the very low-income limit exceeds the statutory target of 50% of median family income because of adjustments we make to income limits such as the high housing cost adjustment and state non-metropolitan minimum, the year-to-year cap of 10 percent increase also applies. For FY 2024, over 90% of the country by population is in an area where the 4-person Very Low-Income Limit is equal to or exceeds 50% of area median family income (82% of all areas).
