Does HUD Pay Too Much for Section 8 Existing Housing?

Abstract

In 1975 HUD began the Section 8 Existing Housing Program, which provides subsidies to low-income families living in privately owned rental housing that meets certain standards. It has grown to become the second largest low-income rental program in the United States, surpassed only by Low-Income Public Housing. Under the program, local Public Housing Agencies (PHA) issue certificates to four-person families having incomes less than 80% of the area's median. The upper-income limit is higher for larger families and lower for smaller families. Funds are not sufficient to cover all eligible households. A certificate holder has 60 days to find a unit that meets specified quality standards and rents for less than the regional fair market (FMR) ceiling. FMR's are higher for dwellings with more bedrooms; family size determines the minimum and maximum number of bedrooms allowed. The low-income tenant must pay the landlord at most 25% of his income, and the PHA pays the remaining portion of the gross rent. If the tenant finds a unit renting below the FMR, he may deduct a fraction of the difference in rents from his maximum payment of 25% of his income. In 1976 HUD commissioned a nationwide evaluation of the Section 8 Existing Housing Program (Drury et al. 1978). The nationwide evaluation revealed a substantial increase in gross rents for whose preprogram housing required no repairs to meet the minimum quality standards. The increase in rent ranged from an average $101 for stayers having low preprogram rent ($5-$50) to an average $7 for stayers having high preprogram rent (over $150). The average increase in rent to all stayers whose units required no initial repairs was $33, or an increase of 26% (Drury et al. 1978, pp. 64-66). This finding has been interpreted to mean that Section 8 is paying rents higher than the mean of comparable unsubsidized units. Such an interpretation is inconsistent with the results of studies of the Section 23 Existing Housing Program, Section 8's predecessor. These studies found essentially no difference between the rents paid for units under the program and the mean rents of unsubsidized units with the same characteristics. (U.S. Department of Housing and Urban Development 1974, pp. 126-27; Morrall and Olsen 1980, p. 162; Mayo et al. 1979, pp. 129174).1 The Section 23 Existing Housing Program was quite similar to Section 8 but provided a recipient with a smaller incentive to find a bargain or resist a rent increase. Under Section 8, the greater the total rent payment to the landlord,