SECTION 2 GOVERNING MECHANICS

(HUD Methodology + LIHTC Structure + 1.5 Person Assumption)

2.1 How Area Median Income (AMI) Is EstablishedThe Low-Income Housing Tax Credit (LIHTC) program relies on income limits derived from the U.S. Department of Housing and Urban Development (HUD).

These limits are based on Area Median Income (AMI), which is calculated using data from the U.S. Census Bureau’s American Community Survey (ACS).

AMI represents the median household income for a given geographic area. By definition:50% of households earn more than the median, and 50% earn less.

However, a critical detail is that AMI is calculated based on households, not individuals.

A household may include:Dual-income earners Families with multiple working adultsShared living arrangements

This means that AMI reflects combined earning power, not single-earner conditions.

2.2 The 4-Person Household BaselineHUD establishes AMI using a 4-person household as the standard reference point.

All other household sizes are derived using fixed adjustment percentages.

HUD Household Adjustment ScaleHousehold Size% of 4-Person AMI1 person70%2 person80%3 person90%4 person100%5 person108%6 person116%These percentages are not calculated from actual local cost-of-living data per individual.

They are standardized ratios applied across all regions.

⚠️ Critical Implication

A single individual is evaluated against a system derived from multi-person household income structures, which can include multiple earners.This establishes the baseline from which affordability is calculated.

2.3 LIHTC Rent Calculation Method

The LIHTC program does not calculate rent based on what a tenant actually earns. Instead, rent is determined using a formula tied to AMI:Maximum Rent = 30% of a specified percentage of AMICommon tiers include:60% AMI units50% AMI unitsExampleIf:AMI (4-person household) = $80,00060% AMI = $48,000Then:Rent is based on $48,000, regardless of the tenant’s actual income

Key DistinctionRent is based on area income averages, not individual financial reality.

2.4 The 1.5-Person Per Bedroom AssumptionTo translate AMI into rent for specific unit types, LIHTC uses an assumed household size tied to unit size.Standard Assumption1-bedroom unit = 1.5 persons2-bedroom unit = 3 persons3-bedroom unit = 4.5 persons

Where Reality Breaks

There is no such thing as 1.5 people.This is not a real household—it is a mathematical construct used to increase the income level applied to smaller units.

Why This Matters

A 1-bedroom unit is priced based on:

The income level of 1.5 people

The income of a single individual

Resulting Effect

A single tenant:Pays rent based on more than one income source

Even though:Only one income exists