June 08, 2001

 

2001-R-0316

RENT LIMITS IN CHFA-FINANCED MULTI-UNIT BUILDINGS

 

By: John Moran, Research Analyst

You asked if there are rent limits and rent increase caps for multi-unit buildings financed by the Connecticut Housing Finance Authority (CHFA). You also wanted to know if state law requires landlords to pay for water in rented housing units.

There are rent limits and rent increase caps for CHFA-financed multi-unit dwellings that use CHFA bonds or the federally authorized Low-Income Housing Tax Credit Program, the most popular CHFA program. The rent limits apply to the units set aside for low-income people. While only a percentage of the units must be set aside to qualify, CHFA notes that in most of their projects the developer designates all the units for low-income people to maximize the project's tax credit.

The federal Department of Housing and Urban Development (HUD) calculates the maximum allowable rents based on a percentage of an area's median income (AMI). For example, in one financing option the developer must set aside at least 20% of the units for people earning 50% of the AMI. (See Table 1 for maximum one- and two-bedroom rents under this option in Connecticut's 13 areas and the Worcester, MA area that includes Thompson, CT.) Maximum monthly rents are determined by multiplying the income for a particular income group by 30% and then dividing by 12 (months). Thirty percent is the maximum allowable amount of a household income that can be spent on rent. HUD makes these calculations for four different low-income groups earning the following percentages of the AMI: (1) 80%, (2) 60%, (3) 50%, and (4) 25%. HUD calculates maximum rents for each (1) area of the state, (2) income level, and (3) unit size from efficiency to four bedroom (see Attachment I for current complete lists for all areas in the state).

Each year HUD calculates new rent limits. The rent in any existing unit cannot be raised above the new rent limit level. Table 1 shows a comparison of sample 2000 rent limits to the new 2001 limits. But other factors may prevent a rent increase from reaching the maximum allowable rent. CHFA asset managers review the income, expenses, and market conditions of any existing CHFA-financed project to determine whether a rent increase is warranted. CHFA must approve any rent increase, and the increase must remain within the HUD limits. If a Low-Income Housing Tax Credit project is either privately financed or financed through a public entity other than CHFA, it also must remain below the HUD limits. Leases may include a clause allowing rent increases during the life of the lease if new HUD limits are expected during the lease. If the lease does not contain this clause, no increase can take place until the lease expires.

State law requires landlords to provide hot and cold water, but it does not require them to pay for it. Maximum rent in CHFA-financed units that qualify for the federal Low-Income Housing Tax Credits must be reduced by an utility allowance for tenants who pay all or some utilities.

Table 1: Sample CHFA Maximum Allowable Rents in Multi-Unit Buildings (For units designated for residents earning 50% or less than area median income)

Area

One-Bedroom Units*

Two-Bedroom Units*

 

Effective

Effective

Max

Effective

Effective

Max

 

Mar-00

Mar-01

Increase

Mar-00

Mar-01

Increase

             

    Bridgeport PMSA**

$677

$720

$43

$846

$900

$54

             

    Danbury PMSA

$873

$873

$0

$1,092

$1,092

$0

             

    Hartford PMSA

$612

$648

$36

$766

$811

$45

             

    New Haven-Meriden PMSA

$606

$635

$29

$757

$793

$36

             

    New London-Norwich MSA

$552

$582

$30

$690

$728

$38

             

    Stamford-Norwalk PMSA

$1,023

$1,057

$34

$1,280

$1,322

$42

             

    Waterbury MSA

$580

$607

$27

$725

$758

$33

             

    Hartford Non-MSA

$632

$670

$38

$790

$837

$47

             

    Litchfield Non-MSA

$563

$583

$20

$705

$730

$25

             

    Middlesex Non-MSA

$647

$678

$31

$810

$848

$38

             

    New London Non-MSA

$590

$623

$33

$737

$780

$43

             

    Tolland Non-MSA

$552

$582

$30

$690

$728

$38

             

    Windham Non-MSA

$552

$582

$30

$690

$728

$38

             

    Worcester, MA MSA

    (only includes Thompson, CT)

$543

$570

$27

$680

$712

$32

             

    *Table shows rents for the larger of two possible sizes for both one- and two-bedroom units.

    **For the individual towns included in each primary metropolitan statistical area and each metropolitan statistical area see Attachment I.

JM:ro

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