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In California, the cost of housing is among the highest in the country, making affordable housing essential for many working families. The Area Median Income (AMI) is used to determine eligibility for many publicly-funded affordable housing programs, particularly through the Low-Income Housing Tax Credit (LIHTC).  

According to the Department of Housing and Urban Development (HUD), AMI is the midpoint of a region's income distribution, meaning that half of the households in that area earn more than the median and half earn less. AMI is calculated each year by HUD for metropolitan areas and regions in the United States. So, the demographics and AMI qualifications vary across the country.  

Below is a breakdown and overview of AMI qualification levels in California.  

• 50% of AMI: In California, renters earning 50% of the AMI often include low-wage workers in roles such as food service, retail, or hospitality. In a high-cost region like Los Angeles, this might equate to individuals earning around $40,000 annually or families of four with a household income of approximately $63,000. In San Francisco, these numbers change to $52,000 and almost $75,000, respectively. Workers at this level may include positions such as cashiers, restaurant staff, and home health aides.
  

• 60% of AMI: Households at 60% of the AMI include those earning a little more, but still facing housing cost burdens in competitive markets. For example, in San Diego, a single individual may qualify with an annual income of about $63,000, while a family of four might earn up to $90,000. Occupations at this income level might include teaching assistants, entry-level healthcare professionals, or office support staff.
  

• 80% of AMI: At 80% of the AMI in California communities, households may include individuals and families who are not eligible for market-rate rents but earn above typical LIHTC eligibility thresholds. In areas like Santa Clara County (which is home to San Jose), a household could earn between $103,000 to $147,000 depending on family size. Renters at this level may include public sector workers, such as school teachers, bus drivers, or police officers in junior roles, as well as early-career professionals in tech or finance industries.
  

• 100% and Above AMI: Although not typically part of affordable housing programs, understanding renters at 100% or above AMI helps illustrate the income disparities in California’s housing market. Renters at this level generally earn enough to afford market-rate housing but may still struggle with housing costs in extremely high-cost areas. Households in this category might include young professionals, mid-level managers, or dual-income households.

Understanding who qualifies for affordable housing helps tailor developments to meet the needs of local communities, ensuring a range of affordable housing options that reflect income diversity across the state. The diverse workforce in California, combined with the high cost of living, makes affordable housing at various AMI levels critical. As a result of these cost burdens, the need for housing support extends beyond traditional low-income families and into individuals and families that work in professions such as government, service and entry-level professionals. Expanding access to affordable units ensures that the entirety of the state’s workforce has the stability needed to thrive in the high-cost environment of California.

By: Belinda Lee, Director - Development

The Low-Income Housing Tax Credit (LIHTC) program has been an essential component of affordable housing finance since it was enacted as a part of the Tax Reform Act of 1986. Originally created as a tool to encourage public-private partnerships to increase the low-income housing stock, it has been modified several times. Since inception, it has supported the generation of more than 3.5 million affordable housing units nationwide.  

Through the LIHTC program, state and local LIHTC-allocating agencies have the authority to allocate approximately $10 billion in federal funds each year to issue tax credits for the acquisition, rehabilitation, or new construction of rental housing targeted to lower-income households. Generally, the state and local agencies award LIHTC credits to private affordable housing developers through a competitive process. Then, developers typically sell the credits to private investors to obtain funding.  

Only rental properties (e.g., apartment buildings, single-family homes, smaller multi-unit buildings) qualify for LIHTC. To qualify, the owners or developers of the affordable housing project must meet certain income tests for tenants and rent. Projects must pass one of the income tests below and agree to comply with these parameters for a minimum of 15 years (though some state agencies may require compliance for 30 years):

• At least 20 percent of the project’s units are occupied by tenants with an income of 50 percent or less of area median income (AMI) adjusted for family size.

• At least 40 percent of the units are occupied by tenants with an income of 60 percent or less of AMI.

• At least 40 percent of the units are occupied by tenants with income averaging no more than 60 percent of AMI, and no units are occupied by tenants with income greater than 80 percent of AMI.

LIHTC offers investors a dollar-for-dollar reduction in their federal tax liability in return for providing capital to support the development of affordable rental housing. This investment helps subsidize the construction of low-income housing, enabling the units to be rented at rates below the market value.

Investors can claim LIHTC credits, which are calculated by multiplying a credit percentage by the project's qualified basis, over a 10-year period once the affordable housing project is available for tenants. The tax credit is distributed pro rata over this period and can be applied to the construction of new rental buildings or the renovation of existing ones. LIHTC is designed to cover 30 percent or 70 percent of the costs for low-income units in a project. The 30 percent subsidy, known as the automatic 4 percent tax credit, applies to new construction with additional subsidies or the acquisition of existing buildings. The 70 percent subsidy, or 9 percent tax credit, supports new construction without any extra federal subsidies.

LIHTC is essential for the funding of affordable housing projects for several reasons:

• Incentive: By incentivizing private developers to invest in low-income housing projects, LIHTC helps to create and preserve affordable rental units for millions of families. The LIHTC program helps meet the growing need for affordable housing while also offering: Community Reinvestment Act (CRA) benefits to financial institutions, economic advantages for investors, tax revenue for state and local governments, and both construction and permanent job opportunities.
  

• Financial feasibility: Without LIHTC subsidies, most affordable housing projects would be financially infeasible. Rental properties eligible for LIHTC often have lower debt service payments and vacancies compared to market-rate housing. These properties usually experience a faster lease-up process.
  

• Housing supply: LIHTC-financed projects increase the housing supply in markets where development would otherwise be challenging.
  

• Rent burdens: The LIHTC program supports low-income families by lowering their rent burdens, allowing them to allocate more income toward other essentials or savings.

By making housing more accessible, LIHTC contributes to improved health and educational outcomes for residents, ultimately promoting social stability and enhancing quality of life. Its ongoing significance in combating housing insecurity makes LIHTC a vital tool for policymakers, developers and communities alike.

Affordable housing refers to housing that is reasonably priced, allowing low- and moderate-income individuals or families to live comfortably without spending an excessive portion of their income on housing. Typically, the standard guideline is that housing costs, including rent and/or mortgage payments and utilities, should not exceed 30% of a household's gross income.  

Affordable housing can come in various forms, including government-subsidized housing, public housing projects, and private developments that offer reduced rents or prices. The goal is to ensure that everyone has access to safe and decent living conditions regardless of their financial situation.

Market Rate vs. Affordable Housing

While housing affordability is currently an issue across the United States, there are several key differences between housing categorized as “affordable” versus “market-rate”. Understanding these differences is essential for addressing housing needs and creating policies that promote inclusivity and accessibility in housing markets.

1. Cost: One of the key differences between affordable and market-rate housing is the cost. Affordable housing is designed to be affordable for low- to moderate-income individuals and families and is often subsidized or regulated by government programs to keep rents or purchase prices below market rates. On the other hand, market-rate housing prices are determined by the open market, reflecting demand and supply without subsidies. These units can be priced at a level that many people, especially those with lower incomes, may find unaffordable.
   

2. Income Eligibility: In affordable housing, there are typically income restrictions for residents, which means that applicants must meet specific income criteria (e.g., earning below a certain percentage of the area median income) to qualify. With market-rate housing, because there are no income restrictions, anyone can rent or purchase the housing regardless of their income level.  

3. Regulations and Controls: While affordable housing is often subject to government regulations regarding pricing, tenant rights, and length of time units must remain affordable, market-rate housing is generally subject to fewer regulations, which allows landlords and developers more flexibility in pricing and terms. ‍

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‍Importance of Affordable Housing

According to the Pew Research Center, in 2020, 46% of American renters spent 30% or more of their income on housing, including 23% who spent at least 50% of their income this way. The same study indicated that about half of Americans (49%) see the availability of affordable housing as a major problem in their local community. Affordable housing is a cornerstone of a healthy society, contributing to individual well-being and broader economic and social stability. Key benefits of affordable housing include:  

1. Economic Stability: It allows individuals and families to allocate more of their income to other necessities like food, healthcare, and education, promoting overall financial health.
   

2. Social Equity: Accessible housing helps reduce inequality by providing opportunities for low- and middle-income families to live in safer neighborhoods with better access to resources and services and potentially save enough for down payments to participate in the American dream.
   

3. Community Development: Affordable housing fosters diverse communities, encouraging social interaction and cohesion, which can lead to stronger, more resilient neighborhoods.
   

4. Public Health: Stable housing is linked to better physical and mental health outcomes. When people have secure homes, they are less likely to experience stress and related health issues.
   

5. Economic Growth: Affordable housing can stimulate local economies by creating jobs in construction, maintenance, and related services, while also attracting businesses that benefit from a stable workforce.
   

6. Preventing Homelessness: Access to affordable housing is essential in preventing homelessness, which has far-reaching implications for individuals, families, and communities.