Novogradac, a national accounting and professional services firm, has released its estimates of income limits on a national and state level. Using the 2019 American Community Survey (ACS) and the Congressional Budget Office’s (CBO) consumer price index (CPI) estimate, Novogradac developed an initial estimate of area median income and very-low-income for 2021 and 2022. While only estimates, these figures can assist the affordable housing industry with planning for the upcoming two years. What follows is a summary of the Novogradac estimates.
National Median Income
2021 incomes will be heavily impacted by COVID-19, and it is estimated that the national median income will increase by less than 1%. Based on this, affordable housing operators should expect minimal increases in HUD published income limits for 2021, translating to a limited ability to increase rents.
However, there is a much better outlook for 2022, and Novogradac estimates that the national median income will increase by more than 5.75%. For the period 2015 – 2019, the annual increase in the HUD National Median Income averaged 4.28%, so while 2021 is likely to be well below average, there is a good chance for a rebound in 2022.
While national data provides a look at the “big picture,” housing is market specific, so an examination of the trends at a state level is of much more use to individual housing operators.
State Median Income
Some states will go against the national trend and experience significant increases in 2021, but others will actually see decreases in income. Almost 25% of states will have a decrease in state median income in 2021, as compared to five states in 2020 and no states estimated for 2022. In fact, Novogradac estimates that all states will see income increases in 2022, with around 70% of states showing increases of more than 5%.
States that are likely to see a decrease in median income in 2021 are Arkansas, Iowa, Kentucky, Louisiana, Maine, Montana, Nebraska, New Mexico, Pennsylvania, Rhode Island, South Dakota (may drop by nearly 4%), and Wisconsin. All other states are likely to remain the same or see slight increases. However, there are some states are expected to buck the 2021 trend, including Washington D.C. (+7.87%), Oregon (+3.6%), and Vermont (+5.57%). Operators in the states with declining incomes will have to rely on the hold harmless provisions of the law to avoid rent and income reductions for LIHTC and tax-exempt bond properties. Keep in mind that some affordable housing programs are not held harmless from income reductions, and those without rental assistance (e.g., HOME) could face actual rent reductions.
HUD will cap the increases in income each year, and Novogradac estimates that the cap in 2021 will be 5% and 2022 will be 11.6%. This means that in 2021 if an area has a median income of greater than 5%, the HUD income increase will be capped at 5%.
Additional information on the Novogradac estimates can be obtained by checking out the article published by Thomas Stagg in the November 30, 2020, Novogradac Blog. Visit https://www.novoco.com/resource-centers/affordable-housing-tax-credits and click on “National Median Income Estimates for 2021 and 2022” under “Notes from Novogradac.”