Rent Rules for Subsidized Properties: A Guide to LIHTC, HOME, and More
Not all properties participating in the Housing Choice Voucher (HCV) program are treated the same when it comes to Rent Reasonableness. If you own a property that also benefits from other government programs—such as Low-Income Housing Tax Credits (LIHTC) or the HOME program—the standard process of comparing your unit to the open market is often simplified or bypassed entirely.
Understanding these special rules is essential, as they can save you time and streamline the lease-up process.
The Streamlined Process for LIHTC and HOME Units
For investors with properties developed using LIHTC or HOME funds, the government recognizes that your rents are already subject to certain restrictions. Therefore, the PHA is generally not required to perform a full, market-wide comparability study. This is a significant administrative relief.
Instead, the reasonable rent is determined by a more straightforward, two-part test. The approved rent for the HCV family will be the lower of:
- The rent charged for other comparable, unassisted LIHTC or HOME units within the same property;
- The PHA’s applicable Payment Standard for that unit size.
The key here is that the comparison is internal to your property, not external to the broader market. You just need to ensure you aren’t charging the HCV program more than you charge your non-voucher tenants in similar units.
Important
There is a critical exception to this streamlined rule. If the rent you request for the voucher holder exceeds the rent you charge for other comparable LIHTC or HOME units in the building, the streamlined process no longer applies. In that specific case, the PHA must perform a full rent comparability study against other market-rate properties to determine if the higher rent is justified and reasonable.
The Rule for Other Federally Subsidized Properties
For properties with even deeper federal subsidies—such as those under the FHA Section 221(d)(3), Section 236, or Rural Development Section 515 programs—the rule is simpler still.
In these cases, the “rent to owner” is defined as the subsidized rent approved by the appropriate federal agency (e.g., HUD or Rural Development).
The PHA’s role here is not to conduct a Rent Reasonableness analysis. They must accept the rent set by the governing agency as correct. There is no comparison to market units or even to other units within the property. The rent is what the other program’s regulations say it is.
Note
For these types of properties, the approved rent will almost always be lower than the full market rent for a comparable unit. This is by design, as these programs are intended to provide housing at levels significantly below market rates.
Why These Units Are Excluded from Comparability Databases
You may wonder why these specialized units are carved out with their own rules. The answer lies at the heart of the Rent Reasonableness principle: to tether program rents to the true, unassisted private market.
- Avoiding Distorted Data: LIHTC, HOME, and Section 236 units are, by definition, not part of the unassisted market. Their rents are already restricted or controlled by a government program.
- Preventing Circular Logic: Using a rent-restricted LIHTC unit as a “comparable” to determine the market rent for an HCV unit would be faulty logic. It would create a closed loop where subsidized rents are used to justify other subsidized rents, effectively disconnecting the program from real-world market conditions.
To prevent this distortion, PHAs are required to exclude all such assisted and subsidized units when building their databases of market comparables. This ensures that when they evaluate a standard, market-rate property, the comparison is fair, accurate, and reflective of the true unsubsidized rental landscape.