What is affordable housing?

The term “affordable housing” is often tossed around when discussing real estate developments and economic growth. But what does it really mean? Most people know that affordable housing provides low-income residents with decent, reasonably priced homes, but there’s more to it than that.

So, here are the basics for understanding this invaluable effort to help people of many income levels find a home.

What’s affordable housing?

Because affordability varies wildly due to factors like income, location, and family size, there’s no sole definition for the term “affordable housing.” However, according to Affordable Housing Online, the United States defines the term as “housing, rental or owner-occupied, that is affordable no matter what one's income is.”

More specifically, the United States deems “housing costs at or below 30 percent of one's income to be affordable.” The housing costs referred to include utilities, taxes, insurance, and other home-related expenses.

OK, then what’s subsidized housing?

Subsidized housing is another tricky term because many housing programs fall under the umbrella of subsidized housing. Here’s a basic definition: A housing subsidy is money granted by the government to cover all or a portion of the housing costs for low- to moderate-income Americans. Most often, “subsidized housing” and “affordable housing” are used interchangeably.

Housing subsidies include public housing, nonprofit housing, rent assistance, and some forms of co-operative and private sector housing.

Per Housing Virginia, subsidized housing is “made available at below-market rates through the use of government subsidies.” This is a valuable effort, but there are two problems. One: The majority of both affordable and market rate housing is provided by the private marketplace. Two: Housing subsidies are not guaranteed by the government (unlike food stamps or Medicaid).

What does this mean?

It means many housing subsidies are in short supply, creating high demand for affordable housing in many areas. This also means many neighborhoods have exceedingly long waiting lists for housing assistance.

The Cost of Affordable Housing

According to the Urban Institute, there are approximately 29 affordable housing units available for every 100 low-income residents in the United States. Why is there such a shortage? Because building affordable housing isn’t very profitable.

There’s a gap between what affordable housing costs to build and what residents can pay in terms of rent or a mortgage. Without government subsidies—and there aren’t many to go around—many affordable housing properties can’t cover their operating cost or pay back the loan used to finance construction.

Many other factors—such as vacancy rates, public land donations, the number of units in a building, and deferred fees—can help close the gap, but the amount of affordable housing available is still not even close to meeting the demand for it.

The Myth of Affordable Housing

When a developer proposes building affordable housing units, residents usually express concerns regarding increased traffic, decreased property values, increased demands on community services, and other negative consequences.

While these concerns are understandable, several studies have consistently found no correlation between building affordable housing and degrading a community. In most cases, well-managed affordable housing developments actually have positive effects on neighborhoods by generating tax revenue or sparking community improvements like planting additional trees to maintain landscaping.

Affordable Housing Programs

When people mention affordable housing, they’re not referring to a single program but rather a conglomeration of many federal and state programs designed to make housing more affordable. This is good news for residents seeking housing assistance, but unfortunately, no program is perfect just yet.

Here are just a few of the many programs available.

Mortgage Interest Deduction (MID)

Currently, the largest of all housing subsidies is mortgage interest deduction. Using this deduction, over 34 million homeowners collectively claim more than $68 billion in housing subsidies each year, according to Affordable Housing Online. That’s great news for homeowners receiving the help they need, but due to the way the program is structured, 34 percent of those deductions subsidize large, luxury homes.

Low-Income Housing Tax Credits (LIHTC)

As a federal program, Low-Income Housing Tax Credits provide tax incentives to owners of affordable housing properties. These tax credits are used to finance the construction of affordable housing, and therefore, don’t directly assist residents.

However, to receive these tax credits, affordable housing property owners must rent or sell units below the average market rate based on median household income. This program is the most successful affordable housing program in the United States, according to Affordable Housing Online.

Housing Authorities

As the country’s first effort to provide affordable housing, housing authorities are locally based and assist lower income Americans with housing-related needs. Housing authorities receive funding from the Department of Housing and Urban Development to operate public housing and Section 8 voucher programs.

Workforce Housing

Workforce housing is a controversial term for many, but the concept is important to understand. Though not technically considered affordable housing, workforce housing seeks to provide accommodations for service professionals such as teachers, nurses, police officers, and fire fighters.

In some areas, these professionals work and serve a community they cannot afford to live in due to a gap between middle-income wages and high housing costs. This leads to long commutes for such workers, which in turn leads to high turnover rates for the communities depending on these employees. Workforce housing is an effort to provide these workers with attractive, affordable homes within close proximity of their workplaces.

As the terms currently function, affordable housing is used to refer to households with an income of 60 percent or less than the area median income, while workforce housing is used to refer to households earning 60 to 120 percent of the area median income.

The More You Know

If you’ve made it this far and everything still seems a little confusing, check out this video by Housing Virginia. It’s a quick and easy way to remember what affordable housing is and why it’s important to homeowners and renters of all income levels.

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