At a time when rents and house prices are rising, you may be wondering if the amount you pay monthly is still considered affordable.
But the term “affordable housing” is used in different ways depending on who is speaking and what topic is being discussed. We break down the definition of affordable housing and dive into the specifics of affordability and housing assistance.
The US Department of Housing and Urban Development defines affordable housing as housing where the occupant pays 30% or less of total gross housing income, including utilities.
The term “affordable housing” is also used colloquially as a general term for housing assistance for people on low incomes, including housing vouchers or housing for residents below a certain income for the region.
Although 30% of gross income can be considered the basis for determining whether housing is affordable, many households are forced to spend significantly more than this on their home and utilities, and they may or may not receive housing assistance. to cover high costs. Very low affordability is considered 60%, says Arica Young, associate director of the Terwilliger Center for Housing at the Bipartisan Policy Center, a Washington, DC-based think tank.
In some cases, affordability is even worse. “There are families who spend 80% of their income on housing. … It’s really shocking,” Young says.
For low-income households where housing affordability—as defined by 30%—is perpetually difficult to achieve, housing assistance from government or a nonprofit source can help reduce the income share. spent on rent or other housing costs.
“A lot of these very poor families won’t be able to afford anything at market price, and so it’s important that they get some sort of subsidy to cover that gap, and that’s where something like the voucher system,” Young said. said.
The most governmental housing assistance programs are at the state or local level and determine eligibility based on the median household income for the area. In Oregon, for example, a low-income household is one that earns no more than 80% of the region’s median income, based on the number of people in the household. A very low-income household would be 50% of the region’s median income and a very low-income household would be 30%, according to the state’s website. Where a household falls into the income brackets, this would determine the size of a housing voucher that may be available or other subsidized housing options.
Other details that can make it difficult to earn enough to cover market-priced housing may have separate housing assistance programs, such as disability or elderly status.
While HUD provides federal funding to states for housing assistance, programs vary widely from state, county to county, and city to city based on policies and initiatives. local. The Housing Act 1937 had a section 8 which referred directly to housing assistance, and although section 8 has been amended many times over the years and has evolved in its meaning, many people often use “Section 8” to refer to assisted housing or social housing. , regardless of technical accuracy.
Here’s a breakdown of some of the more common types of housing assistance you’re likely to encounter:
- Section 8 Housing Choice Voucher Program. This program is funded by the federal government through each state and is intended for very low-income families. This program provides vouchers to eligible households to help them pay their rent. Beneficiaries of the voucher can live wherever they wish.
- Section 8 Project-Based Rental Assistance. Also part of Section 8, the project-based rental assistance program is also federally funded. HUD contracts with rental property owners to manufacture some or all of the apartments for eligible low-income households, often in the very to extremely low income brackets. Participating owners can be private for-profit entities or non-profit organizations.
- Social housing. Social housing is housing that is owned by a government entity. In many cases, social housing is federally funded, but the city or county in which the property is located owns and manages the property, including verifying and accepting eligible applicants.
- Mortgage assistance or down payment. Government entities, from the federal government down to an individual city, offer programs that can help income-eligible families access homeownership through down payment assistance or mortgage payment assistance. Depending on the program, this may take the form of a specific mortgage loan, a subsidy to the individual or a program separate from the mortgage loan of their choice.
- Help with public services. Low-income households may be eligible for utility bill assistance through their local or state government or directly through the utility company. This type of assistance can take the form of a regular grant or a one-time lump sum payment covering several months.
- Privately funded housing assistance. Whether it is a housing voucher, a specific property or down payment assistance, there are also private entities that also finance low-income families. Often, these housing options are run by a nonprofit or religious organization that operates through private donations. If they receive no government funding, income eligibility may be different from eligibility for housing assistance from your local government.
Multiple factors contribute to the rising cost of housing, making it unaffordable for a growing number of people across the United States: Young cites labor costs, cost of building materials and limitations around land use slow the creation of new housing relative to the creation of new households. With more people in need of housing than are available, costs rise.
Land use and restrictions or impediments are proving to be a problem for developers across the United States, as property density limits could prevent the construction of an apartment building to house many people, as opposed to one or two single family homes. In other cases, a city may require a minimum number of parking spaces per dwelling. Young points out that requiring a minimum number of parking spaces — even in a city where fewer residents can choose to own a car — can add tens of thousands of dollars per unit to the total cost of the project.
Economic uncertainty may further lead to a slowdown in housing construction, as developers fear they may be able to make a profit once the project is completed.
Beyond the difficulties in increasing the housing stock, which contribute to the rise in rents and house prices, the rise in interest rates contributes to the increase in monthly costs. The average mortgage interest rate for a 30-year fixed-rate mortgage as of Sept. 8 was 5.89%, according to Freddie Mac, the highest average rate since 2008.
“The key issue is that the affordability index has really jumped quite high. It’s not a cheap investment, today’s market, compared to two or three years ago, when rates interest rates and housing prices were lower,” says Clark Kendall, president and CEO of Kendall Capital, a wealth management firm in Rockville, Maryland.
Due to high house prices and rising rates, more and more people are choosing to continue renting because they cannot afford to buy in today’s market, which continues to contribute to the strong demand for rentals and rising rents.
There is less homebuyer activity due to high home prices and interest rate, which slowed the rate of increase in market values. Expect this slowdown to continue until there is a better balance of affordability, which would be caused by household incomes and wealth catching up with house prices and mortgage rates. ‘interest.
A larger housing inventory would help offset the existing imbalance between supply and demand in the market, and experts see supply as a must to help with housing affordability. In order to build more homes — whether single-family homes, apartment buildings, or anything in between — Young says local policy must be reformed to reduce the time and money needed to the construction of residential housing.
“So everything from building codes, permits, land use regulations,” says Young. “We’re not saying get rid of everything that protects us, but there are certain things like zoning regulations that are more about creating small segmented land uses, and we’re one of the only countries putting in place land for one purpose”.