In a September 2023 column, I noted that Area Median Income (AMI) is what people talk about when they talk about programs to address the lack of affordable housing. Federal and state housing-assistance programs tie housing construction and loan support—low down payments, low interest loans, guaranteed loans, developer incentives—to an area’s AMI. Now let’s talk about how we can adjust the use of AMI for state programs to aid Great Barrington’s housing efforts.
Briefly, AMI is calculated by the Department of Housing and Urban Development (HUD) using local area census income data. Only full-time Great Barrington residents’ income is reflected in HUD’s Great Barrington AMI calculation. So if a person owns an out-of-area primary home and a second Great Barrington home, that person’s income for AMI purposes is considered only where they “reside.” Hmm, what could be wrong with that?
In the earlier column, I noted the problem with HUD’s AMI Berkshire County map. Today, let’s consider the (fixable) problem with the state’s use of AMI in determining which projects towns are permitted to support. While you can’t fight HUD, we are fortunate to have State Sen. Paul Mark, State Rep. Smitty Pignatelli, and, hopefully, Leigh Davis fighting for us in Boston. To our current—and future—representatives, here is the problem and, with your help, an easily implemented legislative solution.
HUD’s use of census income data works for typical small-town America where residents earn and spend locally such that housing costs track income levels. That is not what we have in Great Barrington, Stockbridge, Lenox, and other pockets around the state—think Cape Cod and the islands—where second homeowners, with incomes earned out of area, inflate local housing costs. New York City-second-home-owner incomes, for example, are exponentially higher than Great Barrington incomes, the higher income is excluded from HUD’s Great Barrington’s AMI calculation, yet this significant out-of-area income necessarily impacts housing and construction costs here. In pockets around the state, housing inflation occurs due to considerable out-of-area dollars chasing too few local construction workers and homes, propelling housing costs out of reach of local earners. If HUD included second-home owners’ incomes in its AMI calculations, the area’s real AMI would be substantially higher, thereby adjusting for inflated housing costs and enabling greater government assistance to local earners. But until HUD includes out-of-area second-home owners’ incomes in AMI, which will be never, we need to consider a state workaround.
State programs rely on HUD’s AMI (mis)calculation. For applicants earning between 80 percent and 120 percent AMI, various Massachusetts programs exist to assist rental and home purchasing efforts, and to incentivize developers. Exceeding these AMI values is very unrewarding. Since HUD won’t include second-home owners’ income data in an area’s AMI calculation, then Massachusetts needs to legislatively move the goalposts on the percentages of AMI for those communities where there is a disconnect between inflated housing costs and AMI.
For those areas where there is a disconnect between AMI and the local housing market due to external forces, I propose the state increases the AMI ceiling on housing support programs, thereby permitting residents that earn more than 100 percent AMI to participate in the housing assistance programs. The legislation would provide that in those areas impacted by second-home-owner-inflicted housing-cost inflation, the state will permit AMI participation up to 150 percent AMI rather than 120 percent AMI. If HUD can’t calculate the number right at the start, then the state can at least correct its implementation of the miscalculated AMI on the back end.
Let me explain how this can work in practice. In this space recently, we enthusiastically noted that Great Barrington Affordable Housing Trust Fund (GBAHTF) Board member Bill Cooke is investigating whether it’s possible to build charming 750-square-foot cottages for $225,000 each in Great Barrington. Mr. Cooke’s proposal is that if you can build the cottages for $225,000 each, GBAHTF would lend homeowners the downpayment of $15,000, and the homeowners would take out a mortgage of about $210,000 to finance the rest, amounting to about a third of their income. On paper, it sounds like a great plan. The reality, in Great Barrington, is that at $225,000, the plan will never get off the paper.
While I wish Mr. Cooke and GBAHTF all the success in the world, I have spent time recently chatting with local developers and have run the numbers provided. Mr. Cooke may determine otherwise in his investigation, but from what I have learned, you can’t build 750-square-foot cottages—charming or otherwise—for less than $285,000 in Great Barrington. But that doesn’t mean GBAHTF should just give up.
Under current state rules, to qualify for Mr. Cooke’s proposed cottages, homeowners could earn no more than 100 percent AMI at the time of purchase, which means a two-person household could earn not more than $81,200 and pay no more than about $2,000 per month in mortgage payments, about one-third of their income. The problem is that total payments on a $285,000 cottage would be about $2,600 per month, or 133 percent AMI. If the state adjusted Great Barrington’s housing program to permit up to 150 percent AMI, loan programs and other funding would support the proposed $285,000 cottages. The adjustment is not going to get hourly workers into housing or reduce housing cost inflation, but it will enable Great Barrington to expand workforce housing opportunities. And we desperately need to expand workforce housing. This is an easy mechanism to expand housing opportunities.
If we make the seemingly minor adjustment of increasing state assistance in impacted areas to 150 percent AMI, we can expand housing opportunities for working families. We know HUD isn’t going to change the way it calculates AMI, but I have faith our current—and future—representatives can make the case in Boston that second-home-owner-impacted areas deserve a legislative adjustment to meet our increasing housing challenges. If we want to make housing a cottage industry again in Great Barrington, this is one way we can do it.
