The Guru Is In
Reforming Federal Rental Assistance Before It’s Too Late
By David A. Smith, Jennifer Lavorel & Gregory A. Byrne
14 min read
–Download a .pdf of the note here–
For this Guru column I am publishing — with the consent of my two co-authors Greg Byrne and Jennifer Lavorel — our joint concept note for a structural approach to reforming federal rental assistance in ways that can steer the discussion of HUD reform in a more productive direction.
Some months ago, the Trump administration floated a proposal to block-grant federal rental assistance to the states, and then to cut its annual appropriations significantly as a going-away present. Whatever the merits and drawbacks of block-granting, in my view and that of my co-authors such an approach puts the cart far in front of the horse. If there are to be either significant cuts to federal housing assistance funding or block-granting back to the states, a fundamental precondition should be consolidating legacy programs — rapidly — to enable better customer service, greater efficiency, and lower net costs.
Today HUD’s rental assistance programs assist 5,000,000 households and represent over $62 billion in annual costs, which by our reckoning is 80 percent of HUD’s annual spend, dwarfing every other element of the HUD budget, and far exceeding HUD’s personnel costs. Reforming them for efficiency is itself a high-impact objective.
The accompanying proposal accomplishes cost savings without cutting program beneficiaries, by consolidating more than twenty federal housing rental assistance programs or program variants into one basic model and then streamlining its administration.
Developed by three practitioners who collectively have more than a hundred years’ experience working with HUD programs of all stripes, the proposal benefits from our individual and collective personal experiences in the design, enactment, and implementation of multiple rounds of HUD-related reforms. All three of us have spent our careers helping to make programs work better, from workouts (1976-1980) through resyndication (1983-85), then preservation (1989-1995), through Mark-to-Market (1996-2000), Mark-Up-to-Market (2001-present), and RAD (2012-present).
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Block-granting before consolidating programs is a recipe for chaos. That’s especially true if post-block-grant economies or efficiencies can be generated by individual states’ management of the programs. Experience with a standardized set of funding streams for Medicaid waivers that individual states can then experiment with and rationally optimize on their own, for example, has demonstrated that if the rules are clear, some states will be early adopters and will inform and shift the dynamics of the program. The same principle has been proven many times over via RAD, which has liberated public housing authorities from straitjackets that prevented them from becoming entrepreneurial, and in my opinion has been an enormous success with HUD, both revitalizing public housing properties and stimulating previously latent entrepreneurial capacity within public housing authorities.
The below concept note is short and focused. It’s doable, robust, and valuable across a wide range of future scenarios.
The Administration and the Congress have a short window of opportunity for making big change speedily. Let it not be wasted.
– David A. Smith
Consolidating housing rental assistance
Better customer service, greater efficiency, lower net costs
by Gregory A. Byrne, Jennifer Lavorel, and David A. Smith
The idea: Consolidate, standardize, streamline –> Efficiency savings
Consolidate all Federal forms of rental assistance – 25+ programs (including variants of PBRA), ~5,000,000 households assisted, $62+ billion in annual costs (~75 percent of HUD’s appropriations) – into a Unified Rental Assistance Program (URAP) with only two flavors, a portable (tenant-based) component and property-based component, base it on Section 8 (owner gets market rents, residents pay means-tested affordable amount). URAP to be administered by a consolidated Office of Rental Assistance (ORA) within HUD. Where necessitated by enabling statute, long-term contract, or property practical configuration (e.g. housing for people with disabilities), legacy income or household type targeting provisions from each program’s origins will continue through contract riders and deed restrictions – but otherwise, all rent rules, renewal procedures, subsidy processing, oversight, etc., will be standardized.
Guiding principles for change
1. Cut inefficiencies, not beneficiaries.
2. No cuts to number of households served.
3. No rents above market.
4. Same rules for portable and placed-based rental assistance.
5. Adjust rents annually by rational formula.
6. Enable rental assistance to pair seamlessly with capital programs.
7. Focus occupancy rules mainly on income eligibility.
The current situation: fragmented programs
Today, Federal rental assistance is administered across four different parts of the Federal government:
- HUD’s Office of Housing
- HUD’s Office of Public and Indian Housing (PIH)
- HUD’s Office of Community Planning and Development (CPD)[1]
- USDA RD’s Multifamily Housing Rental Assistance[2]
Collectively, these offices oversee 25 different rental assistance programs, representing some 5,015,000 units of Federally assisted housing.
This fragmentary approach is not only inefficient but also hamstrings HUD from implementing anti-poverty or asset-building initiatives.
The current situation: Legislative calcification
Because each program was authorized in a free-standing statute with detailed prescriptions, there are differing rules around rent-setting and rent market comparability, property escrow accounts and their usage, financial reporting, owner distributions of surplus cash, etc., not only making subsidy administration and asset management extremely difficult and complicated but also creating unforeseen budgetary consequences.
At contract renewal, these differences carry forward and create winners and losers, as Congress makes choices about which to fund adequately and which to fund at a fraction of actual costs.
Benefits
Consolidating rental assistance will result in improved outcomes:
- At a stroke, simplify the rules and workload for over 5,000,000 units costing $62+ billion of FY 25 appropriations. Efficiency gains will be realized by all parties: HUD, residents, and subsidy contract administrators.
- Better customer service for low-income households. Current and future residents will no longer need to navigate multiple different program requirements; income and verification protocols can now be standardized and largely automated.
- Greater efficiency for HUD and its contractual partners. Private and public entities dealing with rental assistance, including developers, managers, lenders, investors, sponsors, HFAs, and LIHTC participants, will need to learn only one type of rental assistance.
- Lower net cost via reductions in people-and-paper-processing. The ORA[3] will implement standardization, digitization, faster customer service, and greater transparency.
- Greater access to private capital to facilitate long-term preservation. Particularly among legacy rental assistance programs including public housing, conversion to the Section 8 platform[4] will greatly improve leverage to address long-overdue capital repairs[5].
- Create options for new anti-poverty initiatives. Greater flexibility in the use of rental assistance will create options for long-sought HUD policy goals[6] such as household asset-building and rental-to-ownership conversion (including via co-operatives).
Obstacles
Nearly all current rental assistance programs and Section 8 variants are currently specified (often in great detail) in existing statutes dating back four or more decades. The multiplicity of programs cannot be sufficiently reformed and consolidated without legislative action. Up until the Rental Assistance Demonstration (RAD), attempts to “streamline” these programs have run aground because of the inherent statutory limitations and lack of a change-making lever such as Section 8 contract renewal.
How to do it
Although most current rental assistance contracts are ‘multi-year,’ every one of them is subject to annual appropriations funding. Following enactment of implementing legislation[7] and program requirements, owners would be offered new “renewal” contracts. To achieve this, provide statutory waiver authority to the Secretary, including implementation via Notice and expedited public notification, limited to provisions necessary to effectuate consolidation as per this concept note.
To ensure proper planning, all existing rental assistance programs would immediately be organized into an ORA[8].
As most funding contracts have one-year appropriations, a wind-down/ramp-up program will be needed for landlords and HUD/contractor administrators. It may be fastest to consolidate into an ORA first, while programs sunset-plan for transition on renewal.
FY 25 Rental Assistance Inventory (for explanation, see Backgrounder)
All figures are approximate and subject to refinement.
| Acronym* | Units, 2024 | FY 25 $bn | Notes |
|---|---|---|---|
| HCV | 2,200,000 | $32.5 | Portable Housing Choice Vouchers |
| PBRA | 1,530,000 | $16.6 | Property-based: FHA, HFA, LIHTC |
| PH | 898,000 | $8.95 | Owned by local housing authorities |
| PBV | 240,000 | $3.5 | Former HCVs now glued to a property |
| PRAC | 120,000 | $0.8 | Akin to PBRA for §202 elderly |
| PAC | 32,000 | $0.2 | Akin to PBRA for §811 disabled |
| Others | <2,000 | <$0.2 | Mod Rehab, MR SRO, HOPWA |
| Totals | 5,015,000 | $62.8 | |
| MRHA | 285,000 | $1.7 | Akin to PBRA for USDA RD |
*For a list of full names and short descriptions of each Rental Assistance program, see the Backgrounder below.
Backgrounder: Existing Federal Rental Assistance Programs
Summary: 5,015,000 households, $62.6 billion annual cost[9]
For at least six decades, the Federal government has been involved with rental assistance for means-tested family, elderly, and disabled households. In every case the rules are governed by statutes dating back over those decades, many of which have been modified or amended multiple times, with minimal convergence and often divergence. The result is a hodgepodge of over-engineered rules and requirements that impedes automation, efficiency, speed, and customer satisfaction.
All of these programs are subject to authorization caps or spending limits, with the result that every program (a) has particular eligibility and priority requirements, and (b) has a long waiting list.
The programs are presented in roughly reverse order of current relevance: largest first, and smallest or oldest last.
Housing Choice Vouchers (HCV): 2,200,000 households, $32.5 billion annual cost
Portable rental assistance that is awarded to a household and travels with that household, potentially from one apartment to another at annual intervals. HCVs are distributed nationally from HUD through local public housing authorities (PHAs), and these determine eligibility based on family income and other factors. Voucher holders can use the HCV at any privately owned apartment building where the landlord is willing to participate in the program and provided that the dwelling meets HCV program requirements.
The tenure is a three-way transaction: household, landlord, and HUD: landlord and household sign a HUD-approved lease. Landlord and PHA sign a matching one-year Housing Assistance Payments (HAP) contract, which is paired with an Annual Contributions Contract (ACC) between the PHA and HUD (Office of Public and Indian Housing, PIH) under which funding flows.
Property-Base, Rental Assistance (PBRA): 1,530,000 households, $16.6 billion annual cost
The property-based companion to HCVs with only one major difference: the subsidy is attached to the apartment, not the household. The owner-landlord, public or for-profit or non-profit, secures a HAP contract with HUD (Office of Multifamily Housing, MFH) and agrees to rent covered apartments only to eligible households. Household and landlord sign a HUD-approved lease under which (a) household pays a Tenant Share (TS) of 30 percent of documented Adjusted Gross Income (AGI), and (b) HUD directly pays landlord the difference between TS and the HUD-Approved Contract Rent (ACR).
PBRA contracts are multi-year (one to 20 years, most commonly five), but subject to annual appropriations (if appropriations are insufficient to meet ACR, owner can opt out). If the owner opts out or declines to renew after the full contract term, existing households receive a special form of HCV, Tenant Protection Voucher (TPV) program. Like HCVs, TPVs are administered by PHAs.
Currently at least 12 sub-versions of PBRA exist. In 2023, MFH published an advanced notice of proposed rulemaking to consolidate these versions as long-term contracts are renewed, which has not advanced further. HAP contracts are administered by Performance-Based Contract Administrators (PBCAs), who enter into an ACC with MFH. MFH field staff oversee asset performance.
Public housing: 890,000 households, $8.9 billion annual cost (Operating Subsidy and Capital Fund combined)
America’s oldest multifamily federal housing program, created under the Housing Act of 1937. Up to 1965, when there were over ~1.3 million units nationwide, it was the only Federal multifamily program. Since then, the inventory has shrunk and is shrinking still, due to demolition/ disposition and Rental Assistance Demonstration (RAD) conversion (see below).
Public housing operates under an anachronistic and by-now crippling system. PHAs receive funding directly from HUD divided into an Operating Subsidy and a Capital Fund, both of which are formula grants that (a) even in the best case, prevent properties from generating cash flow or from tapping private affordable housing resources (including other HUD programs or LIHTCs), and (b) have been underfunded via bipartisan neglect for more three decades.
Recognizing this, in 2012 HUD and Congress created the RAD program, whereby public housing can convert into PBRA- or PBV-style public-private ownership. Though it started slowly, RAD has proven massively successful, with over 200,000 units moving into property-based Section 8 and being revitalized and upgraded in the process, leveraging over $21 billion in private capital (new loan proceeds and LIHTC equity).
Even with this, the backlog of capital needs in legacy public housing is estimated at well over $100 billion.
Project-Based Vouchers (PBVs): 240,000 households, $3.5 billion annual costs
A variant of HCVs, created by the Quality Housing and Work Responsibility Act of 1998, under which a PHA can choose to “attach” some (typically up to 20 percent) of its portable HCVs to particular properties, where they act effectively like PBRAs. There are currently about 240,000 PBV units nationally, estimated to be $3.5 billion in HAP payments.
PRAC for §202: 122,000 households, $0.8 billion annual costs
Enacted in 1959 as new construction non-profit-only housing for the elderly, §202 provided either direct HUD low-interest loans or direct HUD capital grants to build or rehabilitate housing for low-income elderly families. Most of these now receive Project Rental Assistance Contract (PRAC),[10] which acts like a PBRA, or a variant known as a Senior Preservation Rental Assistance Contract (SPRAC).[11] PRACs and SPRACs are serviced by MFH asset management staff in field offices.
PAC for §811: 32,000 households $0.2 billion annual costs
Similar to §202, §811 funded direct loans or grants for families with disabilities, with rental subsidy accompanying through a Project Assistance Contract (PAC) or, if the property is administered by a State Housing Finance Agency (HFA), a Rental Assistance Contract (RAC), which they pair with a property in a manner similar to PBVs. The HFA receives a fee for administering the contract.
Obsolete variants that survive in a few situations
Section 8 Moderate Rehab (Mod Rehab) and Section 8 Moderate Rehab for Single Room Occupancy (MR SRO) were short-lived and small-volume programs of the mid-1980s.
CPD-administered rental assistance
Rental assistance is among the eligible uses of funding under the HOME Investment Partnerships Program (a formula-based grant to localities known as Participating Jurisdictions).
Various programs targeted to homeless individuals under the Continuum of Care and Emergency Solutions Grant programs may be used to provide rental assistance.
The Housing Opportunities for Persons with AIDS (HOPWA) program provides funding that may be used for rental assistance, among other eligible uses.
USDA Rural Development MHRA: 285,000 households, $1.7 billion annual costs
The U.S. Department of Agriculture (USDA) Rural Development (RD) office administers a Multifamily Housing Rental Assistance (MHRA) program that provides funding to owners of USDA-financed Rural Rental Housing or Farm Labor Housing projects who rent to low-income families. MHRA operates much like PBRA, and RD has a preservation-related program similar to RAD.
[1] Administers Moderate Rehabilitation Single-Room Occupancy program (Mod Rehab SRO) as well as grant programs that can assist renters.
[2] A practical argument can be made to fold USDA rental assistance into an ORA at HUD. Challenges result when Section 8 budget authority is proposed for transfer to a property that has USDA rental assistance, where contract rents are set according to USDA rules (instead of MFH rules, which are different).
[3] In view of the granularity involved in contract administration, some delegated intermediation at the state or local level may be effective and even critical to fast rollout.
[4] For two decades, the capital markets have underwritten one-year appropriations against property-based contracts, but have been much more cautious with one-year appropriations on purely portable contracts.
[5] Amply demonstrated through the RAD program.
[6] Dating back at least to former Secretary Jack Kemp (1990).
[7] Forebears to this approach of reform-via-contract-renewal/replacement include, among others, RAD, the Mark-to-Market demonstration, the rent-supply-to-Section 8 Loan Management Set-Aside conversion.
[8] RD’s MHRA units are excluded from our quantitative analysis. Consolidating the RD MHRA inventory into a HUD ORA makes efficiency sense, although this will require Congress to shift the MHRA appropriations line item from Agriculture to Housing.
[9] Figures are drawn largely from the FY 2025 Continuing Resolution and can be refined if required.
[10] PRAC was added in 1990 to enable old §202/811 properties with loans to tap rental assistance to keep them viable. These properties have 40-year or 50-year use agreements.
[11] Which covers the unassisted units in a mixed-finance transaction; for more, see this link.
