Neighborhood-Based Subsidy Caps Can Make Housing Vouchers More Efficient and Effective
End Notes
[1] Families are not permitted to newly rent a unit with a voucher if their total payment would initially exceed 40 percent of their income.
[2] Housing agencies can request HUD approval to set payment standards above 110 percent of the local fair market rent, based on data showing that the increase is needed to cover market rents and avoid hardship for families, or below 90 percent of the FMR, if they can show this will not result in excessive rent burdens for families. Agencies can also set payment standards up to 120 percent of the FMR to enable individual households where a member has a disability to afford accessible units, and may request HUD approval of standards above 120 percent for this purpose. The 39 agencies participating in HUD’s Moving to Work demonstration have additional flexibility regarding payment standards.
[3] Analysis of 2012 HUD administrative data shows that families in higher-poverty census tracts are more likely to rent larger units — that is, units with more bedrooms than their subsidy is based on — compared to voucher holders in lower-poverty tracts.
[4] For additional discussion of the voucher program’s performance in enabling families to live in lower-poverty areas and other policies that could improve that performance, see Barbara Sard and Douglas Rice, “Creating Opportunity for Children: How Housing Location Can Make a Difference,” Center on Budget and Policy Priorities, October 15, 2014, https://www.cbpp.org/research/creating-opportunity-for-children.
[5] Raj Chetty, Nathaniel Hendren, and Lawrence F. Katz, “The Effects of Exposure to Better Neighborhoods on Children: New Evidence from the Moving to Opportunity Experiment,” May 2015, http://scholar.harvard.edu/files/lkatz/files/mto_manuscript_may2015.pdf.
[6] Lisa Sanbonmatsu et al., “Moving to Opportunity for Fair Housing Demonstration Program: Final Impacts Evaluation,” National Bureau of Economic Research, November 2011, http://www.huduser.org/portal/publications/pubasst/MTOFHD.html.
[7] “Establishing a More Effective Fair Market Rent (FMR) System; Using Small Area Fair Market Rents (SAFMRs) in Housing Choice Voucher Program Instead of the Current 50th Percentile FMRs; Advance Notice of Proposed Rulemaking,” Federal Register, vol. 80, no. 105, June 2, 2015, pp. 31333, http://www.gpo.gov/fdsys/pkg/FR-2015-06-02/pdf/2015-13430.pdf.
[8] Kirk McClure, Alex F. Schwartz, and Lydia B. Taghavi, “Housing Choice Voucher Location Patterns a Decade Later,” paper presented at the Annual Conference of the Association of Collegiate Schools of Planning, Cincinnati, Ohio, November 2012.
[9] Robert A. Collinson and Peter Ganong, “The Incidence of Housing Voucher Generosity,” May 2015, p. 16, http://papers.ssrn.com/sol3/Papers.cfm?abstract_id=2255799.
[10] Metropolitan areas qualify for 50th percentile FMRs if they have at least 100 census tracts, no more than 70 percent of the tracts have rents at or below the 40th percentile FMR in 30 percent or more of their two-bedroom units, and at least 25 percent of voucher holders live in 5 percent of the area’s census tracts. After three years, if the share of voucher holders in the 5 percent of census tracts with the most voucher holders has not declined, FMRs are reduced to the 40th percentile until the area is reevaluated after another three years. But if this share falls below 25 percent, the area “graduates” to the 40th percentile and is reevaluated each year to determine whether it again qualifies for 50th percentile FMRs. Thus, areas can only retain 50th percentile FMRs continuously so long as the voucher concentration indicator declines each three-year period but not so much that it drops below 25 percent.
[11] Collinson and Ganong, p. 38.
[12] Michael C. Lens, Ingrid Gould Ellen, and Katherine O’Regan, “Do Vouchers Help Low-Income Households Live in Safer Neighborhoods?” Cityscape, 13:3, 2011, http://www.huduser.org/portal/periodicals/cityscpe/vol13num3/Cityscape_Nov2011_dovouchers_help.pdf.
[13] HUD’s Moving to Opportunity (MTO) demonstration, for example, tested vouchers that families could only use in neighborhoods with poverty rates of 10 percent or less.
[14] This cost estimate is based on CBPP analysis of 2014 HUD voucher administrative data and 2015 FMRs and SAFMRs, with adjustments to the administrative data to reflect inflation from 2014 to 2015. We assumed that under SAFMRs, housing agencies would set payment standards as close as they can to the payment standards they set under metro-level FMRs while remaining between 90 and 110 percent of the SAFMR. Our analysis excluded vouchers administered by agencies participating in the Moving to Work demonstration (because they are not subject to the same restrictions regarding payment standards as other agencies) and agencies that already use SAFMRs.
[15] Collinson and Ganong (p. 37) estimated that through 2013, the switch to SAFMRs in Dallas was linked to a 3 percent reduction in rents (which would reduce voucher costs by a somewhat larger percentage), but this effect was not statistically significant.
[16] Collinson and Ganong, p. 19.
[17] Federal Register, vol. 80, no. 105, June 2, 2015, pp. 31332-31336.
[18] HUD’s notice requests comments on whether it should only require individual agencies whose vouchers are highly concentrated in high-poverty areas to use SAFMRs, rather than applying the requirement to all agencies in metropolitan areas where vouchers are highly concentrated. An agency-by-agency SAFMR requirement of this type would seriously undermine the policy’s effectiveness, however, since it would often require use of SAFMRs that reduce payment standards in high-poverty central cities but leave in place inadequate metro-level FMRs in high-rent, high-opportunity suburbs.
[19] While overall voucher costs would likely drop under HUD’s proposal, individual agencies whose jurisdictions consist mainly of high-rent zip codes could experience increases in cost. The 2016 HUD appropriations bill that the House of Representatives approved on June 9 allowed HUD to provide funding to cover added voucher costs at SAFMR demonstration agencies. Congress could grant HUD similar authority to provide added funds to agencies whose costs rise under the planned SAFMR expansion. Those added funds would be offset at least in part by reduced funding eligibility at some of the agencies whose average voucher costs decline.
[20] Phasing in FMR declines as proposed here would increase budgetary costs — or reduce savings — during the first years of SAFMR implementation. If necessary, HUD could offset that effect by delaying payment standard increases so they take effect at the same time as payment standard reductions. Existing regulations delay application of payment standard reductions (and the resulting rent increases) until the family’s second annual recertification after the agency changes its payment standard, meaning the reductions would occur between one and two years after the agency change. Payment standard increases, however, apply at the family’s next annual recertification (that is, within one year). Revised payment standards apply immediately to new voucher holders and voucher holders who move.
These are sensible policies when payment standards change due to factors such as a rise (or fall) in market rents throughout a metropolitan area, since families should receive time to adjust to payment standard reductions but there is no need to delay payment standard increases. However, in the context of SAFMRs — which will raise payment standards in some neighborhoods but lower them in others — the existing rules mean that the costs of the transition are felt sooner than the savings. HUD could avoid this by revising its regulations to apply both reductions and increases in payment standards resulting from SAFMRs at the family’s second annual recertification for voucher holders remaining in place.
[21] Federal Register, volume 76, number 76, April 20, 2011, p. 22124.
[22] Federal Register, volume 78, number 192, October 3, 2013, p. 61671.
[23] HUD’s voucher program counsel has interpreted language in the U.S. Housing Act requiring HUD to set FMRs using “the most recent available data” to prohibit any policy limiting FMR changes compared to FMRs in place in a previous year, including a limitation on the year-to-year percentage change. It would be worthwhile for HUD to reconsider this interpretation, since it is unclear that this statutory language prohibits HUD from making a one-time, policy-based decision to phase in SAFMR implementation to prevent sudden, harmful payment standard declines. But even without a change in this interpretation, HUD could limit how far SAFMRs can fall below the current metro FMR. For example, HUD could set SAFMRs no lower than 90 percent of the metro FMR in the first year of implementation, no lower than 80 percent in the second year, and so on. This would have the effect of preventing nearly all of the sharpest declines and would unambiguously be within HUD’s authority since it makes no use of less-recent data.