New Law Imposes Income Cap on Public Housing Residents

A new law imposes an income limit on public housing tenants and requires stronger oversight of residents’ financial assets and job earnings.

If a public housing tenant’s income exceeds 120 percent of the area median income for two consecutive years, then the public housing authority must either evict the tenant, or charge the household the unit’s fair market rent or the government’s cost to maintain it—whichever is greater. The provision, which establishes for the first time an income threshold for those already living in public housing, is part of the 2016 Housing Opportunity Through Modernization Act (H.R. 3700).

President Obama signed the bipartisan bill into law on July 29. It’s a wide-ranging measure that makes several updates to the rental assistance and public housing programs.

A July 2015 inspector general audit on over-income families in public housing attracted a lot of congressional attention and sparked the change. The report found that roughly 25,226 families in public housing earned more than the 2014 income eligibility limits established by HUD – a legal, though somewhat controversial, practice. In one case in New York City, a family of four that had been living in public housing since 1988 had an annual household income of $497,911 in 2013. But the number of over-income residents identified in the audit represented just 2.6 percent of all public housing households, and in most cases the families in question were over-income by less than $10,000. The term “over-income” applies to those public housing households that earn more than the income threshold established for their locality.

Another impetus behind the income threshold change is to ensure that the neediest families aren’t being denied public housing because too many over-income residents are taking up space. Waiting lists for public housing (and housing choice vouchers) are notoriously long in many places.

Under current law, families have to meet certain strict income limits to qualify for public housing to begin with, but once accepted into public housing, individual households and families can stay as long as they like regardless of increased earnings, provided they comply with rental agreements and remain good tenants.

As a public housing tenant’s income increases, the government subsidy for their rent decreases until, depending on income level, the tenant pays the unit’s full rent. Public housing authorities already have the ability to evict over-income tenants, but it’s not always a simple decision: the presence of over-income households helps de-concentrate poverty in public housing and create sustainable mixed-income communities, and many of the PHAs count on the rent from over-income residents to help boost their budgets.

H.R. 3700 nails down a specific income threshold, but still gives public housing authorities and the Housing and Urban Development Department flexibility in dealing with over-income public housing residents. In addition to allowing public housing tenants to stay provided they pay the greater of the fair market rent or government subsidy, “HUD may increase or decrease the income limitation based on unique local conditions, such as construction costs, unusually high or low family incomes, vacancy rates, or rental costs,” a summary of the law said.

The non-partisan Congressional Budget Office estimated that roughly 2,100 public housing households would lose their government subsidy as a result of the new income threshold – a fraction of the 1.1 million families that receive public housing assistance in public housing units. But that doesn’t mean the government is going to save all money on those subsidies. “Because there is unmet demand for participation in HUD's rental assistance programs, CBO expects that families made ineligible would be replaced by families on waiting lists maintained by housing authorities,” the estimate said. “Replacing those newly ineligible families with families with average income would cost the government an additional $4,900 per family in 2017.”

CBO estimated the provision would cost $46 million between 2017 and 2021.

The Housing Opportunity Through Modernization Act also prohibits PHAs from renting a unit or assisting families “with net family assets exceeding $100,000 annually (adjusted for inflation) or an ownership interest in property that is suitable for occupancy,” with exemptions for certain circumstances, according to the law. PHAs have to review the incomes of families when they first apply for housing, annually and “any time the family’s income and deductions are estimated to increase by 10 percent,” the law stated. Tenants can request a review of their rental situation any time their income falls by 10 percent.

HUD also will have to make sure PHAs use existing databases to collect, verify, and report employment and income data, rather than relying on self-reported information from residents which can take longer to confirm.

Several Republicans and Democrats supported the overall measure, as well as many housing groups, including the National Low-Income Housing Coalition and the Council of Large Public Housing Authorities.