What is Section 42 Housing? (FAQs)

If you're struggling to find an affordable apartment in an expensive city, Section 42 Housing may be an option for you. Depending on your income and the area you live in, you may be able to score a modern apartment in your dream neighborhood.

There are some eligibility requirements to consider. Here's more about how Section 42 housing works and whether or not it's the right choice for you.

What is Section 42 Housing?

Section 42 is a housing program and refers to an IRS code. Section 42 housing provides tax credits to investors to build affordable housing in exchange for a reduction in their taxes.

These subsidized apartments are designated to be more affordable for those who fall within a specific income range. The rent for each development may vary depending on the area you live in.

Section 42 housing is made possible by the Low-Income Housing Tax Credit (LIHTC). According to the Tax Policy Center, LIHTC subsidizes the acquisition, construction, and rehabilitation of affordable rental housing for low and moderate-income tenants.

However, the tax credits don't last indefinitely. LIHTC projects are required to comply with the income and rent tests for at least 15-years. However, the IRS requires the housing project to remain affordable for a minimum of 30 years.

Who's Eligible for Section 42 Housing?

Under the LIHTC, developers are obligated to meet an income test for tenants. A percentage of their units must be designated for tenants with an income less than the area's median income.

Renters’ income must be somewhere between 30% and 60% of the county’s average median income (AMI) for families of the same size. This is also referred to as the Area Median Income.

Additional assets like savings, stocks, scholarships, and alimony will also be factored in. However, a fancy car or personal items you own are not.

If you have a family, the number of dependents you have can also impact your eligibility. Renters will need to meet the eligibility requirements every year when renewing an apartment lease.

How to Find Section 42 Housing

You may find some apartment listings on your own that mention Section 42 Housing. However, the easiest and most reliable way to find Section 42 affordable housing is to go straight to the U.S. Department of Housing and Urban Development (HUD).

Go to the HUD website and select your state. Then, look for local resources and subsidized apartment searches. Scroll down until you'll see a section that says, "I Want To," and then click on "Get Rental Help." From here, you can select your exact area and learn more about rental assistance programs and requirements.

Section 42 Housing is also more common in big cities with notoriously high rents. You're more likely to find Section 42 housing in urban areas like San Francisco and New York. Larger apartment complexes will offer a greater percentage of affordable units.

How to Apply for Section 42 Housing

Once you identify Section 42 housing, you typically contact the property or community manager directly. You'll need to supply proof of income and will undergo a background check. Expect to fill out lots of paperwork to apply and prove you're eligible to receive an affordable lease.

How Much Will My Rent Cost with Section 42 Housing?

Your rent is capped based on your income situation and the income of the area you live in. If you qualify for Section 42 Housing, your rent in a participating building will be tiered from 30% to 60% depending on the area median income, or AMI. That means if your rent is 40% of the AMI, you'll pay 40% of the typical rent in your building.

Figuring out AMI and your rent may feel confusing. However, the good news is, you’re not responsible for figuring it out.

Participating properties know the rules, are legally required to follow them and will tell you what to expect. In other words, you won’t need to inform your landlord what they should charge you, but you should still have an idea of what to expect.

What's the Difference Between Section 8 and Section 42 Housing?

Section 8 Housing, often called public housing, offers housing choice vouchers to qualifying renters. Tenants typically pay 30% of their income towards rent. The government funds the rest directly to the landlord.

Section 42 Housing is typically found in newer or large apartment complexes. That’s not the case for Section 8 Housing. Renters may find Section 8 availability in rental houses, individual units in small complexes, and other accommodations.

Section 42 renters do not receive government assistance. Instead, it caps the rent to a specific amount depending on the area's average median income level.

Who Decides Which Buildings Get Section 42 Housing?

Section 42 Housing is a relatively new program that was created by the Tax Reform Act of 1986. According to the Affordable Housing Investors Council, the IRS allocates credits to each state based on its population size.

It makes sense that California will have more Section 42 Housing properties than states like Rhode Island. Expensive metropolitan cities will also have the most Section 42 housing. You're less likely to find Section 42 Housing in affordable cities.

Section 42 Housing is desirable for both developers and renters. Developers go through a competitive process to apply for the credits. They're required to meet strict federal criteria and state criteria.

States also prioritize projects that reflect the needs of the community. They're less likely to approve a Section 42 Housing project if it won't benefit the neighborhood and area.

Can College Students Live in Section 42 Housing?

Section 42 Housing is not typically available to a single student or college roommates living on the property. However, there are exceptions. A college student who meets the requirements and lives with another qualifying adult who is not a student could still be eligible.

There are also ways you can qualify for Section 42 Housing as a full-time student living alone. You may be eligible if you receive Title IV social security benefits, are a single parent with dependents, or recently left the foster care system within the last six years.

Some government-sponsored job training programs may also make a college student eligible for Section 42 Housing.

Are There Any Cons to Section 42 Housing?

Finding Section 42 Housing can be challenging to find, and the paperwork takes time. But when you're living in a city like San Francisco, the trade-offs for affordable rent are worth the effort.

You also need to stay diligent about your eligibility requirements. If your family size or income situation changes, you need to notify your landlord promptly. Failing to report your income correctly could lead to back rent charges or eviction.

The best bet is to stay in regular contact with your landlord. Err on the side of caution and report even minor changes in income and side hustles to ensure you're staying compliant with the rules and regulations.

Final Thoughts

Even if you're not eligible for Section 42 Housing in one city doesn't mean you won't qualify in another. Learn more about Section 42 Housing at the HUD website.