How rent is determined for Detroit’s affordable housing

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A long-vacant building at Cass and Henry in Cass Corridor will be renovated and include affordable housing units. Yet, some apartment prices will still be out of reach for city residents with low incomes. (BridgeDetroit photo by Louis Aguilar)

As City officials tout developments aimed at increasing affordable housing, there’s a key measure to understand how many Detroiters can actually afford the rent. 

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That measure is area median income, or AMI. Virtually every affordable housing development uses the formula to figure out below-market rent. The formula is used to try to keep housing costs at one-third or less of a household’s total income. 

The challenge is that the measure includes suburban incomes where the median income can be between $20,000 to $40,000 higher than the median income of Detroiters. That skews the AMI higher and makes some affordable housing units too expensive for city residents with lower incomes.  

City officials recently announced five separate affordable housing projects that use AMI to determine the rent. Some of the units will be reserved for people who earn up to 80% AMI. For a one-person household, 80% AMI is someone who earns $44,000 a year, for a four-person household it’s $62,800. The lower the percentage of AMI means the less a person earns, the cheaper the monthly rent.


A huge gap between Detroit and Wayne County 

The AMI for affordable housing in Detroit is based on the median income for the Detroit-Livonia-Warren area. There is a huge gap in income between Detroit and the rest of the county. 

The current AMI for a 2-person household is $62,800. Detroit’s median household income is an estimated $30,000, according to City documents. In Livonia, household income is close to $80,000 and in Warren it’s about $50,000 annually. 

Here’s how that translates into monthly rent: 

  AMI and rent limits for a two-person household
  30% AMI 40% AMI 50% AMI 60% AMI 80% AMI
Income $18,840 $25,120 $31,400 $37,680 $50,240
Rent, 1 Bedroom $471 $628 $785 $942 $1,256

Most of Detroit’s affordable housing units, particularly units that have already existed and have been recently preserved, have rents between the 31% to 50% AMI levels. A City-commissioned study shows that the Detroiters who need the most help in finding affordable housing earn well below 60% AMI, which translates into a two-person household making less than $37,680 a year.

Here’s the breakdown between newly-built affordable housing units and those that already existed and have been preserved in the past several years. 

AMI breakdown of new units. 

AMI Number of affordable units (% of total) Monthly rent limit for 2-bedroom unit. Income range for 2-person household
30% or below 200 (15%) $353 to $530 $12,560 (20 % AMI) to $18,840
31-50% AMI 29 (2%) $618 to $883 $19,468  to $31,400
51-60% AMI 701 (53%) $972 to  $1,060 $32,028 to $37,680
61-80% AMI 386 (30%) $1,237 to $1,414  $38,308 to $50,240
Total: 1,316

AMI breakdown of units preserved. 

AMI Number of Units (total percentage) Monthly rent limit for 2-bedroom unit Income range for 2-person household
30% or below 1,638 (30%) $353 to $530 $12,560 (20 % AMI) to $18,840
31-50% AMI 2,268 (41%) $618 to $883 $19,468  to $31,400
51-60% AMI 1,120 (20.5%) $972 to $1,060 $32,028 to $37,680
61-80% AMI 464 (8.5%) $1,237 to $1,414 $38,308 to $50,240
Total: 5,490

Rent is determined by three factors: household income, the number of people in the household and number of bedrooms. To get a sense of the range of rents available and the income levels for various AMI’s, go to this chart.  

Why the AMI gap persists

The AMI is used by developers in exchange for getting tax subsidies and abatements. Without those incentives, even non-profit developers could not afford Detroit projects. 

“You really need the credits to make the project financially viable, it’s that simple,” said Joe Hall, vice president of development for Wallick Communities. The Ohio-based firm, which specializes in affordable housing, is partnering with the nonprofit Presbyterian Villages of Michigan to renovate the former Lewis College of Business on the city’s west side into affordable senior housing development. The college closed in 2013 and was Michigan’s only historically Black college.

The $20 million project will repurpose the former college into 105 units within two existing buildings and construction of a new four-story building.

All of the units will be affordable, with rents determined by income and ranging from $335 to $765 a month. The lower the rent the more the developer needs to figure out a way to compensate for the loss of revenue, Hall said. 

 “The only way we can support a 30% AMI unit is by having an 80% AMI unit,” he said. 

Figuring out the finances to create more affordable housing units is daunting, said Julie Schneider, director of Detroit’s Housing & Revitalization Dept. She cited data developers give to Michigan State Housing Development Authority that breaks down the cost to operate a single unit. Those costs are related to maintenance, infrastructure, etc. 

“Generally, that’s about $550 to $600 a month. If you are talking about households that can afford $300 to $400 a month, you can see that you are already in the negative,” Schneider said. “That’s why developers are looking for subsidies to make it feasible for much lower rent.”

The Osi Art Apartments in Detroit’s Woodbridge neighborhood, to be completed in 2022, will reserve fifteen of 30 units for affordable housing. Developers plan to set aside those units for households at 80% of the area median income, or a $40,000 to $60,000 income range. Yet, Detroiters who need the most help finding housing earn well below 60% of the area median income. (URGE Development Group rendering)

Why the AMI can’t be adjusted 

The U.S. Department of Housing and Urban Development sets the area income guidelines. Recently, Detroit Council President Pro Tem Mary Sheffield explored whether the city could create its own formula but the City’s Law Department issued this analysis that essentially said no. 

Still, the Law Department’s analysis offered alternatives. 

The City could provide finance and planning incentives for developers such as, zoning variances, fee reductions or waivers, density bonuses and an expedited permit process. 

Detroit could lease city-owned land to developers at a discounted price in exchange for 20 to 50% of units at low-income levels.

Lastly, the Law Department suggested incentivizing developers to build modular and manufactured homes that are cheaper than traditional homes. 

Meanwhile, analysts contend challenges remain to support affordable housing. Rising construction costs, material shortages and labor issues were exacerbated by the pandemic. 

“Resources are limited both locally and especially nationally,” Schneider said. “We have seen very few resources allocated nationally for the past 50, 60 years.”

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