Planopedia

The Area Median Income (AMI) describes the midpoint of an area’s income distribution, where 50 percent of households earn above the median figure while 50 percent earn less than the median. The Department of Housing and Urban Development (HUD) defines ‘area’ as a Metropolitan Statistical Area (MSA). Calculating AMI this way assumes that a metropolitan area, including suburbs and exurbs, is an appropriate measure because people will seek housing in a broad geographical area, not just in the central cities where they work. 

The AMI was introduced into federal housing policy with the Housing Act of 1937, which institutionalized public housing. Today, metropolitan AMI is used to set income limits for most publicly funded affordable housing programs in the United States. While it may at first glance seem like a simple metric, AMI, and the reliance on it to determine income eligibility for housing programs, raises questions about the effectiveness and equity of government affordability measures and housing assistance eligibility thresholds.

The Department of Housing and Urban Development (HUD) calculates AMI for U.S. metropolitan areas on an annual basis. Household income is compared to the local AMI as a percentage to determine various eligibility categories. Most housing programs put households into three categories: those making below 80 percent of AMI (low-income), those making less than 50 percent of AMI (very low-income), and households making less than 30 percent of AMI (extremely low-income). In the government’s definition, ‘affordable’ housing units must not cost more than 30 percent of a household’s income. Thus, developers must find a way to subsidize the remaining cost, in part through incentive programs. When income eligibility is defined as making 60 percent or less of AMI, for example, developers can set rents at 30 percent of that figure—likely putting their units out of reach for the lowest-income renters making much less than 60 percent of AMI. 

In 2017, a congressional committee asked HUD to evaluate its current methodology and assess the potential for using “more localized methodologies.” The resulting HUD assessment showed that setting income limits at smaller scales, such as ZIP code, would likely increase the administrative complexity of the process and harm tenants if new eligibility limits would prevent them from renting in all neighborhoods. Based on its findings, HUD asserted the agency’s belief that AMI calculations should remain at the metropolitan area level, but that decoupling maximum rent levels from regional income limits and tying them to more localized AMI figures would lead to more equitable outcomes.

While proponents defend the region-wide metric, arguing that people will seek housing in a broad geographic area, thus making the metro area a more appropriate unit of measurement than cities or ZIP codes, critics of this approach say the region-wide metric has the same effect of disadvantaging poor families, pushing the AMI higher by including wealthy suburbs in the same group as lower-income central city neighborhoods. One analysis looked at how AMI in the San Francisco area lined up with typical jobs, showing that, for example, a household made up of a fast food cook and a paramedic would not qualify for many affordable housing programs, despite the high costs of housing in that region.

For example, in the Washington, D.C. metropolitan area, home to some of the country’s wealthiest suburbs, the AMI is $117,000 for a family of four. This artificially inflated number, housing advocates argue, distorts reality and leaves many low-income households out of assistance programs. A Phoenix development promised ten of its units would go to households earning 30 percent to 60 percent of the county’s median income of $77,800. But the ZIP code where the development is located has a much lower AMI of $38,543, prompting concerns about the exclusion and displacement of the poorest residents making less than 30 percent of AMI.

Developers argue that allocating more units for the lowest-income households is not financially feasible for private builders, pointing to the need for public housing to supplement private affordable housing efforts.