Housing USA: Some Fixes for Section 8

6 min read

Housing is expensive in America, and this creates hardship for low-income renters. It also makes life difficult for landlords, particularly smaller-scale ones: high housing costs discourage long-term leases. While the best answer for these high costs is to increase supply, there is still a need for subsidies.

Broadly, there are four subsidy options that policymakers can take: build public housing, enforce rent control, fund private affordable tax credit housing or provide money directly to low-income renters. Public housing in America has proven to be bureaucratic, expensive to build and poorly-managed. Rent control has been found to restrict housing supply by removing the incentive to build and limiting turnover. Tax credit housing and direct subsidies are now seen as the better alternative to those two. Both depend, to a large degree, on the Section 8 voucher program, meaning it’s worth discussing whether that program is truly effective.

Section 8 vouchers are divided into two categories. Tenant-based assistance (TBA) goes directly to households, helping them shop the rental housing market. This is the most commonly-understood use of Section 8 to the wider public. Project-based assistance (PBA) is still allocated to tenants but tied to specific projects. PBA is often used to rent tax credit or public housing units, but increasingly has become a funding source to underwrite privately-managed RAD conversions of public housing. Section 8 assistance in both cases goes through Public Housing Authorities (PHAs), who decide which people and units qualify. But it is still a market-oriented policy, since voucher recipients can theoretically shop the market like any other renting consumer.  Section 8 thus gets broad political support.

However, it has not quite succeeded at its stated mission of housing the most vulnerable in good-quality units and neighborhoods.

The biggest complaint is that landlords don’t accept Section 8 vouchers at very high rates – an Urban Institute study found that the rejection rate was 78 percent in one U.S. city. This steers voucher holders back to crime-ridden areas that they were supposed to escape from, or prevents them from using the voucher at all.

There are a handful of reasons for this. First, many landlords don’t want to accept Section 8 vouchers because there’s a stigma that recipients of government aid will be bad tenants. It’s hard to know the legitimacy of this concern, but it may seem real to landlords who have horror stories about past tenants who missed payments or trashed their place.

Some cities, such as Chicago, outlaw landlords from discriminating against Section 8 voucher holders, and there are calls to pass similar laws elsewhere. But this would infringe on landlord property rights, and above all, likely won’t be effective. Some landlords will continue to quietly discriminate, and it will be hard for PHAs or other enforcement bodies to prove it. Other landlords might respond by converting their units to condos, since they don’t wish to deal with the rental laws. This is already a common scenario in cities with rent control, like San Francisco.

A better way to prevent discrimination by landlords is to liberalize the market to spur more home production (leaders, such as Cory Booker, have proposed conditioning federal aid upon a city’s willingness for zoning reform). Liberalization would shift competition from tenants onto landlords, making it less likely for them to reject voucher-holding applicants.

The second problem is that Section 8 is constrained by regulations that further discourage landlord participation. The financial website RealWealth Network published a guide about the tradeoffs of accepting Section 8 vouchers, listing twice as many cons as pros. Many of the cons alluded to regulations like excessive paperwork, duplicative inspections, tougher eviction laws, overbearing PHAs, and other problems that they would not face if keeping their units fully on the private market.

Among the worst of these regulations are price controls that somewhat mirror rent control policy. Landlords must charge Fair Market Rents (FMR), which the Department of Housing and Urban Development (HUD) defines as “the cost to rent a moderately-priced dwelling unit in the local housing market. The housing voucher tenant must pay 30 percent of its monthly adjusted gross income for rent and utilities, and if the unit rent is greater than the payment standard, the tenant is required to pay the additional amount.”

The RealWealth report claims that FMR leads to forbidding arrangements for landlords. “If HUD says that the FMR in your county/community for a two-bedroom is $900 dollars, you will be asked to keep your rental rate at $900 or less. Therefore, if you are a landlord with a property in a higher-rent neighborhood wanting to receive market value, it may be near impossible to find renters of Section 8.”

All these problems speak to how Section 8—while sounding good in theory—has proven inefficient in practice. While PBA vouchers are still seen as a form of stability, since they’re tied to affordable housing projects and go to landlords who are experienced in that industry, the TBA vouchers are different. Landlords jump through hurdles to try and accept the voucher, often giving up because of the hassle. Tenants waste their time searching, unsure which of these landlords will and won’t accept vouchers.

The answer may be for HUD to issue vouchers that are more tied into local decision-making. Instead of sending the money to PHAs with added regulations, let these agencies experiment with how the money is used.

An even better solution, at least for TBA, is to circumnavigate the PHAs altogether and send vouchers directly to tenants. They could use them to shop the market, and the vouchers would not come with any more stipulations (e.g., added inspections or FMR limits) than landlords would find in a normal situation. Instead the tenant-landlord relationship would be wholly autonomous: if the tenant likes the accommodations, he or she will stay; if not, there is the option to leave.

This would make Section 8 vouchers more flexible and, most importantly, likelier to be accepted. That in hand would bolster the effectiveness of tax credit housing and direct voucher payments, which are thought to be the two best affordable housing policies anyway.