[PPT] - Median Incomes and Rent Growth Here We Go Again Bud Clarke, MAI PowerPoint Presentation

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Median Incomes and Rent Growth Here We Go Again

Bud Clarke, MAI Director, MMA Investment Valuation

April 7, 2009

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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

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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

Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

Background

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Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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

1.Hold Harmless Rule

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Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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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

Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

1.Hold Harmless Rule

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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. 1.Hold Harmless Rule

Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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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. 1.Hold Harmless Rule

Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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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 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

Impacted Market – AMI in 2007 or 2008 lower than in previous year.

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2009 - $37,700 New Property Max Rents Hold Harmless HERA Special 4PVLI 4PVLI Existing Property Max Rents $39,450 $1,065 $1,018

Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

max(09-VLI or 08-VLI x (2009 MFI / 2008 MFI) $40,550 $1,039 $1,095 2006 - $37,700 2007 - $37,700 2008 - $37,700 $1,018 $1,018

I m p a c t e d

2011 - $38,500 $40,550 $1,095 $1,039

Impacted Market

$1,018

*$37,700 is 2009 HH 4pVLI originally published in 2002 when MFI was $75,400

P r

p

e r t i e s

($37,700 x ($74,900 / $71,600 or 1.0461))= $39,450 rd. 2010 - $38,500

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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

1.Hold Harmless Rule

Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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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

2.Rural Projects

Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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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

2.Rural Projects

Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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Old Rule:

Military Housing Allowances are included in qualifying

income calculations Problem with Old Rule:

Difficult qualifying military for LIHTC housing

3.Military Housing Allowances

Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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New Rule:

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)

3.Military Housing Allowances

Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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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

Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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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.

Median Incomes and Rent Growth Housing and Economic Recovery Act of 2008

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