For the last 40 years, Friendship Court has been a home for extremely low-income families due to an ongoing financial operating subsidy, federal Project-Based Section 8 rental assistance.
Just over a week ago, we received notification that a new 20-year Section 8 contract for Friendship Court was awarded! Nearly two years ago, knowing the original Section 8 contract expired this year, we began planning for this new contract. We are deeply excited that families at Friendship Court have certainty their housing is secure for many years to come.
Why is this important?
The Section 8 contract is important for two reasons. First, planning a balanced operating budget is critical to long-term financial sustainability for the property. Second, providing homes for extremely low-income families with rents they can afford requires operational subsidy. This post will take a look at how Section 8 rental assistance helps balance operating expenses with income sources.
Operating expenses include debt payments, onsite staff salaries, saving for long-term replacement reserves, and many other costs. With the exception of debt payments, which can be controlled through subsidizing construction costs, operating expenses generally stay the same no matter how deeply affordable a community is. In other words, operating expenses stay steady, regardless of how much rent residents pay.
On the other side of the scale is the primary income source—rental income paid by the families who live in the community. Because families pay no more than a federally-mandated 30% of their income towards rent when living in subsidized affordable housing, the total amount of rental income to the property depends on the depth of affordability in the community. In other words, rental income to the property can change dramatically based on the income of residents.
How this works
Generally speaking, with deep construction subsidies keeping debt payments low, operating expenses and rental income can be balanced when the average family in a property has an income of ~50% of the Area Median Income (AMI).
In Charlottesville, if a family of three has a 50% AMI income, they make ~$38,400/year. As they would pay no more than 30% of their income towards housing, after accounting for utility costs, their monthly rent would be ~$750/month.
At Friendship court, the average family has an income of ~$11,000/year, which is ~15% AMI. This income translates to an allowable rent close to ~$150/month. This reduced rental income creates an operating deficit of ~$600/month per apartment. The resulting rental income to the property is not nearly enough to balance the property’s operating expenses.
Section 8 operating subsidy
The Project-Based Section 8 operating subsidy received from HUD bridges the gap between the operating costs of the property and the available rental income. The renewed 20-year Section 8 contract guarantees affordable rents to the families who call Friendship Court home!