In 2015, Brad Cooper is building tiny houses. In the process, he hopes to also develop an alternative approach to traditional affordable housing models supported by government funds. If he’s successful, an individual at any income level could bypass the web of low-income government subsidies on their way to long-term affordable homeownership.
Throughout the course of the year, we’ll be following Brad’s process and progress. That in mind, we thought it would be useful to dive headfirst into the (sometimes) complicated world of affordable housing and subsidized housing. Hold onto your hats people.
Affordable Housing vs. Subsidized Housing
First things first. Affordable housing and subsidized housing are not one in the same.
Housing is considered affordable if rent/mortage cost does not exceed 30% of a household’s income. “Housing costs” is inclusive of utility and water bills.
Subsidized housing on the other hand, is when any landlord, developer or resident receives government money to help cover housing costs. Subsidies are available for almost everybody regardless of income level.
It’s important to note that while almost all affordable housing is subsidized, not all subsidized housing is affordable. We’ll unpack that more a bit later.
To be eligible for a housing subsidy, a household must meet the Area Median Income (AMI) requirements for their geographic area. A household that earns 80% or less of the area’s AMI for their household size is considered low-income. Pause. Time for an example:
In Cincinnati, the AMI for a family of four is $68,500. So, for a family of four to qualify as low-income, thereby being eligible for a low-income subsidy, their annual income must be at or below $54,000/year. Get it?
In theory, low-income families like the one above have a number of affordable housing options. Yet, there are several factors—such as Fair Market Rent calculations—that make securing an affordable home more complicated than it seems.
Low-income Subsidies at a Glance
For the purposes of his tiny home project, Brad has elected to focus his energy primarily on the low-income sector of our city’s population because it seems to be the area where the greatest opportunity lies. It’s important to know, however, that a family does not have to be considered low-income to receive a housing subsidy.
That in mind, here’s a look at three of the most common low-income subsidy program: Public Housing; Housing Choice Vouchers and Low-income Tax Credits.
The first Public Housing building was constructed in New York City in 1935; in 1973, President Nixon declared a moratorium on all HUD funding. This policy shift prevented new public housing from being constructed. Of course, the public’s need for it didn’t cease.
Today, Public Housing is generally operated and maintained by local Housing Authorities, and is typically reserved for families earning less than 80% of AMI (i.e. low-income).
Those lucky enough to nab a spot are asked to pay just 30% of their incomes towards rent.
If a family’s income grows to exceed 80% of AMI while still residing in Public Housing, they are not required to vacate to make room for another struggling family.
While housing supply remains stagnant, demands continued to increase. A Public Housing wait-list has formed. In some cities, the wait exceeds eight years.
Housing Choice Vouchers
Of all low-income subsidies, only housing choice vouchers (Tenant-based Section 8) are awarded to renters. These vouchers cover the difference between Fair Market Rent and 30% of the renters income.
In this system, the renter pays an “affordable” rent and the landlord receives the difference via this government subsidized voucher. Note: No law requires landlords to accept HCVs.
Fair Market Rent isn’t always fair. It's typically calculated from an area that includes several counties, at all incomes—in Cincinnati this area includes 15 counties in OH, KY and IN.
For a two-bedroom apartment in Cincinnati, FMR is $769. Although one could find a two-bedroom apartment for this cost in many neighborhoods, it's becoming increasingly difficult to find a qualifying FMR apartment in the revitalized urban core. As a result, low-income individuals are being priced out of these areas.
One of the biggest challenges with HCVs are their scarcity. Because demand far exceeds supply, Cincinnati Metropolitan Housing Authority holds a lottery for families to gain access to the waitlist. In 2014, 17,300 families applied. Of those, 5,000 were randomly selected to be on the wait list. A second lottery was established waitlist order. The only way for a family to move off of the waitlist is for a family receiving a voucher to leave the program. Problem? Clearly.
Low-Income Housing Tax Credits
Low-income housing tax credits are issued directly to developers. Homeowners and tenants don’t actually receive money. Instead rent is set at an “affordable” price.
Developers typically sell these federally-issued tax credits to banks or investors. LIHTC Buyers then finance the developers project via loans.
20% of the developer’s units must be affordable and occupied by families earning 50% AMI, or 40% of units must be affordable and occupied by families earning 60% AMI.
In most cases, LIHTC opportunities are not affordable for very low income families (30-50% of AMI) or extremely low income families (0-30% of AMI) without further assistance. In Ohio, 55% of qualifying families in LIHTC housing also receive another form of assistance.
A Way Forward
Government-funded subsidies are simply unable to provide for all those who need housing assistance—maintaining housing at $400 a month, in large quantities, is not sustainable for anyone. In effect, and most unfortunately, those most at risk qualify for the least amount of assistance. Signs point to a need for better systems.
Cooper recognizes that tiny-houses could be just one small piece of a bigger puzzle, but believes that focusing on housing quality and energy performance, over square footage, could be a way around the subsidy puzzle for those at all socioeconomic levels. If done right, tiny-home owners could have mortgages at or below $400/month—the ‘affordable’ rent for a single parent earning minimum wage.
It’s a bold vision for sure, but as far as we can tell, Brad is the perfect candidate to tackle the challenge. Stay tuned—or—attend his exhibition this Saturday, 1/31, to learn more. 6–9pm.
For more information check out this video from the Affordable Housing Advocates: