Low-Income Housing Tax CreditLIHTC
A federal program that awards income tax credits to developers of rent-restricted housing, which they sell to investors to raise equity and lower the rent the project must charge.
Glossary
Area median incomeAMI
The household income at the midpoint of a metropolitan area or county, used as the benchmark for setting income limits and rents in affordable housing programs.
Area median income is the income level at which half of a region's households earn more and half earn less, adjusted for household size and published each year by the federal housing agency for every metropolitan area and non-metropolitan county. It is the yardstick that nearly every affordable housing program uses. A unit is described as affordable at 60% of AMI, for example, if a household earning 60% of the area median could rent it while spending no more than a set share of its income, usually 30%, on rent and utilities.
Affordable rent from AMI
Income limit = AMI × program percentage, adjusted for household size
Maximum rent = income limit × 30% ÷ 12Assume an area median income of $90,000 for a family of four and a program set at 60% of AMI. The income limit is $54,000 and the maximum monthly rent, including a utility allowance, is $54,000 × 30% ÷ 12 = $1,350.
AMI-based rents are the reason subsidized housing needs subsidy. In our illustrative building, a market unit needs about $2,154 per month to cover its cost. A unit restricted to the $1,350 rent in the example above produces about $804 less per month, or $9,648 a year, and that gap must be filled by tax credit equity, a tax abatement, soft loans, or higher rents on other units under inclusionary zoning. The building does not cost less to build because its rents are capped.
AMI has well-known quirks. Because it is computed for a whole metropolitan region, it can be far above the incomes in a particular neighborhood, so that units affordable at 80% of AMI are not affordable to many people who live nearby. And because it moves each year with regional incomes, restricted rents can rise even as a particular household's income does not. These are consequences of the benchmark, not of any single program, and they are worth understanding before reading any claim about how many affordable units a policy produced. We explain the programs that use it in Affordable Housing.