After more than 40 years in the affordable housing business, I still occasionally get the question as to why federal rental assistance – such as Section 8 – is not counted as income. After all, it is a regular, recurring payment made on behalf of a household, and it does not appear to be excluded income under HUD regulation. I advise my students and clients on a regular basis that unless income is specifically excluded by HUD regulation (as outlined in Exhibit 5-1 of HUD Handbook 4350.3), it should be counted as income for purposes of all federally assisted housing programs (and most state and local affordable housing programs as well).
It is true that rental assistance is not shown as a specific excluded income in HUD regulations. This is because the language in the Included Income section of Exhibit 5-1 and in the underlying statute (The Housing Act of 1937) eliminates the need to specifically exclude rental assistance.
The Housing Act of 1937 requires that persons renting housing in programs covered by the Act pay the greater of 30% of adjusted income or 10% of gross income in rent. Based on this requirement, federal rental assistance cannot be counted as income because if it was counted as income, the result would be a circular calculation and neither the income nor the rent could be determined. A quick example illustrates the problem.
Assume a household with gross income of $20,000 and adjusted income of $19,040. Ten percent of gross income on a monthly basis is $167 and 30% of adjusted income on a monthly basis is $476, so the household’s monthly rent will be $476. On an annual basis, this is $5,712. If added to the gross income, the gross income would be 25,712 and the adjusted income would be $24,752 – the required rent would be $619. Of course, this would have to be added to income, making the new income $32,178, the new adjusted income $31,218 and so on – ad infinitum.
In short, if rental assistance, that is adjusted based on income, is counted as income, neither the rent nor the income could ever be determined. While hard to discern, this is actually addressed in the Included Income Section of HUD Handbook 4350.3, Exhibit 5-1. Number 7 of the Included Income section states that “Periodic and determinable allowances” should be counted as income. As shown above, if counted as income, the amount of rental assistance is not “determinable,” and therefore is not considered income.
This same requirement should be applied to state or local rental assistance that is paid (and adjusted) based on the income of the family receiving assistance. However, if any rental assistance is determinable (i.e., does not change regardless of the income of the household), it should be considered income and added to the gross income of the household.