Housing is affordable if it costs no more than 30% of one's income. People who pay more than this are considered “cost burdened”; those who pay more than 50% are “severely cost burdened.” Affordable housing generally means affordable to lower-income people with incomes at or below 80% of area median income (AMI).
The Area Median Income (AMI) is the midpoint (Median = Middle) of a region’s income distribution – half of the families in a region earn more than the median and half earn less than the median. For housing policy, income thresholds set relative to the area median income—such as 50% of the area median income—identify households eligible to live in income-restricted housing units and the affordability of housing units to low-income households.
Low-income households and levels of affordability
Housing programs must address affordable housing needs within three levels of affordability:
• At or below 30% AMI
• Between 31 and 50% AMI
• Between 51 and 80% AMI
The U.S. Department of Housing and Urban Development (HUD) defines and calculates different levels of AMI for geographic areas across the country by household size. For the Boston area, HUD has defined the three levels of affordability as:
(source: http://www.bostonplans.org/housing/income,-asset,-and-price-limits)
Thinking about specific jobs helps make this more concrete.
For a four-person household with only one wage-earner, positions as home health aides or funeral attendants would provide an income at 30% of AMI;
positions as interior designers or bus drivers would provide an income at 50% of AMI;
and positions as accountants or police officers would provide an income at 80% of AMI. For a more in depth look at how full-time jobs do not always mean there are affordable housing choices, visit the Family Housing Fund’s website.
Having an income below these thresholds makes households eligible for certain housing programs (other social programs use thresholds relative to the federal poverty guidelines). For example, to be eligible for a Housing Choice Voucher, household income must be at or below 50% of AMI; a three-person household with an income up to $40,700 would be eligible for a voucher as would a five-person household with an income up to $48,850.
Translating incomes into affordable housing costs
These income levels are also a way to assess housing affordability.
We say that a housing unit is “affordable at 80% of AMI” if a household whose income is at or below 80% of AMI can live there without spending more than 30% of their income on housing costs. What this means in practice differs for rental and ownership units.
Affordable rents for housing units vary by the number of bedrooms in the housing unit. This is because the income limits vary by household size, and the number of bedrooms affects how many people a unit can comfortably house.