Median Incomes and Rent Growth Here We Go Again Bud Clarke, MAI Director, MMA Investment Valuation April 7, 2009
The Basics • HUD Median Family Incomes (MFI) estimated once a year and published in early March. • Section 42 LIHTC program uses HUD MFI and very low income limits to calculate maximum rents. • Very Low Income Limits (VLI) = 50% MFI • HH size adjustments • AMI % adjustments • Impacted Markets • Multifamily Tax Subsidy Projects (MTSPs) • Impacted Market “HERA Special” income limits 2
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 Background • The methodology behind HUD’s MFI’s and income limits was not designed for use by the Sec. 42 LIHTC program 1. High Housing Cost (FMR Exception) Rule 2. Low Housing Cost Exception Rule 3. State Median Exception Rule 4. Hold Harmless Rule 3
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 1.Hold Harmless Rule Issue : The impact of declining AMIs could result in no rent growth at LIHTC properties for several years • Increases in max LIHTC rents are tied to changes in HUD AMIs • In 2007, 70% of metro area’s AMI declined • Good News - Income limits Held Harmless • Rents did not decrease • Bad News – AMI deficits resulted in no rent growth • Pressure on cash flow and operations 4
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 5
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 1.Hold Harmless Rule Cause : HUD over estimating incomes and subsequently correcting them 1.2000 Census Data released in 2003 2.Change in geographies - 2006 3.Change in methodology - 2007 Industry was granted regulatory relief as part of the Housing and Economic Recovery Act of 2008 6
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 1.Hold Harmless Rule Old Rule : •If median incomes decreased, Very Low Income limits and max rents did not decrease. Problem with Old Rule: •Prolonged periods with no increase in maximum LIHTC rents, e.g., no rent growth. 7
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 1.Hold Harmless Rule New Rule: • Impacted Market - Any market where AMI in 2007, or 2008, was lower than the previous year. •New Properties •Max rents based on 2009 HUD published VLIs •Existing Properties = Impacted Properties •Max rents based on “HERA Special” VLIs • Benefits: •VLIs recognize % increase in MFI despite existing deficits. •LIHTC properties, both new and existing, will no longer be subject to prolonged periods of no rent growth. 8
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 9
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 Step 1: Identifying Impacted Markets – Chicago, IL MFI 2006 - $72,400 MFI 2007 - $69,800 Impacted Market – AMI in 2007 or 2008 lower than in previous year. MFI 2008 - $71,600 MFI 2009 - $74,900 Step 2: Calculate VLIs for HERA Impacted Properties (HERA Special Income Limits) *max(09-VLI or 08-VLI x (2009 MFI / 2008 MFI) http://www.huduser.org/datasets/il/il2009/select_Geography_mtsp.odb 10
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 Hold Harmless HERA Special Existing Property New Property 4PVLI 4PVLI Max Rents Max Rents I P 2006 - $37,700 $1,018 m r 2007 - $37,700 $1,018 p o Impacted Market a p 2008 - $37,700 $1,018 c e t r $39,450 $1,018 2009 - $37,700 $1,065 e t d i $40,550 2010 - $38,500 $1,095 $1,039 e s $1,039 2011 - $38,500 $40,550 $1,095 max(09-VLI or 08-VLI x (2009 MFI / 2008 MFI) ($37,700 x ($74,900 / $71,600 or 1.0461))= $39,450 rd. *$37,700 is 2009 HH 4pVLI originally published in 2002 when MFI was $75,400 11
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 1.Hold Harmless Rule New Issues : Not a Silver Bullet 1. Marketability in Impacted Markets • Older properties (impacted properties) may have higher rents than newer properties (impacted markets). • Market advantage and demand • Older properties will have higher qualifying income levels 2. Administrative Issues and compliance 3. HUD’s actions in 2010 may complicate matters further 12
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 2.Rural Projects Old Rule : •Use greater of area or state non-metro median income New Rule : •Use greater of area, state non-metro median income, or national non-metro median income for 9% properties Benefit : •More demand – higher qualifying maximum income level •Higher maximum rent levels •Immediate implementation 13
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 2.Rural Projects New Issues : •Does new rule apply to all rural areas? Solution : •USDA to clarify definition of Rural Area http://eligibility.sc.egov.usda.gov/eligibility/welcomeAction.do?pageAction=sfp&NavKey=property@12 •2009 National non-metro median income = $51,300 •60% 4PVLI max qualifying income = $25,650 •60% 2BR max LIHTC rent = $693 less utility allowances 14
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 3.Military Housing Allowances Old Rule : • Military Housing Allowances are included in qualifying income calculations Problem with Old Rule: • Difficult qualifying military for LIHTC housing 15
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 New Rule : 3.Military Housing Allowances • LIHTC properties are no longer required to include housing allowances in qualifying income calculations….. • U.S. Air force Base Colorado • Fort Shafter Hawaii • Fort Riley Kansas • Annapolis Naval Station and Academy Maryland • Fort Jackson South Carolina • Fort Bliss Texas • Fort Hood Texas • Dam Neck Training Center Atlantic Virginia • Naval Station Bremerton Washington • Fort Drum New York (Applies to host county and adjacent counties) 16
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 TAKE AWAYS 1. Identify Impacted Markets and two tier rent structure. Market Variance • San Jose-Sunnyvale-Santa Clara County HUD Metro FMR Area - $69 • Durham, NC HUD Metro FMR Area - $53 • Chicago-Naperville-Joliet Metro HUD FMR Area - $47 • Macon, GA MSA - $42 • Memphis, TN-MS-AR HUD Metro FMR Area - $42 • San Francisco, CA HUD Metro FMR Area - $41 • Savannah, GA MSA - $41 • New York, NY HUD Metro FMR Area - $32 • Atlanta-Sandy Springs-Marietta, GA HUD Metro FMR Area - $28 • Austin-Round Rock, TX MSA - $28 • Dallas, TX HUD Metro FMR Area $24 • Columbia, SC HUD Metro FMA Area $20 17
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 18
Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008 TAKE AWAYS - Continued 2. Identify rural markets and understand: • Increases in maximum qualifying incomes • Increased rents if market will bear them 3. Identify properties in counties, and adjacent counties where military bases are located and: • Understand increased demand due to basic housing allowance no longer being included as part of income for all military personnel. 19
Median Incomes and Rent Growth Here We Go Again Bud Clarke, MAI Director, MMA Investment Valuation April 7, 2009
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