HUD Data Show Housing Voucher Costs Leveled Off Starting In 2003 As Rental Market Cooled
 The per-voucher cost figures used in this analysis are calculated based on HUD Voucher Management System (VMS) data, which are used to determine voucher funding levels for most housing agencies. They exclude 16 agencies that received funding in 2004 or before through special arrangements under the Moving-to-Work demonstration and were not required to report VMS data for most of the quarters covered by our per-unit cost analysis.
 CBO has not published an updated version of this analysis since 2005. CBO’s January 2004 budget estimates projected Section 8 outlays using a different method that did not take into account rents, incomes, or the number of vouchers in use.
 Two types of tenant-based assistance — Section 8 tenant-based certificates and Section 8 vouchers — were merged into the current Housing Choice Voucher Program by the Quality Housing and Work Responsibility Act (QHWRA) of 1998. As used in this analysis, the term “voucher” includes both pre-QHWRA vouchers and tenant-based certificates and post-QHWRA vouchers.
 The methodology used in this analysis is described in “https://www.cbpp.org/sites/default/files/atoms/files/3-16-05hous-meth.pdf.”
 New vouchers were awarded to replace some, but not all, of the 191,000 project-based Section 8 units that were lost from 1996 to 2003. The 53 percent share of Section 8 cost growth that resulted from the increase in the number of units is the net increase in costs resulting when the cost of new vouchers is offset by savings from the loss of project-based Section 8 units.
 These figures are based on mean bottom quintile income data from the Current Population Survey and a weighted composite of the Consumer Price Indices for residential rents and for fuel and utilities. The residential rent CPI alone rose by a total of 8.6 percent in 2001 and 2002. The statement elsewhere in this analysis that the divergence of rents and incomes in 2001 and 2002 was the largest in more than 30 years is based on analysis of these same data sources for each calendar year since 1967.
 In inflation-adjusted terms, incomes among bottom-quintile households continued to drop in 2003. According to Current Population Survey data, however, the average unadjusted bottom-quintile income (which is the proper basis for comparison with rent inflation and voucher costs) remained nearly unchanged, rising by 0.06 percent compared to 2002.
 In the years prior to 2003, HUD provided some funds to state and local agencies for vouchers that did not end up being put to use that year. These funds were counted as outlays, even though they were not actually spent on vouchers and were later recaptured by HUD. Because this accounting practice artificially inflated outlays reported for 2002 and before above the real cost of vouchers in use, only part of the increase of approximately 5 percent in voucher utilization from 2001 to 2003 was reflected in increased outlays.
 Before 2003, agencies that used more than their allotted number of vouchers were able to use voucher contingency funds to cover the resulting costs, but then had to reduce the number of vouchers in use below their allotment number to pay back the costs stemming from this “overleasing.” In 2003, Congress banned agencies from using more than their allotted number of vouchers over the course of a fiscal year, even if they reduced utilization the following year. Temporary overleasing was a useful management tool for state and local housing agencies, because the number of families that are able to use their vouchers successfully can be unpredictable. Agencies were able to overissue vouchers in the same manner that airlines overissue tickets, which allowed a larger share of agencies’ vouchers actually to be used, and helped compensate for the fact that a substantial number of families issued vouchers end up being unable to use them.
 Quality Control for Rental Assistance Subsidies Determinations, Final Report, Office of Policy Development and Research, HUD, June 20, 2001, p 64.
 Finkel et al, Costs and Utilization in the Housing Choice Voucher Program, Abt Associates, July 2003 . The study did find that setting payment standards above 110 percent of the FMR, which the 1998 law allows housing agencies to do under certain circumstances with HUD approval, was linked to significant cost increases at agencies taking this measure. However, such “exception payment standards” are rare. Data provided by HUD in January 2004 showed payment standards above 110 percent of the FMR were in effect in areas containing 2.5 percent of the nation’s population.
 The fiscal year 2004 appropriations act funded vouchers during calendar year 2004, so the period directly affected by the act had concluded by January 2005. Many of the policy changes housing agencies made from April 2004 to December 2004 in response to shortfalls, however, will continue to suppress cost growth after January 2005. For example, some agencies reduced voucher payment standards as a way of covering their funding shortfalls, but due to administrative lags the full impact of a payment standard change on voucher costs would not be felt for a year or more after the change was made.
 For further information on cuts carried out by housing agencies in response to HUD’s 2004 funding policy, see Local Consequences of HUD's Fiscal Year 2004 Voucher Funding Policy, CBPP, July 15, 2004.
 For additional information on the fiscal year 2005 funding policy, see Barbara Sard, Peter Lawrence, and Will Fischer, Appropriations Shortfall Cuts Funding for 80,000 Housing Vouchers This Year, February 11, 2005.
 See Will Fischer and Barbara Sard, Administration Housing Proposal Lays Groundwork for Planned Funding Reductions, May 9, 2005.
 HUD has indicated that it plans to intensify efforts to improve enforcement of rent reasonableness requirements in 2005.