Revised November 5, 1998 Housing and Welfare Reform:
Some Background Information
by Barbara Sard and Jennifer Daskal
Although the welfare and housing assistance systems are designed and administered separately from each other, their beneficiaries overlap to a substantial degree. This intersection presents opportunities and challenges for welfare recipients, housing and welfare advocates, and administrators of both welfare and housing programs. It also presents potential risks for the housing programs, especially in the wake of welfare reform.
Housing Assistance for Low-Income Families
The U.S. Department of Housing and Urban Development (HUD) operates three major federally-funded programs that provide housing assistance to low-income families: public housing, Section 8 certificates and vouchers, and Section 8 project-based programs. Some states also run small programs providing housing assistance.
Since housing assistance is not an entitlement, there are many more eligible families than there are families provided assistance, and waiting lists for housing assistance are very long in many areas. Census data indicate that there are 5.3 million unassisted families with "worst case housing needs"; these are families that live in substandard housing or pay over half their income in rent.
Housing assistance can become available to families due to turnover or through federal funding of additional subsidies. From 1995 until the recently enacted HUD appropriations act for fiscal year 1999, there was no net increase in the supply of federally subsidized housing for low income families. In fact, as some public housing units were demolished and as some Section 8 contracts expired and were not renewed, the number of households receiving federal housing subsidies declined in the last few years for the first time in the history of these programs. For fiscal year 1999, Congress has appropriated funds for 50,000 additional housing vouchers targeted on families making the transition from welfare to work.
To be eligible for federal housing assistance, family income generally must be at or below 80 percent of the area median income, which averages $34,920 for a family of three in the nation's metropolitan areas. The Quality Housing and Work Responsibility Act of 1998, enacted October 21, 1998, has made major changes in who is eligible for federal housing assistance. Some portion of the assistance in each program is now reserved for families with incomes at or below 30 percent of the area median income. Nationally, 30 percent of the area median income is close to the poverty line. A greater proportion of federal housing resources than in the past can, however, be made available to families with incomes above 50 percent of the area median (an average of $21,825 for a family of three in metropolitan areas). How much of available housing resources to reserve for poor families will be decided by individual housing agencies.
Families receiving housing assistance typically pay 30 percent of their income in rent. As a result, families' required rent payments generally rise with an increase in income and fall with a decrease in income.
The Three Main Types of Federal Housing Assistance
Public housing: Public housing consists of rental units owned and operated by public housing authorities ("PHAs"), which are public or quasi-public entities. There are approximately 1.2 million public housing units, of which approximately 550,000 are occupied by families with children. Rents paid by public housing tenants go directly to the PHA and are used to help meet the operating and maintenance costs of public housing. Changes in tenants' required rent payments (usually due to changes in their income) affect the amount of funds available to the PHA for operations and maintenance. At least 40 percent of available public housing units must now be rented to households with incomes at or below 30 percent of the area median (with some limited exceptions).
Section 8 Tenant-based Vouchers and Certificates: Recipients use these subsidies to rent housing in the private market. Families can use these vouchers and certificates to rent housing of their choice, as long as it is approved by the administering PHA. There are 1.5 million vouchers and certificates, of which approximately 980,000 assist families with children. The number of poor families with children using tenant-based vouchers and certificates is nearly double the number of such families living in public housing.
Vouchers and certificates can help families afford apartments closer to where jobs are located and thus can help decrease the concentration of poverty. The new housing law requires that at least 75 percent of available vouchers and certificates serve poor families (i.e., families with incomes below 30 percent of the area median income). Tenants generally pay 30 percent of their income in rent, and the PHA pays the landlord the difference between the tenant contribution and the full rental cost. (If tenants with vouchers rent housing that costs more than the PHA's applicable 'payment standard' for the apartment, the tenants must pay the full additional cost.)(1)
Project-based Section 8 assistance: These are rental units in buildings that are owned and operated by private owners who have received a subsidy from the federal government. The owners may be either for-profit or non-profit entities. There are 1.4 million project-based units. Families with children occupy about 500,000 of these. Forty percent of newly available units will now be reserved for families with incomes below 30 percent of the area median.
As with public housing, these subsidies are tied to specific housing units and can not be used to rent housing of one's choice. Tenants pay their share of the rent directly to the project's owner. The remainder of the rent, the subsidy amount, is paid by the federal government. PHAs have no administrative responsibility for the project-based section 8 program, with a minor exception for the Section 8 moderate rehabilitation program.
Housing Assistance and Welfare Receipt: the Intersections
The 1996 welfare law replaced the Aid to Families with Dependent Children (AFDC) program with the Temporary Assistance to Needy Families (TANF) block grant. Given the overlaps between beneficiaries of housing assistance and beneficiaries of welfare assistance, the sweeping changes in the AFDC/TANF program are likely to have major consequences for housing programs. At the same time, housing policies have significant impacts on current and former TANF recipients.
- Approximately 2 million families with children receive housing assistance. According to HUD data, as of late 1996, about one million of the HUD-assisted families with children nearly half received some income from AFDC/TANF in 1996. Of these approximately one million families, about 280,000 lived in public housing, 480,000 received tenant-based vouchers and certificates, and 250,000 lived in project-based Section 8 housing.(2)
- As of late 1996, approximately one quarter of the families receiving AFDC/TANF benefits lived in assisted housing. This ratio varied significantly from state to state, as the attached table shows. In Massachusetts, for example, over 40 percent of AFDC families received housing assistance, while only 12 percent of AFDC families received housing assistance in California. The reason more welfare families do not receive housing assistance is not, for the most part, that they have adequate, affordable housing, but rather that the supply of housing assistance is so limited.
The linkage between TANF programs and housing assistance programs presents opportunities for welfare and housing administrators and advocates to collaborate in efforts to move families from welfare to work.
How Welfare Policy Can Impact Housing Policy
If tenant incomes fall as families hit TANF time limits or are sanctioned for non-compliance with TANF work requirements, housing authorities will be faced with losses in revenue and federal dollars will be squeezed. If this occurs, each of the three major federal housing programs will be impacted in somewhat different ways.
- Public Housing: PHAs depend on rental payments to meet part of the operating and maintenance costs of their public housing projects. If tenants hit welfare time limits and their incomes fall due to loss of cash assistance, their rent payments will decline as well. Unless Congress acts to increase public housing operating subsidies paid to PHAs by the federal government, PHAs will be forced to operate with reduced revenues.(3) This provides an incentive for PHAs to help tenants become employed or increase their earnings prior to hitting their state's TANF time limit.
- Tenant-Based Certificates and Vouchers: In the tenant-based program, PHAs generally pay landlords the difference between a tenant's required rental payments and the approved rental charge. If a tenant's income falls due to loss of cash assistance, the subsidy paid by the PHA increases.(4) A PHA may have to reduce the total number of certificates and vouchers it provides to remain within the budget it has been allocated by HUD. But if the PHA reduces the number of vouchers and certificates it provides, it will lose a portion of the administrative fees it receives, which are based on the number of families that the housing authority houses with the certificates and vouchers. Although this would be insignificant for larger PHAs that administer many vouchers and certificates, the income loss could pose problems for some smaller PHAs.
A decline in the number of vouchers and certificates in circulation would adversely affect poor families. Fewer vouchers and certificates would be available to enable homeless families and domestic violence victims to move from shelters into more stable housing, and fewer vouchers and certificates would be available to enable families moving off welfare to move to housing closer to where jobs, transportation, and adequate child care services are located.
- Project-Based Section 8: In project-based Section 8 housing, owners do not themselves bear the impact of a reduction in tenant income. Rather, HUD is required to increase payments to project owners when tenants' rental payments fall. In this case, the federal government would pick up the extra costs resulting from the loss of cash assistance. If HUD payments to the project-based owners rise substantially due to declining tenant incomes as families hit time limits, HUD may have to reduce spending on other housing programs to remain within budgetary limits.
To avoid a short-term reduction in revenue, housing administrators have an incentive to help recipients of both welfare and housing assistance find and retain employment and increase their incomes. Housing agencies have tools available to help tenants obtain jobs, improve their skills, or overcome employment barriers such as lack of child care or transportation. A number of housing agencies are expanding their efforts in these areas in response to welfare reform.(5) Housing providers also can be influential allies in helping to make tenants aware of welfare policy changes and helping them deal with the obligations the new welfare provisions pose.
Potential loss of rental payments from tenants who receive TANF benefits however may discourage PHAs from renting to welfare recipients. If PHAs become increasingly reluctant to provide newly available units or subsidies to TANF families and if landlords are unwilling to rent to TANF families who have vouchers a growing number of poor families with children could experience serious hardship.(6)
How Housing Policy Can Impact Welfare Policy
Families receiving TANF assistance or working at low-wage jobs are unlikely to be able to rent housing on their own without paying a significant portion of their incomes. Data from the 1995 American Housing Survey indicate that about half of working poor families with children that receive no housing subsidy pay at least half of their income for rent. A mother with two children who works full-time year round at $6 per hour would have to pay over half of her income to rent a two-bedroom apartment at the national median "fair market rent" for metropolitan areas.(7)
Such high housing costs leave low-income families attempting to move into the workforce with little money for the costs that often accompany employment, such as additional clothing and food costs, child care, and transportation to and from work. By reducing a family's housing cost burden, housing assistance can free up additional dollars for work-related expenses and other basic needs. Without housing assistance, a significant proportion of TANF families and those moving from welfare to work may be unable to afford housing on their own. Without housing of their own, some families may lack the stability they need to get and retain a job.
The provision of housing assistance to current and recent TANF families thus can aid these families' efforts to move from welfare to work. Furthermore, TANF families can use tenant-based vouchers and certificates to move to a location from which it is easier to obtain and retain employment. In addition, the provision of public housing or project-based Section 8 units near mass transit systems can help families make the transition to employment, as can housing located near affordable child care. Welfare administrators and advocates have much to gain by encouraging housing agencies to admit needy families receiving assistance through a TANF-funded program and families that have recently left a TANF-funded cash assistance program for work.
One way a housing admissions system may usefully be structured is to grant a preference for admission that encompasses families in job training programs, doing community service, or otherwise deemed by the welfare agency to be cooperating with welfare-to-work requirements. When PHAs are interested in adopting a preference for working families, a broad definition of "working" could include such families. Those who are receiving unemployment insurance or who have been employed within a defined prior period of time could also be included in a definition of "working". Such approaches would enable some families eligible for TANF to retain access to housing assistance even when a PHA or private owner adopts a preference for working families.(8) PHAs and private owners of subsidized housing will be reexamining their admissions preferences in the next year in light of the changes in federal housing law. PHAs will be required to consider public comments in designing their admissions preferences. Welfare agencies and advocates may want to make housing agencies aware of the needs of the families they serve.
Linkages with housing administrators and advocates also can help in efforts to move the long-term unemployed into both subsidized and unsubsidized employment. Research suggests that TANF recipients who also receive housing assistance tend to have received cash assistance for longer periods of time than TANF recipients not receiving housing assistance.(9) As states become subject to increasingly tight work participation requirements under the federal welfare law, they will need to reach out to long-term TANF recipients to put a sufficient number of families to work. If they do not meet these work participation requirements, states will lose a portion of their federal TANF dollars. Links with housing authorities could help state welfare agencies better serve long-term TANF recipients with low skills and limited work histories.
Additional funding may be available to provide a range of services to such families through HUD-administered competitive grant funds, which often reward collaborative efforts between PHAs, welfare agencies and social service providers. In addition, the new federal welfare-to-work formula and competitive grant funds being administered by the U.S. Department of Labor must be targeted on this hard-to-serve group; programs serving TANF families with housing subsidies may have an advantage in competition for such funds.(10)
Where to Go from Here
Examples of successful collaboration between housing and welfare administrators abound. Some agencies use joint application and/or recertification forms for welfare and housing assistance, eliminating the need for families to visit multiple offices and complete sometimes duplicative paperwork. Some housing agencies are establishing admissions priorities that emphasize welfare-to-work efforts. In some areas, TANF families who are tenants in assisted housing are receiving employment counseling, referrals to training and job opportunities, and supportive services from both welfare and housing agencies. In New Jersey, a new pilot program will provide state-funded housing assistance to 350 families who have recently moved from welfare to work. Connecticut and the County of San Mateo, California operate similar programs, in part using federal or state funds related to the TANF Program.
In addition, various efforts aimed at "self-sufficiency" have been tried in the federal housing programs over the past two decades. Approximately 1,200 PHAs about one-third of all PHAs nationwide and about 40,000 families now participate in the Family Self-Sufficiency (FSS) program, which places emphasis on substantially increasing families' earning capacity. As part of the FSS program, PHAs must establish savings accounts for tenants in the program who increase their earnings. As tenants' incomes rise due to increased earnings, their rent payments normally rise, and the subsidy the PHA pays normally falls. Under the FSS program, the PHA does not retain the increased rental payments of its public housing tenants, nor does the subsidy amount paid for tenants with vouchers and certificates fall; instead, it places the increases in a tenant's rent payments caused by an increase in earnings in a savings account. With PHA approval, tenants can use these savings for work-related expenditures such as car purchase and repair or school tuition during their participation in the FSS program; families can withdraw funds from this account at the time they successfully completes their FSS contract.(11)
Despite these examples, welfare and housing administrators and advocates too often operate on separate tracks, without regard to the overlap in the families they serve and the mutually beneficial opportunities for collaboration. Awareness of these interconnections is important to understanding how changes in one program can impact the other and how best to serve a common population. Among the areas where better understanding and improved coordination between welfare and housing programs could prove particularly useful are the following:
- State welfare and local housing agencies frequently develop "earned income disregard" policies in isolation from each other. (These are policies that determine how much of a family's earnings or of an increase in earnings is counted when the family's eligibility for benefits and its benefit level are determined.) The value and likely effect on TANF recipients of an earnings disregard in a housing program is dependent upon the benefit levels and disregard policies used in the state's TANF program. Scarce housing funds may not be spent in the most optimal manner if a public housing agency provides an earned income disregard, the purpose of which is already substantially achieved by a TANF earned income disregard.
Furthermore, welfare agency staff and advocates are generally unaware of the earned income disregards available in the housing programs and often fail to include this information in the advice they give families receiving housing assistance about the financial advantages of going to work.(12) Collaboration between welfare and housing agency staff and advocates can facilitate the identification of training programs that qualify tenants for rent savings.
- Few welfare agencies have yet recognized the potential of housing programs to provide employment opportunities for current or former TANF recipients. Housing demolition and reconstruction projects could be a significant source of jobs in some areas. Realizing this potential often entails training and counseling recipients so they can perform in the jobs that a housing authority may be able to create. Welfare agencies could be a source of funds for such training and counseling, if they recognized the potential gain in work participation and income for TANF families employed by public housing authorities.
- Not many welfare agencies have recognized the value of tenant-based vouchers and certificates in helping families receiving cash assistance move closer to where jobs are located. With more collaborative efforts, welfare and housing agencies could pro-actively help families receiving vouchers become aware of opportunities to move to areas with increased employment prospects.
- Due to the nexus between rents and incomes, housing agencies are one of the most likely points of contact with families that have had their welfare grants reduced or terminated. Housing agencies can play an important role in identifying and helping to remedy wrongful or reversible grant reductions and terminations and in helping their tenants comply with TANF requirements.
- The concentration of fifty or more families receiving TANF benefits in many public housing and project-based Section 8 developments is a potential asset to welfare agencies and their contractors seeking to deliver training and supportive services to families needing to make the transition to work. Barriers to delivering services and participating in training programs can be reduced by on-site location in housing developments. In addition, housing agencies may be able to provide space without cost to the partner agencies.
- A few states such as Minnesota(13) and Rhode Island have adopted "two-tier grant policies." Under such policies, families with housing assistance receive lower TANF benefits than families without housing assistance. In addition, Maryland has increased the amount of income deemed to families with housing subsidies. Such policies decrease tenant income, which, in turn, reduces PHA revenues (thereby limiting the overall supply of housing subsidies) and may result in PHAs restricting new admissions of TANF families. If welfare administrators better understood the impact of such changes on the availability of assisted housing for the population they are trying to serve, they might be more reluctant to adopt such policies.
Effective collaboration between the administrators and advocates involved in housing and welfare programs could benefit families impacted by state welfare reform efforts. Successful coordination of housing and welfare policies and programs could enhance efforts to move families from welfare to work and better enable families to retain newly found employment.
Percentage of AFDC Households that
Also Receive Housing Assistance, by State
State HUD Program Data1 HHS Quality Control Study2 Alabama 41% 34.5% Alaska 24% 26.0% Arizona 19% 15.5% Arkansas 41% 30.5% California 13% 12.1% Colorado 39% 26.2% Connecticut 30% 37.2% Delaware 24% 32.3% District of Columbia 21% 45.3% Florida 22% 17.1% Georgia 29% 25.6% Hawaii 28% 26.3% Idaho 27% 30.3% Illinois 16% 19.1% Indiana 34% 24.0% Iowa 33% 29.3% Kansas 27% 21.0% Kentucky 31% 26.9% Louisiana 29% 27.8% Maine 27% 36.4% Maryland 27% 26.9% Massachusetts 32% 43.1% Michigan 11% 12.6% Minnesota 35% 40.1% Mississippi 28% 25.1% Missouri 32% 28.1% Montana 37% 43.0% Nebraska 46% 38.6% Nevada 23% 18.4% New Hampshire 34% 26.4% New Jersey 22% 22.4% New Mexico 24% 28.9% New York 18% 34.5% North Carolina 32% 20.9% North Dakota 55% 56.8% Ohio 30% 30.0% Oklahoma 47% 37.8% Oregon 32% 20.2% Pennsylvania 24% 16.7% Rhode Island 28% 32.1% South Carolina 33% 29.3% South Dakota 53% 38.0% Tennessee 33% 30.7% Texas 23% 27.4% Utah 27% 24.2% Vermont 24% 24.8% Virginia 35% 27.3% Washington 19% 21.5% West Virginia 28% 24.5% Wisconsin 29% 18.1% Wyoming 32% 34.6% US Total 23% 23.5% 1 Calculated by HUD PD&R from February 1997 MTCS and December 1996 TRACS databases.
2 Center on Budget and Policy Priorities tabulations of 1996 AFDC Quality Control Data. Because these figures have some margin of error, small differences between states should not be treated as significant.
1. The new housing law will convert all Section 8 tenant-based subsidies to vouchers starting in October, 1999. The rules governing the vouchers also will be changed somewhat.
2. Administrative data tabulated by U.S. Housing and Urban Development. Data for public housing and the tenant-based program are from the 1997 Multifamily Tenant Characteristics System (MTCS). Data for the project-based section 8 program are from the 1996 Tenant Rental Assistance Certification System (TRACS).
3. The new housing law will prohibit PHAs from reducing tenant rent payments in both the public housing and the tenant-based voucher program in response to the loss of cash assistance due to TANF sanctions based on failure to cooperate with economic self-sufficiency program requirements. HUD has yet to explain to housing agencies how to put this new law into effect. While this change appears to protect housing authorities and the federal government from revenue losses, it could lead to an increased number of tenants defaulting on their rental payments as tenants lose income. If tenants cannot pay the rent, they would be subject to eviction. Both PHAs and private owners with tenants who have a certificate or voucher would lose revenue during the period that such tenants are unable to pay rents.
Some states are taking steps to protect TANF recipients from homelessness following a TANF reduction due to sanctions. Minnesota, for example, restricts its most severe TANF sanction to a 30 percent reduction of the portion of the combined food stamp and TANF grant that remains after a vendor payment for housing costs is deducted.
4. See footnote 3.
5. See Barbara Sard, Outline of How Federal Housing Programs Can Help Provide Employment and Training Opportunities and Support Services, Center on Budget and Policy Priorities, July 16, 1998; Barbara Sard, The Role of Housing Providers in an Era of Welfare Reform, Fannie Mae Foundation Research Roundtable on Managing Affordable Housing Under Welfare Reform: Reconciling Competing Demands, June 26, 1998.
6. Families generally have 60 to 120 days from the date of receiving a Section 8 voucher or certificate to find an approved unit to rent with their certificate or voucher. If a lease is not signed within the allowed search period, the family forfeits the subsidy.
7. The "fair market rent" for an area is determined annually by HUD and is based on the 40th percentile for non-luxury housing that rented in the prior two years and that is not newly constructed or rehabilitated. For 1998, the median fair market rent for the 20 largest metropolitan areas is $552 for a one-bedroom apartment and $688 for a two-bedroom apartment, although this varies significantly from area to area. This rental cost can be compared to the typical hourly wage of $6 per hour for single working mothers who recently received welfare (tabulated from the Census Bureau's March 1996 Current Population Survey and converted into 1997 dollars). If these mothers worked full-time they would have to pay 55 percent of their monthly income for a one-bedroom apartment and 68 percent of their income for a two-bedroom apartment at the median fair market rent in the nation's 20 largest metropolitan areas.
8. See Barbara Sard and Jennifer Daskal, "Housing: Employment Preferences and Welfare Reform," CLASP Update, December 22, 1997, page 9.
9. There is no evidence establishing a causal link between receipt of housing assistance and the length of time spent on AFDC/TANF. One possible explanation for these data is the fact that waiting lists for housing assistance are quite long in most areas. The families that actually receive the housing assistance generally have had low incomes for a prolonged time, and, therefore, may tend to be poorer and less skilled, and to have a more limited employment history than other AFDC/TANF-eligible families not receiving housing assistance.
10. See Cliff Johnson, "Federal Welfare-to-Work Grants: New Opportunities to Create Jobs and Assist Non-Custodial Parents," Center on Budget and Policy Priorities, June 9, 1998. See 20 CFR 645, as transmitted by 62 Fed. Reg. 61588, December 18, 1997.
11. A full explanation of the implications of FSS participation for some Section 8 tenants is beyond the scope of this paper. The new housing bill substantially retains the existing obligation of some PHAs to operate FSS programs, while reducing the obligatory size of PHAs' programs by one for each family that completes the program after October 21, 1998. The new bill maintains the option of other PHAs to operate FSS programs if they wish.
12. For example, federal law requires that, in determining the rent charged to public housing tenants, PHAs must disregard for 18 months any increase in earnings that a tenant receives after participating in a federal, state or local-government-funded and administered or operated employment, training and supportive services program on or after September 23, 1994. 24 CFR 5.609 (c)(13). This rule continues in effect until October 1, 1999. At that time, a somewhat revised mandatory disregard of earnings for a larger group of public housing tenants will go into effect. PHAs and assisted owners also are required to disregard any increase in earnings or benefits resulting from participation in state and local employment training programs during the time families are enrolled in such programs when calculating the family's rent payments. 24 CFR 5.609 (c)(8)(v). See Department of Housing and Urban Development Notice PIH 98-2, January 12, 1998, for a detailed explanation of all income exclusions that apply to the public housing, Section 8 voucher and certificate, and moderate rehabilitation programs. This notice includes a useful clarification of when public housing recipients are eligible for the mandatory 18-month earnings disregard.
13. The Minnesota policy reducing TANF grants for residents of subsidized housing was due to go into effect in July, 1998, but has been delayed for one year.
The Center on Budget and Policy Priorities welcomes inquiries and is interested in assisting state and local policymakers and advocates in efforts to develop initiatives at the intersection of welfare and housing policy. Those interested in further information and assistance should contact the Center's Director of Housing Policy, Barbara Sard, at 617-566-1154, [email protected].