In Practice
A utility allowance is an estimate of what a typical household pays each month for utilities the resident is responsible for, such as electricity, gas or water. Affordable housing programs use it because housing cost includes more than rent. If the resident pays utilities, the allowance is counted as part of housing cost.
In Low-Income Housing Tax Credit properties, the rent plus the utility allowance must stay at or below the maximum gross rent. That means the more the utility allowance is, the lower the rent you can charge. In voucher and HUD-assisted programs, the allowance is subtracted from the household's share of rent, and sometimes results in the owner paying the resident a utility reimbursement. Allowances differ by unit size, building type and which utilities the resident pays.
Example: the maximum gross rent for a unit is $1,200 and the utility allowance is $150. The maximum rent you can charge is $1,050, since $1,050 plus $150 equals $1,200. Numbers here are only an example, so use your agency's schedule.
The common mistakes are using an old schedule, using the wrong unit type, and forgetting to update after a change in who pays utilities. Allowances are updated at least yearly. Ask your compliance contact which schedule applies, and check the program's rules.
How to find the maximum rent you can charge
Take the maximum gross rent for the unit, then subtract the utility allowance. Example: a $1,200 maximum gross rent minus a $150 allowance means a maximum rent of $1,050. These are example numbers, so use your agency's current schedule.
Not to Be Confused With
A utility allowance is an estimate used in affordable housing rent limits. A utility reimbursement is a payment or credit in a billing arrangement.
Utility Allowance: Common Questions
What is a utility allowance?
An estimate of tenant-paid utility costs that programs use to set rent limits or calculate a household's rent share.
How does a utility allowance affect rent?
It lowers the maximum rent in tax credit units, since rent plus allowance must stay under the limit, and reduces the resident's share in subsidized programs.
How often do utility allowances change?
Schedules are generally reviewed at least once a year, so check for updates and use the right effective date.
