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Affordable Housing Basics

Affordable Housing

Housing is considered affordable for a particular family or individual if it costs equal or less than 30% of their income. For example, for a family that has an income of $60,000 annually, housing that costs $18,000 per year ($1500 per month) would be considered affordable. Thus, whether a particular housing option is affordable is relative to financial position of the family or individual in need.

On a larger scale, the median household income (MHI) for a particular area is used as an indicator of what a significant portion of households in that area can afford. The MHI takes into account the incomes of all households in a particular area and adjusts the outcome based on the number of individuals in the household. If the incomes of all households in the area were arranged in order from largest to smallest, the MHI would be the number that is in the exact middle of the list. Households are grouped based off their earnings in relation to the median in the form of a percentage. For example, if the MHI in a particular area is $50,000 for a family of four and a family of four in that area makes $15,000, that family earns 30% of the MHI which is considered “extremely low income”, whereas a family of four in the same area that makes $60,000 earns 120% of the MHI which is considered “moderate income”.

“Affordable housing” is housing that is affordable (30% or less of total income) for households that earn 60% or less of Davidson County’s MHI.

Workforce Housing

“Workforce Housing” is housing that is considered affordable (30% or less of total income) for households that earn more than 60% but less than 120% of the MHI. Thus, in 2014 for example, workforce housing in Davidson County was any housing that was affordable for a 4-person household earning between $36,044 and $72,089.

Income Limits

Income limits is the system by which the U.S. Department of Housing and Urban Development determines whether a particular individual or family qualifies for one of their housing related programs. See below for the 2016 Income Limits Summary for Nashville-Davidson-Murfreesboro-Franklin, TN. These limits are based upon income medians for a 10-county region which includes Davidson County.

HUD FY2016 Income for Nashville-Davidson-Murfreesboro-Franklin, TN MSA per number of persons in family
FY 2016 Income Limit Category 1 2 3 4 5 6 7 8
Very Low (50%) Income Limits ($) 24,000 27,400 30,850 34,250 37,000 39,750 42,500 45,250
Extremely Low (30% AMI) Income Limits ($) 14,400 16,450 20,160 24,300 28,440 32,580 36,730 40,890
Low (80%) Income Limits ($) 38,400 43,850 49,350 54,800 59,200 63,600 68,000 72,350

Incentives

Incentives in the housing context are government subsidies available to developers who create affordable and workforce housing options in developments. The development must meet certain guidelines such as location within the metro area and a particular ratio of affordable units to market rate units within the development. In exchange for making a particular amount of units affordable, the Nashville Metro Government will pay developers the difference between what the income generated from the affordable units and the income the units would have generated if they had been priced at the market rate. Incentives are used to encourage developers to create affordable and workforce housing options without mandating that they must do so.

Grants

A grant is a sum of money given by the government, usually created by legislation and allocated out of a larger public budget, for a particular purpose. Generally, a grant is available to an entity that meets certain qualifications or creates a plan on how the grant will be used should they receive it. For example, in the affordable housing context, a grant might be made available for the purpose of supporting a community’s homeless population. A nonprofit in the community may then petition to receive the grant based on their intention to use it to create housing options for the homeless. The Barnes Fund for Affordable Housing will provide grants to nonprofit housing developers to provide affordable units.

Barnes Fund

The Barnes Fund is $16 million in funding that is committed to addressing housing needs specifically for individuals and families at or below 80% of the Area Median Income. The Fund makes competitive grants to nonprofit housing developers to increase affordable housing options for Nashvillians. Grants include funding for renovation or construction of affordable homeownership and rental opportunities and other supportive efforts to encourage affordability. Funds can be leveraged by nonprofit developers with other existing tax credit and funding programs. In 2016-17 the Fund will consist of $16 million - $10 million from the General Fund, $5 million from the sale of the old convention center, and $1 million already existing in the Fund.

Potential Barnes Fund Activities
Funding Program Type Activities Description Potential Applicants / Stakeholders
Competitive Grants
  • Acquisition/rehabilitation
  • Acquisition/new construction
  • Acquisition for future housing development
  • Continue existing programming to allow for rental/ homeownership opportunities
  • Non-profit housing developers
Housing Preservation
  • Encourage repair/rehab programs
  • Acquire/rehab existing rental projects
  • Rental assistance/utility allowances
  • Provide funding/financing for organizations, landlords, property management companies to continue affordability
  • Provide funding to existing non-profits providing services
  • Non-profit housing developers
  • MDHA
Creative Financing
  • Down Payment Assistance (DPA) programs
  • Low interest loans to developers
  • Work with Community Development Financial Corporations (CDFIs) on financing options for developers
  • Local and national CDFIs
Innovation in Housing
  • Teacher/First Responders housing programs/Artists (DPA/other)
  • Energy efficiency
  • Extremely low-income housing development
  • Supportive housing
  • Provide funding for innovation in housing criteria to incentivize mixed-income/equitable development
  • MNPS
  • Non-profit housing developers
  • Metro planning
  • Private developers
  • MDHA
Impact Analysis
  • Tracking, monitoring, and reporting
  • Non-profit capacity-building
  • Economic impact analysis
  • Dedicate a portion of funding for administering/ compliance/monitoring the various activities of the fund
  • Mayor’s Office
  • Metro Departments

Gentrification

Gentrification is the process of buying and renovating traditionally low-income areas, thus appealing to middle and upper-class residents and patrons. The result is an increase in the property value of the area that often displaces local residents who can no longer afford to pay housing and other increased costs. Over time, gentrification can contribute to the concentration of poverty and the relocation of families that may have lived in a particular neighborhood for multiple generations.

Poverty

Poverty is the state of one with an extreme lack of money, possessions, or resources. Those in poverty often lack an adequate amount of the basic necessities of life such as food, clothing, and shelter. Poverty also usually indicates a lack of social and political resources, often as a result of concentrated poverty in a particular geographical area. Determining whether an individual or family is in poverty at the federal level depends on a variety of factors including age and size of the family. See below for federal poverty levels table according to the U.S. Department of Health and Human Services.

2014 Federal Poverty Level
Household Size 100% 133% 150% 200% 250% 300% 400%
1 $11,670 $15,521 $17,505 $23,340 $29,175 $35,010 $46,680
2 $15,730 $20,921 $23,595 $31,460 $39,325 $47,190 $62,920
3 $19,790 $26,321 $29,685 $39,580 $49,475 $59,370 $79,160
4 $23,850 $31,721 $35,775 $47,700 $59,625 $71,550 $95,400
5 $27,910 $37,120 $41,865 $55,820 $69,775 $83,730 $111,640
6 $31,970 $42,520 $47,955 $63,940 $79,925 $95,910 $127,880
7 $36,030 $47,920 $54,045 $72,060 $90,075 $108,090 $144,120

Low-Income Housing Tax Credit

The Low-Income Housing Tax Credit program (LIHTC) gives State and local LIHTC-allocating agencies the equivalent of nearly $8 billion in annual budget authority to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households. The funds are used to incentivize developers to invest in affordable housing projects that otherwise would not be profitable. The LIHTC gives investors a dollar-for-dollar reduction in their federal tax liability in exchange for providing financing to develop affordable rental housing. Investors’ equity contribution subsidizes low-income housing development, thus allowing some units to rent at below-market rates. In return, investors receive tax credits paid in annual allotments, generally over 10 years. Financed projects must meet eligibility requirements for at least 30 years after project completion. In other words, owners must keep the units rent restricted and available to low-income tenants. At the end of the period, the properties remain under the control of the owner. Learn more about the LIHTC process.

Tennessee Housing Development Agency

Tennessee Housing Development Agency logoThe Tennessee Housing Development Agency was created by the Tennessee General Assembly to promote the production of more affordable new housing units for very low, low and moderate income individuals and families in the state, to promote the preservation and rehabilitation of existing housing units for such persons, and to bring greater stability to the residential construction industry and related industries so as to assure a steady flow of production of new housing units. In addition, THDA also issues tax-exempt Mortgage Revenue Bonds to support financing opportunities for first-time homebuyers and veterans.

Metropolitan Development and Housing Agency

Metropolitan Development and Housing Agency logoThe Metropolitan Housing and Development Agency (MDHA) is Nashville’s largest developer and administrator of affordable housing and administers funds allocated to Nashville from the federal government. One service MDHA offers is federally funded rent supplement programs (housing voucher) designed to help families find decent, safe and sanitary housing in the private market and to help those families with the cost of rent and utilities. MDHA also administers several federal programs on behalf of Metro Nashville including the Community Development Block Grant (CDBG) program, HOME Investment Partnership (HOME) program, Emergency Solutions Grant (ESG) program, and Housing Opportunities for Persons with HIV/AIDS.

Data derived from 2014 census.