2018 Low Income Housing Outlook
What does 2018 have in store for the low-income housing market? Right now, we're looking at proposed budget cuts to almost every housing assistance program. If you're using any form of housing assistance, it's time to keep close track of the trends.
America is in the middle of a quiet housing crisis. The victims of this crisis are not homeless. They have a place to come home to, but the cost of that home sucks up so much of their income that they are unable to pay for other necessities. Harvard University's Joint Center for Housing Studies and Enterprise Community Partners Inc. report that 11.8 million American families spend more than half their monthly income on shelter, with that number increasing 30% over the last decade and expected to rise another 11% by 2025.
') Rising costs and stagnant incomes have contributed to the hardships faced by low-income families who have to sacrifice other needs just to stay in their homes.
The U.S. government has programs designed to alleviate this crisis, but in many cases they are underfunded and unable to serve more than a small fraction of the citizens who desperately need help. That situation could become worse under the current administration. Congress has yet to pass or even thoroughly discuss a budget, but the proposal emanating from the White House offers serious cuts to many programs.
Let's look at some of the programs that could be affected if these budget cuts happen.
Housing Choice Vouchers
The Housing Choice Voucher program, sometimes still called "Section 8", is the largest and best-known shelter assistance program in the United States. Beneficiaries pay 30% of their income toward rent, with the remainder paid to the property owner by the government agency that manages the household's voucher. Tenants are responsible for finding a rental home with a property owner who is willing to accept payment through vouchers. Local Public Housing Authorities (PHAs) administer the program. Many PHAs have long waiting lists for vouchers, and in some areas, voucher recipients may have difficulty finding suitable accommodation in units with owners that are willing to participate in the program.
To learn more about these Vouchers, see our Eligibility Guide
and Application Guide
Public housing projects are government-owned properties that offer subsidized affordable rent to low-income Americans, particularly the elderly, the disabled, and families with children. Some projects have earned a reputation for being run down and having high crime rates, but most are in acceptable condition, and surveys of tenant satisfaction show positive views. Qualified low-income individuals can apply to live in affordable rental apartment and house communities known as "scattered sites."
The amount of rent paid by the tenant, called the Total Tenant Payment (TTP), is the highest of the following:
10% of monthly income
30% of the adjusted monthly income (annual income minus deductions allowed by the regulations)
welfare rent (if applicable)
$25-$50 minimum rent set by a Housing Authority
Public Housing offers multiple benefits to residents, but demand far outstrips supply, waiting lists are long, and in some cases, units suffer from inadequate maintenance budgets.
For more information about Public Housing, including how to apply, see our article on Public Housing Programs
Low-Income Housing Tax Credit
The Low-Income Housing Tax Credit (LIHTC) scheme provides incentives to property developers and investors by allowing them to benefit from a tax cut in return for funding affordable communities with below-market rents. These communities can also contain market rate units, and some units may even have different rent amounts for different occupants depending on their incomes.
LIHTC properties are generally reserved for tenants who earn less than 60% of the Area Median Income (AMI) at the time they move in. This figure is adjusted for each additional household member (including children). However, some LIHTC property projects may include units that are set aside for families earning 50%, 40% or even 30% of the AMI, which is why you should always check with the specific LIHTC project before applying.
Most towns and cities have LIHTC programs, but waiting lists are extensive in many areas.
Having a low income does not mean you can never own a home. The Federal Housing Administration provides mortgage insurance for qualified buyers, which allows lenders to provide loans to people who would not otherwise qualify for financing. FHA loan terms vary with the borrower's credit score, but typically involve low down payments and very competitive interest rates. FHA loans have allowed millions of Americans to break the cycle of renting and build equity in a home, a key step toward improving their quality of life.
For more on FHA loans see our article
on the subject.
What Does The Future Hold For These Programs?
The political policies of the current administration could affect assistance programs in several ways, through both the new tax law and the proposed budget. It's important to note the difference. The tax code changes have been passed and signed into law, so the changes they will produce are relatively certain. The budget remains under debate, so all we have to work from is the administration's proposal, which is likely to face revisions as it works through Congress. Still, the proposed budget gives some idea of the changes sought by the administration and its allies in Congress.
The New Tax Law And Its Impact On LIHTC
The primary impact of the 2017 tax reform law will involve the Low-Income Housing Tax Credit program. The program will still exist, but the lower corporate tax rate makes the incentives it provides less attractive. Expert estimates indicate that the change may reduce the supply of new low-income units by approximately 235,000 units over the next ten years.
That effect will be spread out over an extended time, which will make it less noticeable, but the reduced supply of low-income housing at a time when wages are stagnant, and costs soaring will exacerbate the gap between demand for these units and the available supply.