What Is Affordable Housing?

In a time when rents and house prices are rising, you may be wondering if the amount you pay on a monthly basis is still considered affordable.

But the term “affordable housing” is used in different ways depending on the person speaking and the topic at hand. We’re breaking down the definition of affordable housing and diving into the details of affordability and housing assistance.

— What is affordable housing?

— Who qualifies for affordable housing assistance?

— Types of housing assistance.

— What makes housing unaffordable?

— Are there ways to make housing more affordable?

[Read: What You Should Know About Tenant Rights.]

What Is Affordable Housing?

The U.S. Department of Housing and Urban Development defines affordable housing as housing where the occupant is paying 30% or less of the gross income on total housing, including utilities.

The phrase “affordable housing” is also colloquially used as a general term to refer to housing assistance for low-income individuals, including housing vouchers or housing designated for residents below a certain income for the area.

While 30% of gross income may be considered the baseline to determine whether housing is affordable, many households are forced to spend much more than that for their home and utilities, and they may or may not be receiving housing assistance to cover the high costs. Very low affordability is considered 60%, says Arica Young, associate director of the Bipartisan Policy Center’s Terwilliger Center for Housing, a think tank based in Washington, D.C.

In some cases, affordability is even worse. “There are families that spend 80% of their income on housing. … It’s really shocking,” Young says.

Who Qualifies for Affordable Housing Assistance?

For low-income households where housing affordability — following the 30% definition — is perpetually hard to achieve, housing assistance from the government or a nonprofit source can help reduce the share of income spent on rent or other housing costs.

“A lot of those very poor families will not be able to afford anything that’s market rate, and so it is important that they do receive some sort of subsidy to cover that gap, and that’s where something like the voucher system comes in,” Young says.

Most governmental housing assistance programs are at the state or local level, and determine eligibility based on the median household income for the area. In Oregon, for example, a low-income household is one that earns no more than 80% of the area median income, based on the number of people in the household. A very low-income household would be 50% of the area median income, and an extremely low-income household would be 30%, according to the state’s website. Where a household falls in the income brackets would determine the size of a housing voucher that may be available or other subsidized housing options.

Other details that can place a hardship on earning enough to cover market-rate housing may have separate housing assistance programs, like disability or senior status.

[READ: The 10 Best Apps for Finding Your Next Apartment.]

Types of Housing Assistance

While HUD provides federal funding to states for housing assistance, programs vary widely across states, counties and cities based on local policies and initiatives. The Housing Act of 1937 had a Section 8 that directly referred to housing assistance, and while Section 8 has been repeatedly amended over the years and has evolved in its meaning, many people often use “Section 8” to refer to housing assistance or public housing, regardless of the technical accuracy.

Here’s a breakdown of some of the most common types of housing assistance you’re likely to encounter:

Section 8 Housing Choice Voucher Program. This program is funded by the federal government through each state, and is aimed at very low-income families. This program provides vouchers to eligible households to assist in their rent payments. Voucher recipients are able to live where they choose.

Section 8 Project-Based Rental Assistance. Also part of Section 8, the Project-Based Rental Assistance program is also federally funded. HUD contracts with rental property owners to make some or all of the apartment units designated for eligible low-income households, often in the very to extremely low income brackets. Participating landlords could be private for-profit entities or nonprofit organizations.

Public housing. Public housing is housing that is owned by a government entity. In many cases, public housing is federally funded but the city or county the property is located in owns and manages the property, including vetting and accepting eligible applicants.

Mortgage or down payment assistance. Government entities from the federal government down to an individual city offer programs that can help income-eligible families achieve homeownership through down payment assistance or mortgage payment assistance. Depending on the program, this could be in the form of a specific mortgage loan, a grant to the individual or a program that is separate from the individual’s mortgage of choice.

Utilities assistance. Low-income households may be eligible for utility bill assistance through their local or state government or directly through the utility company. This type of assistance may be in the form of a regular subsidy, or may be a one-time lump sum payment that would cover multiple months.

Privately funded housing assistance. Whether it’s a housing voucher, specific property or down payment assistance, there are also some private entities providing funding for low-income families as well. Often, these housing options are run by a nonprofit or religious organization operating off private donation. If they receive no public funding, income eligibility may be different compared to your local government housing assistance eligibility.

What Makes Housing Unaffordable?

Multiple factors contribute to the rising cost of housing, which makes it unaffordable for a growing number of people across the U.S.: Young cites labor costs, the cost of building supplies and limitations surrounding land use keep the creation of new housing slow compared to the creation of new households. With more people in need of a home than there are homes available, costs rise.

Land use and restrictions or hurdles prove to be an issue for developers across the U.S., as limits on property density could prevent the construction of an apartment building to house many people, as opposed to one or two single-family houses. In other cases, a city may require a minimum number of parking spaces per unit. Young points out that by requiring a minimum number of parking spaces — even in a city where fewer residents may choose to own a car — can add tens of thousands of dollars per unit to the total cost of the project.

Economic uncertainty can additionally lead to a slowdown in housing construction as developers get nervous about being able to make a profit once a project is completed.

Beyond the struggles to increase housing inventory, which contributes to rising rents and home prices, rising interest rates contribute to higher monthly costs. The average mortgage interest rate for a 30-year, fixed-rate mortgage as of Sept. 8 was 5.89%, according to Freddie Mac, the highest average rate since 2008.

“The key issue is the affordability index has really jumped quite high. It’s not a cheap investment, today’s market, compared to two or three years ago when interest rates were lower and housing prices were lower,” says Clark Kendall, president and CEO of Kendall Capital, a wealth management firm in Rockville, Maryland.

As a result of high home prices and rising rates, there are more people opting to continue renting because they can’t afford to buy in the current market, which in turn continues to contribute to high demand for rentals and rising rents.

Are There Ways to Make Housing More Affordable?

There is less homebuyer activity as a result of high home prices and high interest rates, which has slowed the pace of rising market values. Expect this slowdown to continue until there is a better affordability balance, which would be caused by income and household wealth catching up with home prices and interest rates.

More housing inventory would help offset the existing supply-demand imbalance in the market, and experts point to supply as a must-have to help housing affordability. In order to build more homes — whether they’re single-family houses, apartment buildings or anything in between — Young says local policy must be reformed to decrease the time and money it takes to build residential housing.

“So everything from building codes, permitting, land use regulation,” Young says. “We’re not saying get rid of all the stuff that keeps us safe, but then there are some things like zoning regulations that are more about creating little segmented uses of land, and we’re one of the only countries that sets up land for only a single purpose.”

More from U.S. News

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What Is Affordable Housing? originally appeared on usnews.com

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