What does it mean to say housing is “affordable”? Let’s begin at the beginning.
Philosophically
At the most basic level, housing is “affordable” if, after you pay for it, you still have enough left over to cover the rest of your basic expenses. Of course this is finicky to measure, because what constitutes “enough for basic expenses” can be a matter of opinion. Also, different households have different kinds of expenses (for example, medical expenses, larger families, or transportation costs based on location).
The 30 Percent Rule
Because the meaning of “enough” varies so much, we have established a proxy—we consider housing to be affordable to the people living there if that household spends no more than 30 percent of its income on it. This rule is not relevant at income extremes—the very rich could obviously spend more than 30 percent of their income on housing and still have plenty left over, while below a certain income threshold no housing expense will leave enough to meet basic necessities. However, though it is arbitrary and doesn’t always tell the whole story, for a fairly wide income band the 30 percent rule lines up decently well.
The rule explains whether a given home is affordable to a given household. But it still doesn’t tell us what is meant when someone says they are “building affordable housing” somewhere (or preserving it, or creating it in existing buildings). In that case, the first question to ask is “affordable to whom?” The next questions are “available to whom?”, “made affordable how?” and “affordable for how long?”
Affordable to Whom?
With no other qualifications, “affordable housing” in the United States typically refers to housing whose cost is affordable to households that make somewhere between 40 and 80 percent of the area median income.
Below 80 percent of AMI is how the U.S. Department of Housing and Urban Development officially defines “low income”—but be careful about making assumptions. Area median incomes are calculated at the metropolitan level, so for many areas they can be quite high. In those cases, “affordable housing” might be targeted to people who wouldn’t have considered themselves low income.
On the other hand, in some less affluent neighborhoods, official “affordable housing” might be too expensive for most of the people who already live there. And in metropolitan areas with lower housing costs overall, official “affordable housing” might not be much cheaper than market rate!
Common Categories of Affordable Housing
There are many, many kinds of affordable housing out there. Each is targeted at different income levels and works differently. Some of the most common include:
- Rental housing financed with the Low Income Housing Tax Credit (LIHTC)— This is typically a large apartment building targeted to those making between 40 and 60 percent of AMI. Rent for the affordable units is typically set to be affordable to the upper end of the targeted income range for that unit (the details get very complicated), and does not change based on the actual resident’s income. Therefore, lower-income residents might be paying much more than 30 percent of their income on rent. The affordability restrictions last for 30 years, unless a state requires longer.
- Public housing and Section 8 (including housing choice vouchers) — Under these programs, rent does change with the income of the tenant, who pays only 30 percent of their income on rent. While public housing is owned and operated by a local housing authority, under Section 8, the federal government, through those local housing authorities pays a private landlord the difference between the tenant’s portion and full rent. Eligibility for both programs is typically limited to a household income of under 50 percent of AMI, with a priority on households making under 30 percent of AMI, and there are far more people eligible than who receive assistance. These affordability protections apply as long as the recipient remains income-eligible.
- Affordable homeownership projects — These can be cooperatives, condos, single-family developments, or efforts to help lower income homebuyers purchase existing homes. They are often targeted to higher income levels, such as 80 to 100 percent of AMI, or even higher in high-cost regions. But some, especially limited-equity cooperatives, also reach much lower incomes. Affordable homeownership units might have their resale price restricted going forward to keep them affordable, permanently, as in a community land trust or limited-equity cooperative; temporarily, as in many local government initiatives; or not at all.
- Permanent supportive housing (PSH) — PSH is usually targeted at much lower income levels (30 percent of AMI or under), and at people exiting homelessness or struggling with various health challenges. It comes with services incorporated. The housing is typically designed to stay affordable permanently, and usually sets rent based on the tenant’s income.
- Other rental projects — Though LIHTC is dominant, there is a wide range of other funding and below-market financing programs out there, which are used to create “affordable” rental units for all income levels, from extremely low income through moderate income (just don’t call it “workforce housing”). They come in all shapes and sizes, from tiny homes and ADUs to inclusionary units in high-end apartment buildings, and sometimes are built for special populations, from LGBTQ+ seniors to teachers to multigenerational families to people with developmental disabilities to veterans.
- “Naturally occurring affordable housing” — This is a phrase used to refer to housing that is affordable to lower income people without any formal commitments or requirements. Manufactured housing communities have long formed one of the largest bastions of this. Unfortunately, most “NOAH” is affordable in part because of poor conditions of the housing or lack of access to opportunity in the area, and its affordability is always precarious, leading one Shelterforce writer to propose calling it HAUTMSS (“housing affordable until the market speculation starts” or “hot mess”) instead. Affordable housing “preservation” initiatives often aim to improve conditions in these developments while preserving their affordability long term.
Stable, decent, affordable housing is an essential platform from which people can face their challenges, build a good life, and contribute to their community. We hope you can use this resource to help others understand the many different things it can include.
(For resources on overcoming resistance to affordable housing, see “What Is NIMBYism and How Do Affordable Housing Developers Respond to It?”)
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4 thoughts on “What Is ‘Affordable Housing’?”
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Thank you for the very helpful and informative article. My one quibble concerns the adjuration to avoid use of “workforce housing.” As your previous article correctly indicated, that term has been hijacked by those wishing to focus on higher income development, primarily, in my experience, for invidious reasons. But, also as you noted, a couple of decades ago the term had a much more positive definition. A local NJ group I was part of seized upon it to promote housing for low-income workers. We produced a beautiful set of poster emphasizing the importance of providing local housing opportunities for nursing home workers, home health aides (“they want to grow old in their own home, but can’t find someone nearby to help them”), teacher’s aides, etc. I only mention this because I believe a strong effort could and should be made to reclaim the term “workforce housing” as housing which primarily meets the needs of low-wage, low-income people. Such an effort could have a good chance to be successful because it would focus on critically-needed low-wage workers at a time when housing has finally been recognized as the major issue it has always been, and would be very hard to debunk or ignore. Moreover, since so many of the vital low-income workers are people of color, women, and other marginalized groups, such a campaign would subvert or sidestep the disgraceful attack on DEIA and other related efforts. In short, a “workforce housing” campaign focused primarily on vital low-wage workers could attract committed, maybe even enthusiastic, support from a broad set of constituencies for a variety of reasons.
Thank you much for the summary. All your work is astonishingly amazing. I’m grateful.
Here, the entirety of housing program affordability is nuttier than described. Before seeing such details, remember our history: affordable rents used to be 20% of actual income, then 25% of actual income, now to 30% of the top of the range in which you qualify. Thus, today, rents are at least 30% of income and go up to…50% and even more.
Nevertheless, the myth persists that assisted rents are no more than 30% of one’s income. I invite everyone to peruse the website for San Francisco’s ‘affordable housing’: if you double the posted rent, then it will equal the lowest eligible income. Thus, the lowest income households would pay 50% of their income for rent. https://housing.sfgov.org/listings/for-rent. ( Prior to 1991, California had set 15% of income as rent for the lowest incomes, but now… 50%?! . )
In this 9-county region, some ‘affordable housers’ would post the range of incomes required for X unit, but then require you to do an obscure calculation that meant that, if their rent would be 40% or more of your income, then you were barred from applying at all. One leader called this “The gap”.
Or, housing providers go the other way: if your rent would be too burdensome in a tax credit or other assisted unit, then the provider could double-up the subsidy by using housing vouchers to pay for that unit that was subsidized at construction.
Compounding the nutty: The famed Area ‘Median’ Income in fact is usually* artificially-high both because of the benchmark from which it is derived and because of certain tests. (*my study some years ago found most AMIs NOT to be statistical medians. Recent national patterns may have changed. Please somebody, get me to publish the thing.). Higher AMIs mean higher rents…and higher qualifying incomes,. For those having lowest incomes, their housing prospects worsen.
The too-high rents can get worse year to year for an existing tenant; rents are unpredictable. Each non-voucher year’s rents are tied to the AMI, not to inflation nor to operating cost increases nor to incomes of tenants. if ‘market’ rents with all their market manipulations appear to have jumped, then the AMI may be jumped too. An annual rent increase may exceed the regional inflation rate and may exceed rent controls for private markets.
Note that housing providers need not charge the maximum allowable rents.
All of this may not be crazier than reimbursing/subsidizing the home ownership of the more affluent owner than that of the less affluent (with some newish corrections), and subsidizing all owners more than renters but… through the looking glass we are in more ways than these.
Hi, Miriam– Excellent profile of the various bureaucratic measures of affordability and the games they lead to. The basis of “affordability” is that in America, housing is too scarce, so rents and prices are very high, and these rules attempt to allocate a very limited supply more equitably. My own preference would be for a national housing program to get enough good quality multifamily buildings in every metro area that rentals would be affordable and we could reduce the red tape to qualify. When my wife and I married in 1964 our apartment in Berkeley cost $85 per month, and the same place has increased more than 20-fold since, because while the local economy has grown the housing supply has not kept pace. When I talked to developers in my former job, they would point to a long list of barriers: land availability and cost, financing complexities and costs, public improvement costs, design and construction costs to meet codes and zoning, like the classic two-staircase rule in multifamily or parking minimums, and the cost of the long drawn-out process to address all of them. They don’t have superpowers to simplify it all, but a determined government could. Long ago, HUD attempted this but foundered on its own red tape that produced buildings so unlivable they finally had to be demolished. HUD could not ensure the social and health services that many low-income tenants need. I’m saying, housing, to be livable, has to also be managed and the managers need access to resources for care. Developers other than non-profits aren’t usually equipped to organize this form of support. But, we have a national government that seems to avoid all these issues rather than tackling them head-on. I hope to see a change and more thought and energy to address this need. Meanwhile, I value informed commentary from you and other writers, many thanks.
Thank you for your thoughtful piece Miriam. I do wonder about the countervailing “policy” adoption choices made by the same folks who voice a concern for affordable housing challenges. Huge and growing annual municipal budgets alone facilitate market-driven impacts and outcomes. Aggressive, subsidized “economic development” agendas codified in adopted “Long-term Vision” and “policy direction” actions do nothing but exacerbate a widening socioeconomic divide. Yet, no grassroots, progressive, community, or activist leaders ever speak up to address these consequential decisions. Why would that be?