How Does Low Income Housing Work?

What it is

Low Income Housing (also called Affordable Housing or Government Subsidized Housing) is affordably priced housing for low income individuals or families. There are U.S. federal, state and private programs operated and funded for this purpose. Without these programs many people would not be able to afford a place to live as their income is not high enough to cover their basic expenses.

How it Works

Housing for low income people is subsidized by the funding entity (federal, state or private). Generally the renter would pay 30% of their income and the funding entity pays the rest of what has been agreed upon as the “fair market value” of the housing.

There are obligations people must meet to qualify for low income housing. Income must be verified as well as any future changes in income. The number of dependents must also be verified. As long as a person meets the obligations required in the rules of the contract, they may be funded indefinitely.

Tax Cridits

Low Income Housing Tax Credits (LIHTC) is an incentive for individuals or organizations to create housing for the low income housing program. It is explained in section 42 of the Internal Revenue Code. Simply put, it allows the low income housing investor a dollar-for-dollar reduction in his federal income tax liability. For example, if an investor owed $1,000 in federal income tax, but held $,1000 in LIHTC his balance would be zero owed to the government. This federal program has been a success with creating more than 100,000 rental unit’s a year.

Tenant Based Credits

Another kind of credit is given to individuals under the Federal Housing Assistance Program. It is often called “section 8” referring to part of the Housing Act of 1937 of the original subsidy program. It is based on a voucher that the low income individual receives from the government after qualifying. He then rents a housing unit and pays 30% of his adjusted income and the government, through the use of the voucher, pays the rest. However, the government, through HUD (Housing and Urban Development), will only pay fair market value. If the landlord charges more than fair market value, the individual must pay the balance up to 40% of their income. The voucher system does not allow the low income tenant to pay any more than that 40% and still remain in the program.