Housing - Shallow Subsidy

Sometimes developers receive certain types of financing to assist with the acquisition, construction and/or renovation of apartment properties in exchange for making rents affordable to people with low to moderate incomes. Rents are then set at a level that is affordable to households in a certain income range (e.g., 50% to 60% of the area median income). The developer must restrict rents at this level to households in this income range for a specified period of time, typically fifteen years or longer. Often, a specific number of units are designated for people in a certain income group, and everyone living in one of these units pays the same amount of rent. Rent is not calculated as a percentage of household income. For example, an apartment property might have several units designated for people with incomes at or below 50% of area median at a specific monthly rent, and several units designated for people with incomes at 51-60% of area median at another, slightly higher monthly rent. While flat rents targeted to people in specific income ranges are usually lower than the rents for similar units in market rate properties (hence the “shallow” subsidy), flat rents are not always affordable, especially for people at the lowest end of the income scale and those on fixed incomes (e.g., Supplemental Security Income or Social Security Disability Insurance). If the flat rent (including utilities) is more than 30-40% of the household’s monthly income, then it may not be a viable option for the household.