Area Median Income (AMI) plays an instrumental role in determining rents across the country’s most active affordable housing markets.

Both the U.S. Department of Housing and Urban Development (HUD) and the Federal Housing Finance Agency (FHFA) updated their AMI limits in 2023, a sign of future rent growth for property owners, despite rising interest rates and other economic pressures.

For affordable multifamily properties backed by the Low-Income Housing Tax Credit (LIHTC) program, income limits rose in 98% of HUD-covered jurisdictions. As a result, more tenants now qualify for affordable housing, which bodes well for occupancy rates and property values going forward.

It’s important to note, however, that last year’s revised rent cap on LIHTC properties applies to 87% of jurisdictions around the country, with many owners and developers restricted to rent growth limits of 5.92%. This is less than the 9.5% many were anticipating. By comparison, HUD’s 2022 rent cap allowed for rent increases of up to 11.89% in about half of its U.S. jurisdictions.

Still, affordable housing sponsors covered under the LIHTC program can plan for future rent and occupancy growth opportunities, while knowing that their tenants are still being offered protections.

“All in all, it’s good news,” said CPA Thomas Stagg of Novogradac, which closely tracks and forecasts HUD data, during a recent podcast on HUD’s latest calculations. Novogradac has in fact already begun estimating the 2024 rent caps based on the methodology HUD used in 2022 and 2023 with its October 2023 estimate coming in at 14.78%.

What HUD’s Income Limits and Rent Cap Increases Mean for Affordable Housing Owners and Investors

For multifamily owners and investors tapped into the LIHTC program, income limit increases are a key indicator of the type of local economic and wage growth that can fuel higher demand from renters, operators, and equity backers.

The 2023 increase is notably lower than the 12% increase in 2022, which may have been higher than normal because it was based on a revised methodology that HUD introduced during the COVID-19 pandemic that is now largely behind us. Still, the latest HUD income limits and rent cap increases are in many ways a positive indicator for owners of LIHTC properties looking ahead to the remainder of 2024 and beyond.

Partner With a Trusted Real Estate Investment Sales Expert

It’s important for property owners to get an early start on assessing AMI and implementing maximum allowed rent increases to open the door for more qualifying families and individuals. Affordable housing investors and owners have several opportunities to strategically plan around AMI limit increases and rent growth caps to increase value if they plan to bring their properties to market in the future.

Lument’s experienced affordable housing real estate investment sales team works closely with LIHTC and affordable sponsors around the country interested in marketing their properties.

Contact Lument today to find out more ways to implement effective strategies to increase the value of your portfolio and position it for a potential sale.