WHAT IS AFFORDABLE HOUSING?

It’s a question that often gets asked. What do we mean when we talk about “affordable housing”? And what exactly is “deeply-affordable” housing? As you’ll see, the federal government has a definition that it, and most everyone else, uses. But there are other “affordable housing” calculations that factor in to discussions about housing in HUB West Baltimore. All of the definitions are important to understand.

Federal Definition

The federal government - specifically the Department of Housing and Urban Development (or HUD) - defines Affordable Housing as “housing on which the occupant is paying no more than 30 percent of gross income for housing costs, including utilities.” This is a key number for many projects that use federal funding for, at least in part, affordable housing creation and preservation.

State of Maryland Affordable Housing, as Defined by HB1239

MD State House HB1239 “Appraisal Gap” bill provides for a 35% subsidy for developers renovating vacant houses and selling them as affordable housing. In that bill, affordable was defined as a scenario in which “monthly housing costs do not exceed 30% of a household’s income, where the household’s income does not exceed 80% of the statewide median income for a household of like size.” Maryland median household income is around $85,000. So 80% of that would be $68,000. A further 30% of that would be $20,400 per year, or $1,700 per month. So that’s how much total monthly housing costs must not exceed - $1,700.

“Deeply-Affordable” and “Workforce” Housing

“Deeply affordable” refers to housing that’s priced for families earning no more than 30 percent of Area Median Income (AMI), which in the Baltimore area is $15,000 a year. “Workforce housing,” meanwhile, is usually priced for households earning at least 60 percent of AMI, or $30,000.

Baltimore City housing code breaks it down even further into “extremely low, very low, low and moderate”.

HB 1239 Scenarios

HB 1239 is a bill with tremendous possibilities, in a city with both a wealth of vacant properties, and a great need to put in place affordable housing. Some general calculations reveal that the bill would be helpful in creating what it defines as “affordable housing”, but only partially helpful in creating “deeply affordable” housing.

  • Affordable Housing: If a house is acquired and renovated for $180,000, and sold for $120,000, then the estimated total monthly housing costs for the new buyer would be around $1,200. Those monthly housing costs would equate to approximately 30% of a $50,000 annual income - which is exactly the median household income for Baltimore City.

    The builder is then subsidized for the difference between the development cost and the sale price (the “Appraisal Gap”), so $180,000 - $120,000, or $60,000

  • Deeply-Affordable Housing: If the goal is to get to a point where a vacant property can be renovated for “deeply-affordable” housing, then the subsidy must be greater - and that’s where the federal Cardin Neighborhood Homes Investment Act comes in (or a potentially analogous bill at the city level). Scenarios that include renovated vacant properties being sold for $75,000-$85,000, with monthly housing costs of $700-$900, then become a possibility.