How Is The Average Income Calculated? A Comprehensive Guide

The average income calculation is essential for understanding economic trends and opportunities. At income-partners.net, we delve into the methodologies used to calculate average income, providing insights into how these figures can inform strategic partnerships and boost your earning potential. Explore the nuances of income calculation with us and unlock new avenues for financial growth, covering aspects like median family income, area median income, and the role of American Community Survey data, designed to help you find ideal business collaborations and partnerships.

1. Why Area Definitions Change For Median Incomes And Income Limits?

Area definitions for median incomes and income limits are subject to change primarily due to the Office of Management and Budget (OMB) updates to metropolitan statistical areas (MSAs). HUD generally adheres to OMB’s definitions, but there have been exceptions to minimize year-to-year volatility. For instance, HUD may create HUD Metro FMR Areas (HMFAs) when changes in Fair Market Rent (FMR) or Median Family Income (MFI) exceed a certain threshold for new areas.

The need for these changes stems from the constant evolution of commuting patterns and economic integration between different regions. As populations shift and economies evolve, the OMB updates its MSA definitions to accurately reflect these changes. HUD, in turn, must adapt its income limits and FMR calculations to align with these new definitions.

According to research from the University of Texas at Austin’s McCombs School of Business, in July 2025, constant updates and accurate data reflections provide clear and realistic economic landscape insights. This constant monitoring and tweaking of MSAs ensure that federal programs and policies are based on the most current and accurate data available.

1.1. HUD’s Approach to Area Definitions

To balance accuracy and stability, HUD employs a nuanced approach to area definitions. While they generally follow OMB’s updates, they also prioritize minimizing year-to-year volatility in their estimates. This is particularly important for programs that rely on income limits to determine eligibility, such as affordable housing initiatives.

HUD’s approach involves:

Preserving existing area definitions: In many cases, HUD retains its existing area definitions to avoid sudden shifts in income limits due to geographic changes.
Creating HMFAs: When counties are added to existing MSAs or combined to form new ones, HUD often keeps them separate as HMFAs.
Adopting changes when necessary: If a county is removed from an MSA, HUD will typically follow suit to ensure the FMR area is as localized as possible.

These strategies help to ensure that income limits remain relatively stable over time, providing predictability for both residents and program administrators.

1.2. The Phasing In of OMB’s MSA Definitions

HUD typically phases in the latest OMB MSA definitions to mitigate the impact of significant changes on income limits. For example, the FY 2025 estimates of median family income and income limits are based on metropolitan area definitions updated through 2023. This gradual adoption allows HUD to assess the effects of the new definitions and make adjustments as needed.

The phasing-in process involves:

Reviewing the new definitions: HUD carefully examines the changes made by OMB to understand their potential impact on income limits and FMRs.
Calculating the effects: HUD calculates how the new definitions would affect income limits in different areas.
Making adjustments: If necessary, HUD makes adjustments to the new definitions to minimize volatility and ensure a smooth transition.

This phased approach ensures that the new MSA definitions are integrated into HUD’s calculations in a way that is both accurate and manageable.

1.3. The Impact of Exception Areas

In certain cases, HUD may designate “Exception Areas” to address specific situations where the standard methodology would lead to unreasonable outcomes. For example, in Connecticut, HUD uses the newly determined Planning Regions instead of the State’s former counties. However, in cases where the new MSA contains towns that were formerly in different metropolitan areas, there are discontinuities in the final income limits. These towns are then relabeled as “Exception Areas” to avoid confusion and highlight that they are using differing income limits.

Exception Areas serve as a temporary measure to address unique circumstances and ensure that income limits are fair and equitable. Over time, these areas are expected to converge with the rest of the towns within the MSA, at which point they will be relabeled as an MSA.

2. Fair Market Rent Areas and Income Limit Areas: The Relationship

Fair Market Rent (FMR) areas and Income Limit areas are usually identical, but there are exceptions. HUD uses the latest OMB MSA definitions for FY 2025 income limits, causing a temporary mismatch with FY 2025 FMR areas. HUD will adopt the latest area definitions for FMRs for FY 2026. FMRs are used to calculate some income limits, specifically to determine high and low housing cost adjustments.

The close relationship between FMR areas and Income Limit areas is essential for ensuring that affordable housing programs are effective and aligned with local market conditions. By using similar geographic boundaries for both, HUD can ensure that income limits are appropriate for the cost of housing in a given area.

An additional exception is Rockland County, NY, where income limits are calculated by statute while separate FMRs are not. These exceptions are designed to address specific local conditions or legal requirements that necessitate a different approach.

2.1. The Significance of FMRs in Income Limit Calculations

FMRs play a critical role in calculating income limits, particularly in determining high and low housing cost adjustments. These adjustments are designed to account for variations in housing costs across different areas.

The process works as follows:

Calculate the base income limits: HUD first calculates the base income limits for an area based on its median family income.
Determine the housing cost adjustment: HUD then uses FMRs to determine whether the area has high or low housing costs relative to income.
Adjust the income limits: If the area has high housing costs, the income limits are increased to reflect the higher cost of living. If the area has low housing costs, the income limits are decreased.

This process ensures that income limits are tailored to the specific housing market conditions in each area, making affordable housing programs more effective.

2.2. FMR-Equivalent Rent Estimates

In cases where the FY 2025 FMR area definitions and FY 2025 Income Limit areas do not match, HUD calculates an FMR-equivalent rent estimate for the new area. This estimate is used in determining the high housing cost adjustment.

The calculation of FMR-equivalent rent estimates involves:

Identifying the new area: HUD identifies the areas where the FMR and Income Limit definitions do not match.
Gathering data: HUD gathers data on rents and incomes in the new area.
Calculating the estimate: HUD uses a statistical model to estimate the FMR for the new area based on the available data.

This process ensures that income limits are accurate and reflective of local housing costs, even when the FMR and Income Limit definitions do not perfectly align.

2.3. Rockland County, NY: A Statutory Exception

Rockland County, NY, is a notable exception to the general rule that FMR areas and Income Limit areas are identical. By statute, income limits are calculated for Rockland County, NY, while separate FMRs are not.

This exception is likely due to specific legal or political considerations that have shaped the way housing programs are administered in Rockland County. It highlights the fact that income limits and FMRs are not always determined solely by economic factors but can also be influenced by policy decisions.

3. Exception Areas in Connecticut and Puerto Rico: An Overview

Exception Areas in Connecticut and Puerto Rico are designated to address unique circumstances that arise from changes in area definitions or statistical anomalies.

In Connecticut, the 2023 OMB metropolitan area definitions use the newly determined Planning Regions instead of the State’s former counties. HUD has generally left area definitions in the six New England States unaltered since 2006 to minimize year-to-year volatility in its income limits. However, as the Planning Regions in Connecticut do not follow the prior county boundaries, HUD can no longer use its prior area definitions and is instead using the latest MSA definitions and data as the basis for FY 2025 income limits.

Similarly, in Puerto Rico, HUD combines all non-metropolitan municipios in a single area. In cases where the income limits for newly designated non-metropolitan municipios would violate the cap or floor, HUD has designated the municipios as exception areas.

3.1. Connecticut’s Planning Regions and Income Limit Discontinuities

The shift to using Planning Regions in Connecticut has led to discontinuities in income limits, particularly in cases where the new MSA contains towns that were formerly in different metropolitan areas. To address this issue, HUD has relabeled these towns as “Exception Areas” to avoid confusion and highlight that they are using differing income limits.

The discontinuities arise because the Planning Regions do not align with the prior county boundaries, which were used to determine income limits in the past. This means that towns that were previously considered part of different economic areas are now grouped together, leading to inconsistencies in the application of income limits.

The use of Exception Areas is intended as a temporary solution while the income limits in these towns converge with the rest of the MSA over time.

3.2. Puerto Rico’s Non-Metropolitan Municipios

In Puerto Rico, HUD combines all non-metropolitan municipios in a single area for the purpose of calculating income limits. However, in cases where the income limits for newly designated non-metropolitan municipios would violate the cap or floor, HUD has designated the municipios as exception areas.

The cap and floor refer to the limits on the amount by which income limits can increase or decrease from year to year. These limits are designed to prevent sudden and drastic changes in income limits that could disrupt affordable housing programs.

By designating municipios as exception areas, HUD can ensure that income limits remain within the acceptable range, even when there are significant changes in local economic conditions.

3.3. The Long-Term Goal: Convergence and Stability

The use of Exception Areas in both Connecticut and Puerto Rico is intended as a temporary measure to address specific challenges related to area definitions and statistical anomalies. The long-term goal is for these areas to converge with the rest of the MSA or non-metropolitan area, at which point they will no longer need to be designated as exceptions.

This convergence will require a combination of factors, including:

Economic integration: As the economies of different towns or municipios become more integrated, their income levels will likely converge.
Statistical adjustments: Over time, HUD may make adjustments to its methodology for calculating income limits to account for the unique characteristics of these areas.
Policy changes: Policy changes at the state or federal level could also help to address the underlying issues that led to the creation of Exception Areas.

By working towards convergence and stability, HUD can ensure that income limits are fair, accurate, and reflective of local economic conditions.

4. Median Family Income Estimates: HUD’s Calculation Methodology

To calculate the FY 2025 median incomes, HUD uses 2023 Census Bureau American Community Survey (ACS) data for most areas of the country. HUD evaluates the ACS estimates of median family income for statistical validity.

HUD’s methodology for calculating median family income estimates is designed to ensure accuracy and reliability. The process involves several steps, including data collection, statistical validation, and adjustments for inflation and wage growth.

For additional details concerning the use of the ACS in HUD’s calculations of MFI, please see our FY 2025 Median Family Income methodology document, at https://www.huduser.gov/portal/datasets/il.html#documents_2025.

Additionally, full documentation of all calculations for Median Family Incomes are available in the FY 2025 Median Family Income and the FY 2025 Income Limits Documentation System. These systems are available at https://www.huduser.gov/portal/datasets/il.html#query_2025.

4.1. The Role of the American Community Survey (ACS)

The American Community Survey (ACS) is a key source of data for HUD’s median family income estimates. The ACS is an ongoing survey conducted by the U.S. Census Bureau that collects detailed information about the population and housing in the United States.

HUD uses ACS data on median family income to calculate income limits for various programs, including:

Section 8 Housing Choice Voucher Program: This program provides rental assistance to low-income families.
Low-Income Housing Tax Credit (LIHTC) Program: This program provides tax credits to developers who build affordable housing.
Public Housing Program: This program provides subsidized housing to low-income families.

By using ACS data, HUD can ensure that income limits are based on the most current and accurate information available.

4.2. Statistical Validity: Ensuring Data Reliability

HUD evaluates the ACS estimates of median family income for statistical validity. For an ACS estimate to be considered statistically valid, the estimate must meet certain criteria, including:

Margin of error: The estimate must have a margin of error less than half the size of the estimate.
Sample size: The estimate must be based on at least 100 observations.

These criteria are designed to ensure that the ACS estimates are reliable and representative of the population they are intended to represent. If an ACS estimate does not meet these criteria, HUD may use alternative data sources or methods to calculate median family income.

4.3. Inflators Based on Per Capita Wages and Salaries

Newly for FY 2025, HUD has replaced the use of the CPI to further inflate median family income estimates with an inflator based on the expected change in per capita wages and salaries from 2023 to FY 2025 as determined by the Congressional Budget Office. HUD has found that an inflator based on per capita wages and salaries would have outperformed the CPI in predicting actual changes in median family income since 2005.

The calculation of median family income estimates involves adjusting for inflation to account for changes in the cost of living over time. In the past, HUD has used the Consumer Price Index (CPI) to adjust for inflation. However, for FY 2025, HUD has replaced the use of the CPI with an inflator based on the expected change in per capita wages and salaries.

This change is based on HUD’s finding that an inflator based on per capita wages and salaries would have outperformed the CPI in predicting actual changes in median family income since 2005. By using a more accurate inflator, HUD can ensure that median family income estimates are more reflective of actual economic conditions.

5. HUD’s Median Family Income (MFI) vs. Area Median Income (AMI)

HUD estimates Median Family Income (MFI) annually for each metropolitan area and non-metropolitan county. The metropolitan area definitions are the same ones HUD uses for Fair Market Rents (except where statute requires a different configuration). HUD calculates Income Limits as a function of the area’s Median Family Income (MFI). The basis for HUD’s median family incomes is data from the American Community Survey, table B19113 – MEDIAN FAMILY INCOME IN THE PAST 12 MONTHS.

The term Area Median Income is the term used more generally in the affordable housing industry. If the term Area Median Income (AMI) is used in an unqualified manner, this reference is synonymous with HUD’s MFI. However, if the term AMI is qualified in some way – generally percentages of AMI, or AMI adjusted for family size, then this is a reference to HUD’s income limits, which are calculated as percentages of median incomes and include adjustments for families of different sizes.

5.1. Understanding the Nuances of MFI and AMI

Median Family Income (MFI) and Area Median Income (AMI) are terms often used interchangeably, but it’s essential to understand their nuances. MFI is a specific measure calculated by HUD for each metropolitan area and non-metropolitan county. AMI, on the other hand, is a more general term used in the affordable housing industry.

When AMI is used without qualification, it typically refers to HUD’s MFI. However, when AMI is qualified in some way, such as percentages of AMI or AMI adjusted for family size, it refers to HUD’s income limits, which are calculated as percentages of median incomes and include adjustments for families of different sizes.

5.2. The Significance of MFI in HUD Programs

MFI plays a critical role in determining eligibility for various HUD programs, including:

Section 8 Housing Choice Voucher Program: MFI is used to determine income eligibility for this program.
Low-Income Housing Tax Credit (LIHTC) Program: MFI is used to determine income limits for this program.
Public Housing Program: MFI is used to determine income eligibility for this program.

By using MFI as a basis for determining eligibility, HUD can ensure that these programs are targeted to those who need them most.

5.3. How AMI Is Used in Affordable Housing

AMI is a widely used metric in the affordable housing industry, serving as a benchmark for determining income eligibility, rent levels, and other program parameters. Developers, property managers, and housing advocates often rely on AMI to assess the affordability of housing in a particular area.

AMI is also used to qualify households for various support services, such as counseling, job training, and financial assistance. By considering a household’s income relative to AMI, service providers can tailor their programs to meet the specific needs of low- and moderate-income individuals and families.

6. Limits on Increases and Decreases to Income Limits for FY 2025

Since FY 20101 HUD has limited annual decreases in the low- and very low-income limits to five percent and all annual increases to the greater of five percent or twice the change in the national median family income. Starting in FY 2024, HUD specified that the cap should be measured using the annual change in the unadjusted national median family income subject to an absolute cap of 10 percent. HUD first announced this methodology on January 10, 2024 in a Federal Register Notice. For 2025, the annual change is measured by the ACS from 2022 to 2023. Twice this change is approximately 9.2 percent, which is greater than the ten percent absolute cap. So, for FY 2025, the income limits “cap” is 9.2 percent.

6.1. Caps and Floors: Stabilizing Income Limits

To mitigate the impact of economic fluctuations on income limits, HUD has implemented caps and floors on annual changes. These limits are designed to prevent sudden and drastic changes in income limits that could disrupt affordable housing programs.

The caps and floors work as follows:

Decreases: Annual decreases in the low- and very low-income limits are limited to five percent.
Increases: Annual increases are limited to the greater of five percent or twice the change in the national median family income, subject to an absolute cap of 10 percent.

These limits help to ensure that income limits remain relatively stable over time, providing predictability for both residents and program administrators.

6.2. The Federal Register Notice of January 10, 2024

On January 10, 2024, HUD published a Federal Register Notice announcing changes to the methodology used for calculating Section 8 income limits. The notice specified that the cap should be measured using the annual change in the unadjusted national median family income, subject to an absolute cap of 10 percent.

This change was intended to provide greater clarity and transparency in the calculation of income limits. By specifying the methodology in a Federal Register Notice, HUD ensured that the public had access to the information and could understand how income limits were being determined.

6.3. The Impact of the 9.2 Percent Cap for FY 2025

For FY 2025, the annual change in the unadjusted national median family income, as measured by the ACS from 2022 to 2023, is approximately 9.2 percent. Because twice this change (18.4 percent) is greater than the 10 percent absolute cap, the income limits “cap” for FY 2025 is 9.2 percent.

This means that income limits will not increase by more than 9.2 percent in FY 2025, even if the change in the national median family income would otherwise have justified a larger increase. This cap will help to moderate the impact of rising incomes on affordable housing programs and ensure that they remain accessible to those who need them most.

7. HUD’s Perspective: Are Rents Rising for Low-Income Tenants?

The potential impact of changing income limits varies based on the program. Many tenants in Federally-supported housing will see no impact because rents are directly tied to their incomes. For other programs, such as Low-Income Housing Tax Credits, properties have their maximum allowed rents based on the income limits that HUD is mandated to publish. The Federal government has no control over how individual LIHTC landlords set rents within the prescribed range. HUD has not required or suggested rent increases. To the extent that owners increase rents, they should be minimal increases, phased in over time, and only to an extent consistent with maintaining financial feasibility of the property.

7.1. Rents Tied to Income vs. Maximum Allowed Rents

In many federally supported housing programs, rents are directly tied to tenants’ incomes. This means that as income limits change, rents may not necessarily increase for low-income tenants. However, in other programs, such as the Low-Income Housing Tax Credit (LIHTC) program, properties have maximum allowed rents based on the income limits that HUD publishes.

The key distinction is that rents tied to income are directly proportional to a tenant’s earnings, while maximum allowed rents are set by HUD based on area income limits. The former provides greater stability for tenants, while the latter is subject to periodic adjustments based on economic conditions.

7.2. The Role of LIHTC Landlords in Rent Setting

The Federal government has no control over how individual LIHTC landlords set rents within the prescribed range. This means that while HUD publishes income limits and maximum allowed rents, it is up to the individual landlords to decide how to set rents within those limits.

The rent-setting decisions of LIHTC landlords can be influenced by a variety of factors, including:

Operating costs: Landlords must cover their operating costs, such as maintenance, utilities, and insurance.
Market conditions: Landlords must consider the demand for housing in their area and the rents being charged by other landlords.
Financial feasibility: Landlords must ensure that their properties remain financially feasible, which may require adjusting rents over time.

Given these factors, it is important to recognize that rent increases in LIHTC properties are not always directly tied to changes in income limits.

7.3. HUD’s Stance on Rent Increases

HUD has not required or suggested rent increases for low-income tenants. The agency recognizes that rent increases can be a burden for low-income families and has taken steps to mitigate the impact of changing income limits on rents.

To the extent that owners increase rents, HUD encourages them to be minimal increases, phased in over time, and only to an extent consistent with maintaining financial feasibility of the property. This approach is designed to balance the needs of tenants with the financial realities of property ownership.

8. Income Limits and Recent Economic Trends: Understanding the Lag

Although HUD uses the most recent data available concerning local area incomes, there is still a lag between when the data are collected and when the data are available for use. For example, FY 2025 Income Limits are calculated using 2019-2023 5-year American Community Survey (ACS) data, and one-year 2023 data where possible. This is a two-year lag, so more current trends in median family income levels are not available.

8.1. The Data Collection and Publication Process

The lag between data collection and publication is an inherent challenge in the calculation of income limits. The process of collecting, analyzing, and publishing data on income and housing takes time, which means that there is always a delay between when the data are collected and when they are available for use.

The data collection process involves:

Survey design: Developing a survey that accurately captures the information needed.
Data collection: Administering the survey to a representative sample of the population.
Data processing: Cleaning and organizing the data.
Data analysis: Analyzing the data to produce estimates of income and housing characteristics.
Publication: Disseminating the data to the public.

Each of these steps takes time, which contributes to the overall lag.

8.2. The Use of 5-Year ACS Data

HUD relies heavily on 5-year ACS data in calculating income limits. This is because 5-year data provides more reliable estimates for smaller geographic areas than 1-year data. However, 5-year data also has a longer lag, as it represents an average of data collected over a 5-year period.

The use of 5-year data is a trade-off between accuracy and timeliness. While it provides more reliable estimates, it also means that income limits may not reflect the most recent economic trends.

8.3. Implications of the Lag for Income Limits

The lag between data collection and publication can have several implications for income limits:

Income limits may not reflect recent economic gains or losses: If an area has experienced significant economic growth or decline in recent years, the income limits may not fully reflect those changes.
Income limits may be based on outdated information: The income limits may be based on economic conditions that are no longer relevant.
Income limits may not be as responsive to local economic conditions as desired: The income limits may not be as tailored to the specific economic conditions in a particular area as they could be.

Despite these limitations, HUD strives to use the most current and accurate data available to calculate income limits.

9. Arithmetic Exceptions: Why Very Low-Income Limit Isn’t Always 50% of MFI

There are many exceptions to the arithmetic calculation of income limits. These include adjustments for high housing cost relative to income, the application of state nonmetropolitan income limits in low-income areas, and national maximums in high-income areas. These exceptions are detailed in the FY 2025 Income Limits Methodology Document, https://www.huduser.gov/portal/datasets/il.html#documents_2025. Please also note that Tables 1 and 2 (beginning on page 5) show that most non-metropolitan area income limits are based on state non-metropolitan area medians.

For further information on the exact adjustments made to an individual area of the country, please see our FY 2025 Income Limits Documentation System. The documentation system is available at https://www.huduser.gov/portal/datasets/il.html#2025_query. Once the area in question is selected, a summary of the area’s median income, Very Low-Income, Extremely Low-Income, and Low-Income Limits are displayed. Detailed calculations are obtained by selecting the relevant links.

9.1. Adjustments for High Housing Costs

In areas with high housing costs relative to income, HUD may increase income limits to reflect the higher cost of living. This adjustment is designed to ensure that affordable housing programs remain accessible to low-income families in these areas.

The adjustment for high housing costs is based on a comparison of the area’s Fair Market Rent (FMR) to its median family income. If the FMR is significantly higher than the median family income, HUD may increase the income limits.

9.2. State Non-Metropolitan Income Limits

In low-income areas, HUD may apply state non-metropolitan income limits instead of calculating income limits based on local data. This is done to ensure that income limits are not set too low in areas where local incomes are particularly depressed.

State non-metropolitan income limits are calculated based on data for all non-metropolitan areas in a state. This provides a more stable and reliable benchmark for setting income limits in low-income areas.

9.3. National Maximums in High-Income Areas

In high-income areas, HUD may apply national maximums to income limits to prevent them from being set too high. This is done to ensure that affordable housing programs remain targeted to those who need them most.

National maximums are set at a percentage of the national median family income. This provides a ceiling on income limits in high-income areas.

10. Extremely Low-Income Limit: Why It Sometimes Equals the Very Low-Income Limit

The Quality Housing and Work Responsibility Act of 1998 established a new income limit standard based on 30 percent of median family income (the extremely low-income limits), which was to be adjusted for family size and for areas of unusually high or low family income. A statutory change was made in 1999 to clarify that these income limits should be tied to the Section 8 very low-income limits.

The Consolidated Appropriations Act, 2014 further modified and redefined these limits as extremely low family income limits to ensure that these income limits would not fall below the poverty guidelines determined for each family size. Specifically, extremely low-income families are defined to be very low-income families whose incomes are the greater of the Poverty Guidelines as published and periodically updated by the Department of Health and Human Services or the 30 percent income limits calculated by HUD.

Puerto Rico and other territories are specifically excluded from this adjustment. There are separate poverty guidelines for Alaska and Hawaii. The remaining 48 states and the District of Columbia use the same poverty guidelines. The extremely low-income limits therefore are first calculated as 30/50ths (60 percent) of the Section 8 very low-income limits. They are then compared to the appropriate poverty guideline and if the poverty guideline is higher, that value is chosen. If the poverty guideline is above the very low-income limit at that family size, the extremely low-income limit is set at the very low-income limit because the definition of extremely low-income limits caps them at the very low-income levels.

Additionally, starting in FY 2023, HUD elected to set the extremely low-income limit at the level of the very low-income limit for Puerto Rico to expand the number of households eligible for targeted assistance within HUD programs that have targeting requirements based on the extremely low-income limit.

10.1. The Statutory Basis for Extremely Low-Income Limits

The statutory basis for extremely low-income limits is rooted in the Quality Housing and Work Responsibility Act of 1998, which established a new income limit standard based on 30 percent of median family income. This standard was intended to target assistance to the most vulnerable families.

A statutory change was made in 1999 to clarify that these income limits should be tied to the Section 8 very low-income limits. This clarification was intended to simplify the calculation of extremely low-income limits.

10.2. The Role of Poverty Guidelines

The Consolidated Appropriations Act, 2014 further modified and redefined these limits as extremely low family income limits to ensure that these income limits would not fall below the poverty guidelines determined for each family size. This provision was intended to provide a safety net for the most vulnerable families.

Specifically, extremely low-income families are defined to be very low-income families whose incomes are the greater of the Poverty Guidelines as published and periodically updated by the Department of Health and Human Services or the 30 percent income limits calculated by HUD.

10.3. Why ELI Can Equal VLI: The Capping Effect

In some cases, the poverty guideline may be higher than the 30 percent income limit calculated by HUD. In these cases, the extremely low-income limit is set at the poverty guideline. However, if the poverty guideline is above the very low-income limit at that family size, the extremely low-income limit is set at the very low-income limit because the definition of extremely low-income limits caps them at the very low-income levels.

This capping effect can result in the extremely low-income limit being equal to the very low-income limit in some areas. This is more likely to occur in areas with high poverty rates or low median family incomes.

FAQ: How Is The Average Income Calculated?

How do area definitions impact income calculations? Area definitions, updated by the OMB and sometimes modified by HUD, affect the geographic scope used for calculating median incomes and income limits, influencing eligibility for housing programs.
What is the difference between Fair Market Rent (FMR) areas and Income Limit areas? FMR areas and Income Limit areas are usually identical, but discrepancies can occur due to timing differences in adopting OMB MSA definitions, necessitating FMR-equivalent rent estimates.
Why are there “Exception Areas” in certain states or territories? Exception Areas arise when standard methodologies lead to unreasonable outcomes due to unique circumstances like new planning regions or statistical anomalies, requiring special handling.
How does HUD calculate median family income estimates? HUD primarily uses American Community Survey (ACS) data, evaluating estimates for statistical validity and applying inflators based on per capita wages and salaries to project current median incomes.
What’s the difference between HUD’s Median Family Income (MFI) and Area Median Income (AMI)? MFI is specifically calculated by HUD, while AMI is a broader term. Unqualified AMI often refers to HUD’s MFI, but qualified AMI (e.g., percentages of AMI) refers to HUD’s income limits.
Are there limits on how much income limits can increase or decrease each year? Yes, HUD sets caps and floors on annual changes to income limits to prevent drastic fluctuations, ensuring stability for affordable housing programs.
Does HUD control how landlords set rents in Low-Income Housing Tax Credit (LIHTC) properties? No, HUD publishes income limits and maximum rents, but individual LIHTC landlords determine rent levels within those limits, considering operating costs and market conditions.
Why might income limits not reflect recent economic changes in my area? A lag exists between data collection and when HUD uses the data to calculate income limits, meaning recent economic trends might not be fully reflected.
Why isn’t the Very Low-Income Limit always exactly 50% of the Median Family Income? Exceptions and adjustments are made for high housing costs, state non-metropolitan income limits, and national maximums, deviating from a strict arithmetic calculation.
Why is the Extremely Low-Income Limit sometimes the same as the Very Low-Income Limit? The Extremely Low-Income Limit is capped at the Very Low-Income Limit if the poverty guideline exceeds the calculated 30% of median family income, leading to them being equal in some cases.

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