Are HOME Rents Staying Affordable?

The Home Investment Partnerships Program (HOME), created in 1990, is HUD's block grant program to increase the nation's supply of affordable housing. One of the principal uses of HOME funds is the acquisition, construction, and rehabilitation of rental units. As of April 2001, HOME had subsidized the development of nearly 253,000 rental units—43 percent of all HOME-assisted units. The law requires that these rental units remain affordable to people with low incomes for 5 to 20 years, depending on the nature and amount of the HOME subsidy.

To what extent is HOME meeting its legislative mandate to provide affordable rental housing? A new Office of Policy Development and Research publication, Study of the Ongoing Affordability of HOME Program Rents, examines this question. The primary goal of HUD's research was to determine the proportion of HOME-assisted rental units that were within affordability standards at least 2 years after initial occupancy. For those units found to be noncompliant, HUD also wanted to explain why rents were not within affordability limits. A secondary objective of the study was to estimate the rent burden of households living in HOME units and the extent of tenant-based assistance.

High Compliance With HOME Rent Limits

Slightly more than 95 percent of HOME-funded units had rents that were at or below program limits. Among compliant units average rents were 20 percent below program limits. Thus, the majority of HOME units are fulfilling HUD's goal of providing affordable housing. HUD researchers found little variation in compliance rates by property characteristics, such as property size, participating jurisdiction type, type of activity funded (new construction, acquisition, renovation, or a combination), and type of ownership (nonprofit or for-profit partnership).

In those relatively rare cases in which noncompliance occurred, the property manager misunderstood the treatment of other rental subsidies or the appropriate rent limits.

These findings suggest two types of responses by HUD to increase compliance rates. First, dissemination of program information about program rules, particularly those related to the treatment of rental subsidies and utility allowances, might raise compliance levels. Second, greater oversight and guidance by HUD of the participating jurisdictions' monitoring of property managers would also resolve many cases of noncompliance.

Rent Burdens and Use of Subsidies

The average rent burden (defined as the percentage of gross household income going to pay the rent) for households living in HOME units was 41 percent, with a median of 33 percent. Approximately 40 percent of all units were clearly affordable to their residents, based on a definition of affordability of 30 percent of income or less. Another 41 percent had rent burdens between 30 and 50 percent. Some 19 percent of households in HOME units had rent burdens above 50 percent.

HOME units tend to serve very low-income households. Eighty percent of families in HOME units had incomes at or below 50 percent of the area median for their household size. As expected, rent burden is greater for relatively poorer households. Rent burden for extremely low-income households averaged 53 percent, whereas households with incomes above 50 percent of the area median had average rent burdens of 26 percent.

Average rent burdens were higher and rents were more likely to exceed 50 percent of income for properties funded by metropolitan city participating jurisdictions, properties developed by nonprofits, and properties involving rehabilitation rather than new construction. According to the executive summary, the highest portions of households with rent burdens greater than 50 percent were found in the West, followed by the South and the Northeast. High rent burdens were least likely in the Midwest.

When available, tenant- and project-based housing assistance provided substantial relief. The average rent burden for the 22 percent of households who reported having tenant-based assistance was 36 percent, and slightly more than half had rent burdens of no more that 30 percent. Among households with very low incomes, the 47 percent who were not benefiting from housing assistance had rent burdens of 69 percent, compared with an average rent burden of 40 percent for those who did have rental assistance.

Study of the Ongoing Affordability of HOME Program Rents is available for $5 from HUD USER. Use the order form.