March 22, 2000
Section 8 Utilization and the Proposed Housing Voucher Success Fund
Established in 1974, the Section 8 tenant-based rental assistance program helps participants afford rental housing by subsidizing the rents of apartments they locate in the private market.(1) Despite 25 years of experience with tenant-based vouchers and certificates, there continue to be differing opinions regarding the extent to which they are effective in helping program participants access affordable housing. In recent years, some housing professionals have expressed concern that the sustained economic expansion has led to changes in local housing markets, such as rapidly escalating rents and low vacancy rates, that may have made housing vouchers more difficult to use in certain areas.
This paper examines the issue of Section 8 voucher and certificate utilization by:
- summarizing currently available data on the extent to which the Section 8 tenant-based program is effective in helping program participants access affordable housing;
- describing recent changes to the program that should improve "success rates" for participants;
- examining the need for a "Housing Voucher Success Fund," as proposed by the Administration in its FY 2001 budget; and
- discussing the importance of a balanced low-income housing strategy that employs both housing vouchers and housing production tools.
In brief, we conclude that housing vouchers appear to be working well in most areas and that recently enacted legislation should help to improve voucher usage in difficult markets. Nevertheless, steps could be taken to make vouchers work better. The Housing Voucher Success fund proposed by the Administration could help to increase the extent to which new program participants (and current participants needing to move) are able to use their vouchers to access affordable housing. In areas with a shortage of available rental housing, however, it may be necessary to adopt a strategy for promoting the production of new affordable rental housing.
The Dominant Housing Problem Is One Of Affordability
Most families with housing problems in the United States have an "affordability" rather than a "housing quality" problem. HUD data show that nearly four in five households with "worst case housing needs" in 1995 lived in housing that was neither moderately or severely inadequate nor overcrowded. Despite the apparent physical adequacy of their housing, these households were classified as having worst case housing needs because their housing costs consumed more than half of their very low incomes.(2)
In part because families may use Section 8 housing vouchers to help them afford the costs of their current rental housing, such vouchers generally work well to address housing affordability problems. Where there is a shortage of available rental housing of adequate quality, however, strategies to promote the production of additional rental housing may be needed. As discussed below, Section 8 vouchers can contribute to such a production strategy and enable families with the most urgent housing needs to benefit from newly produced housing.
Section 8 Subsidies Appear To Work Well In Most Areas
Research confirms that, in most areas, Section 8 tenant-based assistance is effective in helping families afford rental housing. The most recent national data on this subject come from the Section 8 Rental Voucher and Rental Certificate Utilization Study prepared for HUD by Abt Associates in October 1994. The data from that study show that, outside of New York City, some 87 percent of the households newly issued a Section 8 voucher or certificate succeeded in obtaining housing with their subsidies.(3) A new study is currently underway to update these results.
In addition to considering the relative success of new voucher recipients in finding housing, it is important to examine the extent to which the total universe of outstanding housing vouchers are being utilized at any given time. HUD data show that, as of January 2000, some 93 percent of the vouchers that HUD has made available for current use by state and local housing agencies were being used to subsidize the housing costs of low-income households.(4) An agency can utilize all of its allocated voucher funding even if some families return their vouchers unused. Vouchers returned unused are reissued to new families on the waiting list. PHAs that anticipate that some of the families issued vouchers will not succeed in using them do not have to wait for the return of the unused vouchers. To maximize use of available voucher funding, they can issue vouchers to more families than their funding would be able to support if all families issued vouchers succeeded in using them to rent housing.(5)
It May Be Getting More Difficult To Use Housing Vouchers In Certain Markets
In recent years, as rents have risen and vacancy rates have fallen in many areas, there has been a growing number of informal and anecdotal reports suggesting that families are having problems using vouchers in some areas. A large public housing agency in Massachusetts, for example, reported early in 1999 that it was issuing three or four vouchers for every one that was used successfully to secure housing; while this practice ensures that all of the agency's allocated vouchers were being used, it also suggests the agency was experiencing a "success" rate for new voucher recipients of only 25 to 33 percent. (In the past year, this housing agency has improved its voucher "success rate" by using some of the tools the 1998 housing act and implementing regulations provide, notably the options to increase voucher subsidy levels and extend the time a family has to search for housing.) To similar effect, a recent study of the Section 8 certificate and voucher programs in Missouri found that the St. Louis County voucher program had a success rate of around 50 percent, while the City of St. Louis program reported a success rate of 70 percent.(6) At a national forum on the housing voucher program the National Low-Income Housing Coalition held in 1999, several other housing agencies in different areas indicated they are experiencing similar problems.(7)
In light of such reports, it makes sense to consider strategies for improving the success rates of new voucher recipients in areas experiencing problems. As described below, there are a number of steps that state and local housing agencies now can take to improve voucher usage. Many of these steps reflect new program options resulting from changes in the Section 8 tenant-based program included in legislation enacted in October 1998. HUD regulations implementing these changes became effective as of October 1999.
Housing Agencies Have New Tools To Help Improve Voucher Usage
Recent changes in the Section 8 tenant-based program should help to resolve some of the obstacles that families face in successfully using their subsidies in certain areas.
This should significantly expand housing opportunities by making additional rental units available if families are willing to pay somewhat more of their income for rent. Whereas families with Section 8 certificates were limited to apartments renting below a HUD-determined Fair Market Rent (FMR) for the area, families with Section 8 vouchers may choose to rent apartments above the voucher payment standard by paying more than 30 percent of their income for rent. In the past, families with Section 8 vouchers had consistently higher success rates in all areas of the country than families with Section 8 certificates. Prior to the merger, roughly three-fourths of all households with Section 8 tenant-based assistance had certificates rather than vouchers.
- As of October 1, 1999, the Section 8 certificate and voucher programs have been merged into a new housing voucher program.
With the merger of the two programs, all new recipients of Section 8 tenant-based assistance will receive vouchers. In addition, any family with a Section 8 certificate that chooses to move will receive a voucher. By October 2001, all Section 8 tenant-based subsidies will be converted to vouchers.
This will allow housing agencies experiencing problems with the utilization of tenant-based subsidies to raise subsidy levels, thereby expanding the number of rental units accessible to Section 8 participants. Under prior law, housing agencies could set the voucher payment standard no higher than the FMR. HUD data on the distribution of rents in various metropolitan areas suggest that the new discretion to raise payment standards could significantly expand families' housing opportunities.(8) (To economize, housing agencies could reduce payment standards in lower-cost areas and raise them in higher-cost areas.)
- Housing agencies now have discretion to raise voucher payment standards to 110 percent of the FMR.
- HUD now has authority to approve "exception" payment standards exceeding 120 percent of the FMR.This will allow housing authorities to address difficulties with the utilization of tenant-based subsidies in extremely high-cost areas. Under prior law, exception payment standards could not exceed 120 percent of the FMR. To be authorized to use an exception payment standard, housing agencies must demonstrate that the exception is justified by actual rental costs in a portion of the FMR area, and provide evidence sufficient for HUD to determine that the exception is needed to overcome difficulties in using vouchers or to help families find housing outside areas of high poverty. PHAs also may receive HUD approval to use a payment standard above 110 percent to enable a person with disabilities to lease appropriate housing.
- The Section 8 Voucher Program has become more landlord-friendly.Among other changes, the 1998 Housing Act permanently eliminated the "endless lease" policy that made it difficult to evict Section 8 participants. The Act also permanently repealed the requirement that a landlord accepting one Section 8 family agree to take others.
- The new Section 8 Management Assessment Program (SEMAP) system provides strong incentives for housing agencies to improve Section 8 utilization.To obtain a good score under the new SEMAP system, a housing agency must demonstrate that at least 95 percent of the tenant-based subsidies budgeted for the agency are under lease.
In addition to raising payment standards, there are a number of steps that state and local housing agencies could take to improve the success rates of families with tenant-based subsidies. For example, housing agencies could:
To stimulate the rehabilitation of existing units and the production of new rental units that are affordable to extremely low-income families, Congress has authorized housing agencies to attach up to 15 percent of their portfolio of tenant-based subsidies to new or rehabilitated units. Few housing agencies have fully utilized this authority.
- Take advantage of the authority to "project-base" up to 15 percent of the total number of Section 8 tenant-based subsidies they administer.
Even in markets where the overall voucher success rate is reported to be low, anecdotal evidence suggests that the vast majority of voucher-holders provided with housing search assistance — in contrast to those who do not receive such additional help — succeed in using their vouchers to rent housing. Two sources of additional funding for such programs are HUD's Regional Opportunity Counseling program and Homeless Supportive Services grants. In addition, some housing agencies have secured funds from the state TANF agency to assist with such housing search assistance. Another helpful strategy that requires no additional funding is to ensure that families with vouchers are allowed adequate time to search for housing. Housing agencies may extend the search time of voucher-holders that do not find housing during the initial 60-day period. Although prior law limited families' search time to a maximum of 120 days, this limitation has been eliminated.
- Provide housing search assistance to voucher-holders and/or start a landlord outreach program.
Administrators of effective Section 8 programs report that faster unit inspections and the timely issuance of rent checks can increase the willingness of landlords to participate in the Section 8 tenant-based program.
- Improve basic program administration.
In many areas, difficulties in using vouchers result from the poor quality of available housing rather than a housing shortage per se. (Vouchers can only be used in units that meet federal housing quality standards.) While substantial federal funds — and some state and local funds — are available to remedy inadequate housing conditions, the agencies that administer these programs rarely use these funds to make additional units available to voucher-holders. Where housing quality is a substantial barrier to voucher use, the relevant city and state agencies should work together to alleviate the problem.
- Collaborate with agencies administering HOME, CDBG and lead paint abatement funds to link voucher-holders to rehabilitated rental properties.
- Start a Section 8 homeownership program.In those areas where ongoing mortgage costs are comparable to Fair Market Rents, housing agencies could take advantage of the new authority to use Section 8 vouchers for homeownership. This program option could increase the number of units available to voucher-holders, particularly those with large families. HUD has issued a proposed rule implementing the Section 8 homeownership program. A final rule is expected soon.
A Housing Voucher Success Fund Could Help to Improve Voucher Usage
As the above discussion makes clear, state and local housing agencies have a variety of tools at their disposal to help address any problems in voucher usage. There are a number of obstacles, however, to agencies' effective implementation of these strategies. Some of the strategies — such as improved housing search assistance and landlord outreach — may cause housing agencies' administrative costs to increase beyond the level that can be supported by current administrative fees. Other strategies — such as establishing a homeownership program — may (or may not) cause agencies' administrative costs to go up in the long-run, but certainly have significant start-up costs.
Still other strategies — such as changing the housing voucher search time or the voucher payment standard — have little or no administrative cost to housing agencies, but are unlikely to be implemented until agency administrators obtain a better understanding of the program options and the possible consequences of their implementation. For example, many administrators do not yet understand that the recently-issued rule that governs funding for Section 8 contract renewals permits agencies to increase their voucher payment standards, either to improve utilization or to promote moves outside concentrated poverty areas, without reducing the number of families their Section 8 programs can serve.
For FY 2001, the Administration has proposed a $50 million housing "Voucher Success Fund." Depending on how this fund is implemented, it could help to ensure that state and local housing agencies are able to take the necessary steps to improve housing voucher usage. The Administration has proposed to use the fund for:
(1) technical assistance to the local public housing authority or community to improve the success of the voucher program;
(2) assistance for families in using vouchers, including mobility counseling, assistance with security deposits, transportation, and other activities intended to increase the likelihood that families will succeed in leasing units or leasing them outside areas of concentrated poverty; and
(3) further outreach to landlords and community groups to encourage participation in the voucher program.
The Administration also has proposed language that would allow the Secretary to use up to one percent of the Fund "to establish monitoring systems" for the Fund and "to conduct detailed evaluations of the effect of providing assistance under [the] Fund."(9)
The increased technical assistance provided by the proposed fund could help state and local housing agencies better understand the many changes in Section 8 voucher program rules over the past 18 months. It is particularly important to help agencies think strategically about how to use their newly expanded discretion to improve voucher success rates. Housing agencies also may need help understanding the complex interactions of the various new rules and the implications of the new Section 8 Management Assessment Program.
Grants targeted on areas experiencing problems with voucher usage also could help to improve voucher success rates, as well as increase the number of households using vouchers to move to areas offering good employment and educational opportunities. Among other possible uses, housing agencies could use grants from the voucher success fund to:
- implement landlord outreach strategies, such as the establishment of a private landlord advisory board, the design and distribution of marketing materials, or the payment of bonuses to landlords newly participating in the program;
- provide additional housing search assistance to families to help them locate available units that meet housing quality standards, preferably in neighborhoods with better employment and other opportunities;
- establish a revolving loan fund to help provide security deposits to families who need this assistance to locate decent housing, especially in better neighborhoods;
- provide holding payments to landlords to cover their costs between the time a voucher-holder submits a request for lease approval and the time the lease is approved, which enables voucher-holders to stand on roughly equal footing with ordinary renters who are not required to obtain a housing quality inspection and housing authority approval before signing a lease; and
- provide assistance to families that believe they have been denied housing opportunities unlawfully to pursue discrimination complaints.
The proposed fund also offers an opportunity to learn which strategies are most effective in improving voucher usage in different types of markets. To maximize the research value of the proposed fund, it is important to ensure that a variety of different strategies are tested and evaluated in different problem settings. Potential examples of such problem settings include: markets with low-vacancy rates, markets with a shortage of units that can pass HUD quality standards, and markets in which there is a high incidence of discrimination in the rental housing market against minorities and families with children.
In Some Markets, Housing Production Strategies Are Needed
As noted above, the voucher program works best where there already is an adequate supply of decent quality rental housing. In areas with supply problems, however, it may be necessary to promote the construction of additional rental units or the rehabilitation of existing units so that they comply with Section 8 quality standards. Sources of funding for such efforts include the HOME block grant program and the low-income housing tax credit (LIHTC).
Subsidized units constructed or substantially rehabilitated through HOME and the LIHTC program are required to be affordable to families with incomes of approximately 50 to 60 percent of the area median income. Although some units produced through these programs have rents that are affordable to families with somewhat lower incomes, these units generally are not affordable to poor and near-poor families, including families attempting to make the transition from welfare to work. Through the use of housing vouchers, however, these newly produced units can be made affordable to poor and near-poor families.
There are a number of different ways to integrate housing vouchers into a housing production strategy. One option under existing laws and regulations is for housing agencies to link a portion of their Section 8 vouchers to specific developments through the "project-basing" authority described above. This strategy can help to improve voucher usage but has the drawback of limiting the mobility of participating families by denying tenants the opportunity to move and retain their housing assistance. One reason families might need to relocate is to move closer to a new job.
Another example of how housing vouchers could be used as part of a housing production strategy may be found in the Administration's FY 2001 budget. The Administration has proposed 10,000 new vouchers to be used in a "housing production voucher" initiative. Under this proposal, state agencies responsible for the low-income housing tax credit program would receive an allocation of vouchers that they could assign to specific tax credit developments. State agencies would have discretion to decide which developments should receive vouchers and how many vouchers each development would receive, up to a maximum of one-fourth of the number of units in any development. These vouchers would enable tax credit developments to serve some poor and near-poor families, which ordinarily could not afford the rents. Families issued the vouchers could decide after a year whether to stay in the development or move to a private market unit of their choice.
Still another potential model for integrating housing vouchers into a housing production strategy is described in the box on the previous page. This model seeks to achieve the benefits associated with the existing "project-basing" model, including improved voucher usage and potential production incentives, without sacrificing the ability of subsidized tenants to move and keep their housing assistance.
A Model for Integrating Vouchers Into a Housing Production Strategy
This model seeks to combine the best aspects of project-based and tenant-based assistance. Under this model, housing agencies would contract with non-profit organizations or private owners to link a specified number of housing vouchers to a particular development for a fixed period of time (perhaps five or ten years). The initial tenants would be selected by the manager of the development from among families referred by the housing agency. Unlike current project-based programs, however, the tenants in this model would have the right to move (after one year) and retain their federal housing assistance. (One reason families might need to relocate is to move closer to a new job.) Tenants that wished to move would receive the next available housing voucher, freeing up a subsidy at the development for a family on the housing agency's waiting list that wished to live there. This would ensure that the specified number of subsidies continue to be utilized at the development throughout the term of the housing agency's contract with the owner.
Such a model could provide a sufficiently secure subsidy stream to induce owners to commit units to the program, thereby improving voucher success rates. This model of project-based vouchers also could help to produce new housing by reducing the amount of other subsidies, such as low-income housing tax credits or HOME funding, needed to enable a development to house poor and near-poor families. At the same time, this model ensures that subsidized families have the freedom to choose where to live, a key benefit of tenant-based assistance.
1. The first Section 8 tenant-based subsidies were called Section 8 "certificates." As the program evolved, a second type of tenant-based subsidy emerged, termed a Section 8 "voucher." Some of the difference between these two programs are described later in this paper. In 1998, Congress merged these two programs into a single tenant-based program known as the Housing Choice Voucher program.
2. U.S. Department of Housing and Urban Development (HUD), Rental Housing Assistance—The Crisis Continues: The 1997 Report to Congress on Worst Case Housing Needs, Washington, DC, 1998, Table A-7. HUD defines households with worst case housing needs to be renter households with incomes below 50 percent of the area median income that do not receive government housing assistance and either (a) spend more than half their income on rent and utilities or (b) live in housing with severe physical problems. Although HUD tracks the extent to which households live in overcrowded housing or housing with moderate physical problems, this information is not used in determining the number of households with worst case housing needs. The database that HUD uses for its report on worst case housing needs — the American Housing Survey — does not include data on homeless households.
3. The comparable "success" rate in New York City was 62 percent. Although called for based on the study's research protocol, the study did not include data from Los Angeles because of data reporting problems.
4. Resident Characteristics Report for the Section 8 Certificate and Voucher Programs, Multifamily Tenant Characteristics System, January 2000. The latest version of this report may be accessed through the Internet at: http://www.hud.gov/mtcs/public/navmenu.cfm. The January MTCS data is a snapshot for the particular month. There are a number of reasons why there is a gap between the number of vouchers allocated by HUD and the number in use in a particular month. For example, some PHAs may not be issuing all of their subsidies because the subsidies are reserved for a particular purpose, such as relocating families from public housing due to be demolished later in the year. Some PHAs may not anticipate correctly the rate of turnover of current program participants and as a result may issue new subsidies too slowly to keep all vouchers under lease. In markets where many families return vouchers unused because they cannot locate housing to lease, PHAs may not be over-issuing vouchers by a sufficient amount to achieve full utilization.
5. Predicting accurately the rate of "lease-up" by new voucher-holders is difficult, due to the vagaries of families' search efforts and rapid changes in local housing markets. Generally, PHAs seek to utilize as close to 100 percent of their voucher funding as they can without exceeding their budgeted funds. (If families issued vouchers succeed in leasing units, PHAs are obligated to provide the subsidy amount due.) PHAs that "overlease" and become obligated to provide a greater amount of monthly payments to owners than HUD has authorized usually do not receive additional funds from HUD; they must use program reserves or other funds to meet the additional expenses. Such PHAs must cease to issue vouchers that become available through turnover to new families until their total subsidy costs are within their budget authority and they have replenished their program reserves.
6. See Laura Barrett and Kelly Camrud, Still Vouchered Up and Nowhere to Go Part II: Problems and Promise in Missouri's Subsidized Housing Programsm, Housing Comes First, St. Louis, MO, November 1999.
7. See Brian Maney and Sheila Crowley, Scarcity and Success: Perspectives on Assisted Housing, National Low-Income Housing Coalition and Meeting America's Housing Needs, 1999, available on the Internet at: http://www.nlihc.org/mahn/sec8index.htm.
8. HUD Office of Policy Development and Research, U.S. Housing Market Conditions, Summary (Spring, 1999), p. 6, available on the internet at: http://www.huduser.org/periodicals/ushmc/spring99/summary-2.html.
9. Appendix to the Administration's FY 2001 Budget, p. 480.