Utility Allowance

What Is a Utility Allowance?

A utility allowance is a monthly dollar amount that represents the cost of utilities a renter pays directly rather than through the rent. Typical examples are electricity, natural gas, heating oil, water, sewer, and trash collection.

Subsidized housing programs use it to treat households fairly. Without it, a tenant who pays a separate electric bill would spend more in total than a tenant whose rent includes electricity, even if both paid the same rent. HUD’s regulations define the allowance as the estimated monthly cost of reasonable consumption by an energy-conservative household of modest circumstances. Telephone service is excluded.

How a Utility Allowance Works

In the Housing Choice Voucher Program, the public housing agency (PHA) sets a utility allowance schedule based on typical costs for similar homes in the area. Key rules:

• The PHA must review the schedule every year and revise any category whose utility rates have changed by 10% or more since the last revision.
• The family gets the allowance for the smaller of the unit it actually rents or the unit size its voucher covers, unless a larger unit was approved as a reasonable accommodation.
• Cable and satellite television cannot be included.
• On request, the PHA must approve a higher allowance when a household member with a disability needs one as a reasonable accommodation.

The allowance then feeds two calculations. Added to the rent paid to the landlord, it produces the unit’s gross rent, which the agency compares with its payment standard to set the voucher subsidy. It also reduces what the household pays the owner, because the household’s total tenant payment is meant to cover rent and utilities together. In project-based Section 8, for example, tenant rent is the total tenant payment minus the utility allowance.

If the allowance is larger than the total tenant payment, the difference is paid out as a utility reimbursement, either to the household or, in some programs, directly to the utility company. In the voucher program, the reimbursement is the part of the subsidy that exceeds the rent to the owner.

Tax credit properties follow IRS rules instead, which leave out telephone, cable television, and internet service. Buildings assisted by the Rural Housing Service, or whose rents HUD regulates, use those agencies’ allowances. Other buildings generally use the PHA’s schedule, though owners may instead use a local utility company estimate, a state agency estimate, HUD’s Utility Schedule Model, or an energy consumption model prepared by a qualified professional. Owners must review the allowance at least once a year.

Example

Suppose a Low-Income Housing Tax Credit apartment has a maximum gross rent of $1,200 under its rent limit, and residents pay their own electricity. If the applicable utility allowance is $150, the owner may charge no more than $1,050 in rent. If the allowance were $100, the owner could charge up to $1,100. The choice of method therefore matters to both owners and residents.

Criticisms and Limitations

Allowances are averages for a unit type, not a forecast of any one household’s bill. A family in an older, poorly insulated unit may pay well above the allowance, while one in an efficient building may pay less. Schedules can also lag behind sudden rate increases between annual reviews.