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Doing the math: When “affordable” housing isn't affordable
March 23, 2016

By Kirk Moorhead | From our occasional series, Deconstructing Housing 

In the affordable housing industry, we often talk about “30-percent,” “50-percent”, and 60-percent” units (of housing). Percent of what, you may well ask?

Policy makers often want to ensure the public’s resources go to the people most in need (some don’t; but that can be a different blog post).  Therefore, they set income and rent limits that are often defined in relationship to something called area median income (AMI).  Here’s some background:

First: A Census Bureau tool called the American Community Survey (ACS) collects household income information and other demographic data. The U.S. Department of Housing and Urban Development (HUD) uses the ACS data to determine AMI for a designated area. For example, in the Minneapolis-Saint Paul area, AMI would include not only the relatively low median income places like North Minneapolis, Saint Paul’s Frogtown, and Brooklyn Center (which I’ll revisit below), but also the relatively high medium incomes of places like Eden Prairie, Wayzata, and Minneapolis’ Linden Hills neighborhood.

Next: HUD’s baseline is a household of four. HUD assumes a larger family has more money than a smaller family. I can only imagine the thinking is a larger household is more likely to have more than one wage earner.

Then: HUD extrapolates that a household of 5 has more income (110 percent of AMI of that household of 4), a household of 3 has less income (90 of AMI of household of 4), a household of 2 has even less income (80 percent of AMI of that 4-person household), etc.

(As we know, it’s assumed that affordable housing is that which costs no more than 30 percent of one’s income. Does that imply that rent for a 2-bedroom 50 percent AMI apartment in Brooklyn Center will be affordable to an income-qualified single dad and his 12-year-old daughter?? Um, not necessarily. It is also assumed that a 2-bedroom apartment would house 1.5 people per bedroom – thus maximum rent for a two-bedroom apartment assumes a household of three.)

Back to our Brooklyn Center scenario: So in the Minneapolis–Saint Paul area, AMI for a family of four in 2016 is $86,600.  Half of AMI would then be $43,300. We’re talking about a 2-bedroom apartment, so we base the maximum rent as though it were to be for a family of 3 (remember, 1.5 people per bedroom), so .90 × $43,300 = $38,970 ÷ 12 months × .30 (30% of one’s income) = $974. The rent could be as high as $974.

Let’s put all this together: A developer builds an apartment building in Brooklyn Center with 2-bedroom, 50-percent units. The regulations say she can rent those apartments for $974 per month, as shown above. 

The most glaring pitfall with this methodology is median income for a family in Brooklyn Center is not really $86,600, but in reality is more like $52,000.  Half of $52,000 is $26,000. We’re not talking about a family of 4, but instead a single dad and his daughter, so a family of two. Using HUD’s own formula, let’s say dad and daughter bring in 80 percent of the income of a family of 4, or $20,800 (or exactly $10 per hour, for one wage earner working full time). 

To stick with the 30 percent affordability standard, dad and daughter could afford to pay just $520 ($20,800 ÷ 12 × .30 = $520) for an apartment that could charge up to $974, an apartment subsided with our tax dollars to ensure this fully employed dad and his daughter had an affordable place to live.  How is a $974 apartment affordable to a family that can only pay $520?  We have a disconnect. 

Kirk Moorhead
Kirk knows more than most people on the planet about affordable housing construction, costs and codes. He is Beacon's housing development project manager.