Earlier this month, the White House finalized new rules that impose a 10 percent cap on annual rent increases at federally subsidized affordable housing developments.
Crucially, the White House’s rent caps aren’t directly rent caps but rather caps on the incomes that make one eligible for affordable housing programs. In effect, this means that the Biden administration is holding rents down for some tenants by excluding others from affordable housing completely.
Understanding how this will work requires a little bit of explanation.
Federal affordable housing programs like the Low-Income Housing Tax Credit (LIHTC) give developers tax credits to build income-restricted housing that’s available only to low-income tenants making (typically) 60 percent of an area’s median income. Rents are then capped at 30 percent of that income eligibility limit.
Under the Biden administration’s rent cap plan, the income cut-off for a LIHTC unit (and other affordable housing programs) can only rise by 10 percent a year at most.
This is a de facto rent cap. If the income cut-off for LIHTC eligibility can only rise by 10 percent, the rents based on that income cap can likewise only rise by 10 percent.
That’s a benefit for many existing tenants at LIHTC properties and participants in other federal housing programs whose incomes are often comfortably below the eligibility cut-off.
But the White House’s plan does pose a problem for tenants whose incomes are closer to the eligibility cut-off and whose incomes might rise faster than that 10 percent cap. They could end up making too much money to qualify for affordable housing benefits, even if their income is still low enough to qualify them as low-income tenants that federal programs were intended to support.
This is a particular risk for people who receive disability benefits from the Department of Veterans Affairs (VA). Those payments factor in measures of inflation that federal affordable housing income limits do not. That means beneficiaries of VA programs can see their benefit payments rise above affordable housing income cut-offs.
Veterans’ advocates have long complained that the difference between the VA’s calculations of disability payments and the U.S. Department of Housing and Urban Development’s (HUD) adjustment of income limits is excluding many veterans from affordable housing.
Already, at least 8,000 veterans are excluded from affordable housing programs because of this incongruity, said the National Coalition for Homeless Veterans (NCHV) in a February comment letter, citing a VA analysis.
The incongruity “keeps homeless veterans who sacrificed the most in military service to our country out from units designed to served them,” reads the NCHV letter.
By further suppressing eligible incomes for affordable housing programs, the White House’s new policy will likely make this problem worse.
In a recent FAQ for the White House’s new policy, HUD said that the income eligibility cap “may impact a small number of potentially eligible households” but that a 10 percent cap is well above cost-of-living adjustments most people on fixed incomes receive.
The multifamily industry has also expressed concern that the White House’s new income eligibility caps, in addition to making it harder to finance new affordable developments, would also make it harder to rent out affordable units.
“This may make it more challenging to lease up affordable properties, as the pool of income-qualified tenants will be smaller,” wrote a coalition of industry representatives in a comment letter to the administration in January.
Originally published by Reason Foundation. Republished with permission.
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