What Kentucky’s nonprofit food markets learn from their communities and each other
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Housing
Explainer: Housing Affordability
Why have housing prices increased so much in Lexington, and what is LFUCG doing about it?
What is Housing Affordability?
Lexington, like most cities in the US, is in a housing affordability crisis. Rent prices and home sale prices have increased dramatically since 2020 leading to Lexington residents having a harder time finding places to live within their budgets.
- The median rent increased 47% from 2019 to 2024. It's now around $1,104.
- 54.3% of renters in Lexington are housing cost-burdened, meaning they spend more than 30% of their income on housing.
- In January 2019, the median home sale price was $193,750. In January 2024, it was $310,343 - a 60% increase in five years
- 21.5% of homeowners are cost-burdened, and 6.8% are extremely cost-burdened.
The housing crisis has led to a number of consequential policy decisions, including creating a dedicated funding stream for the Affordable Housing Fund that the Lexington-Fayette Urban County Government (LFUCG) uses to support affordable housing projects, many amendments to Lexington’s planning and zoning processes to increase urban density and housing construction, and the expansion of the Urban Service Area.
There are two definitions to keep in mind for this issue:
- Housing affordability refers to how affordable housing is across the board in Lexington for all residents.
- Affordable Housing refers to housing where the rent and sale price are intentionally kept low for residents. Typically, Affordable Housing apartments and homes for sale are prices to be affordable for residents who make 60% or less of the city's median income.
Why does Housing Affordability matter?
Everybody needs a place to live! And everybody needs a place to live that is affordable. When people cannot easily afford housing, they are more likely to have a hard time paying for groceries, healthcare, and other basic needs. And the more expensive housing is in an area, the higher the risk for displacement of low-income residents and chronic or temporary homelessness.
Housing affordability also affects a city’s growth. The fastest growing counties in Kentucky are not Fayette County or Jefferson County, the two largest urban areas in the state — the fastest growing areas are counties that surround Fayette and Jefferson County, possibly due to the fact that housing is much cheaper in surrounding counties – especially for homebuyers.
Population growth typically drives economic growth for the city and for residents. If populations grow slowly, that could affect the number of well-paying jobs that Lexington can attract and maintain.
Lexington's affordable housing crisis has also been the motivation behind a number of Council's most consequential policy decisions, including:
- Expanding the Urban Service Area in 2023;
- Passing a large zoning reform package that allows more housing units and higher density all throughout Lexington;
- Requiring 1% of the City's General Fund Revenue to be allocated to the Affordable Housing Fund.
Housing Affordability is one of Lexington's most pressing and discussed issues, and it will not be going away any time soon.
How can you get involved in Housing Affordability?
There are several ways you can be involved in housing issues in Lexington!
- You can reach out to your Councilmembers to advocate for policies you believe will improve housing affordability in Lexington.
- You can attend meetings of, or volunteer to join, these boards and commissions:
- You can reach out to these nonprofit organizations for ways to volunteer, contribute, and be a part of their work:
What else do I need to know about Housing Affordability?
What's happening with housing prices in Lexington?
Like other cities in the United States, Lexington's housing prices have increased rapidly since 2020. While the root causes stretch to long before 2020, that year marked a strong acceleration of a price increase trend that was building up nationwide.
In 2024, EHI Consultants published an Affordable Housing Needs Assessment that not only looked at how many Affordable Housing units Lexington needs, but provided an overall look at the housing situation in Lexington and why Lexington has become more unaffordable for longtime and newcomer residents. Here are some key takeaways from the Assessment:
Lexington's rent has increased rapidly.
- The median rent increased 47% from 2019 to 2024, to $1,104. In 2017, the average rent was $839.
- While these rental cost increases have been particularly pronounced in the past few years, it is also a continuation of a long-term trend. As recently as 2000, nearly 50% of Lexington’s rental units were under $500 per month. By 2012, that number had fallen to 17%
- Now, 54.3% of renters in Lexington are housing cost-burdened, meaning they spend more than 30% of their income on housing.
- 28% of households are extremely cost-burdened, meaning they spend more than 50% of their income on housing.
Homeowners are less cost-burdened than renters, but are still struggling.
- 21.5% of homeowners are cost-burdened, and 6.8% are extremely cost-burdened.
- In January 2019, the median home sale price was $193,750. In January 2024, it was $310,343 - a 60% increase in five years.
- On average, homeowners have higher housing costs than renters — but they also have higher incomes.
There is not enough housing supply in Lexington.
- Lexington needs 22,000 more housing units to meet the current demand for people who want to live in the city.
- Lexington would need to increase its housing stock by 16% to fill this 22k unit gap.
- 17,005 units are needed for households with incomes at 80% or lower of the Area Median Income (AMI).
- EHI identifies Lexington’s AMI as $62,908.
What is LFUCG doing to address Housing Affordability?
LFUCG has passed and is working on a number of policies that are meant to help increase housing supply and make housing more accessible in Lexington. We have more on how the City is supporting subsidized Affordable Housing later in this Explainer, but here are some policies LFUCG has implemented recently with the goal to increase housing affordability across the board.
Reforming Lexington's zoning ordinance and planning regulations.
Lexington has, like most U.S. cities, had a zoning code that makes building housing units that are anything other than large, single-family detached homes very difficult. But LFUCG has passed a number of zoning ordinance text amendments (ZOTAs) that aim to allow more styles of housing to be built more easily throughout the City. Those include:
- The Urban Growth Management ZOTA: This ZOTA is the largest change to Lexington's planning regulations in recent history. It made major changes to existing residential zones to allow more housing units on a property, revised certain business zones to allow for housing development in places like shopping centers, and created an Affordable Housing Density Bonus that allows developers to build more housing units than typically allowed if those units are income-restricted Affordable Housing.
You can read about the Urban Growth Management ZOTA here. - The House Bill 443 ZOTA: The HB 443 ZOTA was passed by Council because of a bill passed by the State Legislature that requires cities' zoning and planning regulations to be "objective" and "measurable."
While this ZOTA is controversial due to its removal of public comment on development - which the City says the law requires -, it revised many of LFUCG's planning regulations and processes in a way that will likely lead to faster housing construction.
You can read about the HB 443 ZOTA here and here. - Rethink Parking ZOTA: The Rethink Parking ZOTA abolished parking minimums in Lexington and set new requirements for how parking lots are designed. Parking minimums are regulations that require developers to add a certain number of car parking spaces to their developments.
Surface parking lots take up a lot of space on a property, and parking garages can save more space across a property but are incredibly expensive to build. One goal of abolishing parking minimums is to allow for developers to have more flexibility in how they design their properties, and hopefully to allow increased density by allowing more land on a property to be used for actual buildings.
You can read more about the Rethink Parking ZOTA here.
Legalizing Accessory Dwelling Units (ADUs)
ADUs are secondary, smaller housing units on the same lot or in the same structure of a single-family home. These usually take the form of basement apartments, garage apartments, or an entirely separate structure. ADUs are often more affordable that traditional homes or apartments due to their small size, and are seen as a particularly strong housing option for aging residents who want to stay on the property they have lived in for decades, but who want a smaller space to maintain than a traditional house.
In Lexington, ADUs are allowed to be built by-right - meaning that a property owner does not need to seek a zone change or special permission to build one outside of a typical building permit. A property owner could convert an existing building into an ADU, or could build a brand new building behind their house that can be used as an ADU.
Here are some of the other regulations around ADUs in Lexington:
- ADUs can be either 800 square feet or <50% of the square footage of the main house on a property, whichever is less.
- ADUs are allowed to be used as short-term rentals, such as Airbnbs, in Lexington, regardless of if the property owner lives on the property.
- No more than one ADU is permitted on a property.
- ADUs cannot be taller than the main house on a property.
Expanding the Urban Service Area
In 2023, Council voted to expand the Urban Service Area (USA) for the first time since 1998 with the goal of increasing housing supply in Lexington. While there is a lot of debate around whether or not expanding the USA will actually making housing more affordable in Lexington, that was Council's primary goal behind expansion.
The Urban Growth Master Plan was drafted to set a vision for how development of the USA expansion areas would look. It envisions developments that are notably higher density than most existing neighborhoods in Lexington with the goal of wildly increasing housing supply.
You can learn more about the Urban Service Area expansion here.
Affordable Housing: How it’s made, who benefits, and what LFUCG is doing about it
Affordable housing is housing that is subsidized to keep prices cheaper for residents with low-incomes. Housing is considered affordable when people are spending 30% or less of their income on rent or mortgage payments, and Affordable Housing units keep rents at that 30% level based on someone’s Area Median Income (AMI).
AMI is calculated by the federal Department of Housing and Urban Development (HUD) every year, and serves as a middle point for overall income range across a specific area (in this case, Lexington).
In Affordable Housing units, rent and other costs are fixed using Lexington’s AMI. For example, some affordable housing units require households to make 60% or less of Lexington’s AMI to qualify. By limiting the income of the household, Affordable Housing developers can guarantee that the rent price will not cost more than 30% of the household’s income.
| Size of household | AMI | Rent Cap |
|---|---|---|
| 1 person | 80% ($57,360 per year) | $1,434 |
| 1 person | 60% ($43,020) | $1,075 |
| 1 person | 30% ($21,510) | $537 |
| 2 person | 80% ($65,600) | $1,537 |
| 2 person | 60% ($49,200) | $1,152 |
| 2 person | 30% ($24,600) | $576 |
| 3 person | 80% ($73,760) | $1,844 |
| 3 person | 60% ($55,320) | $1,383 |
| 3 person | 30% ($27,660) | $691 |
Information from the Office of Affordable Housing 2024 Annual Report
Affordable Housing Fund
Created in 2014, Lexington’s Affordable Housing Fund provides the funds needed to further housing projects for low-income residents through loans and grants. Currently, it is required that 1% of Lexington’s General Fund Revenue is reserved for the Affordable Housing Fund, which was equivalent to $4,795,035 in Fiscal Year 2025.
Because housing is so expensive to construct, the Fund subsidizes upfront construction costs for developers so that they can keep rents at a lower price for residents.
- Having as much money upfront to pay for a project means that developers have lower loan payments to make for their properties in the future, meaning that they can have lower rents from tenants.
- The Affordable Housing Fund provides “gap financing” to developers; developers are expected to have as much financing from nonprofits, private investors, or other government agencies as possible, and the City’s Affordable Housing Fund will supplement the “last gap” of money the developer needs to keep rents low.
Developers can request funds through Lexington’s Office of Affordable Housing. Developers' applications are evaluated by the Affordable Housing Governance Board, who decides whether or not to disburse funds to a project.
How many units has the Affordable Housing Fund supported?
- Since 2014, $26,373,210 has been allocated from the Affordable Housing Fund toward housing projects.
- Altogether, 3,522 units have been constructed or preserved at an average per-unit cost of $13,980.
- 87.7% of affordable housing units in Lexington are for tenants who earn 60% or lower of the AMI.
Roughly 40% of affordable housing units in Lexington are reserved for specific populations of people, such as seniors, those in substance abuse recovery, veterans, and more.
| Special population | Number of units funded | Elderly and/or disabled residents | 1068 |
|---|---|
| Homeless | 114 |
| Veterans | 50 |
| Substance addiction | 48 |
| Youth (ages 18-24) | 6 |
| Mentally and physically disabled | 54 |
| Medically vulnerable | 26 |
| Severe mental illness | 28 |
| Survivors of domestic violence | 24 |
In EHI's 2024 Housing Needs Assessment, they identified that Lexington needs 17k more housing units for residents making 80% or lower AMI. EHI calculated three potential scenarios for investment from the Affordable Housing Fund over the next ten years: closing the housing shortage gap, maintaining the gap at its existing level, or pursuing a modest reduction.
- Closing the gap entirely would require a ten-year investment of $296.96 million.
- Maintaining the gap would require an annual of investment of around $2.2 million.
- Modestly reducing the gap would immediately require more money than the City dedicates by default to the Affordable Housing Fund.
- Year one alone of the modest reduction plan would require a roughly $6.78 million investment.
- The ten-year total investment under this scenario would be roughly $79.55 million.
Housing Affordability Resources
Interested in learning more? Here are some resources you can explore:
- EHI's 2024 Affordable Housing Needs Assessment
- The Division of Planning's Imagine Lexington Analytic Research Center
- czb's 2014 Housing Needs Study
- Imagine Lexington 2045 Comprehensive Plan Explainer
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