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Housing Choice Vouchers

February 1, 2008
By Linda Couch, Deputy Director, National Low Income Housing Coalition

Housing vouchers are one of the major federal programs intended to bridge the gap between the cost of housing and the incomes of low wage earners and people on limited fixed incomes. The Housing Choice Voucher program provides flexibility and options by issuing vouchers to eligible households to help them pay rent in privately owned apartments of the households’ choosing.

Federal tenant-based rental assistance was established as part of a major restructuring of federal housing assistance for low income families in 1974. Today, about 1.8 million households have U.S. Department of Housing and Urban Development (HUD) rental assistance vouchers, also called Section 8 tenant-based assistance and formally referred to as Housing Choice Vouchers. The Housing Choice Voucher program provides flexibility and options by issuing vouchers to eligible households to help them pay the rent in privately owned units of the households’ choosing. Since 1998, 75% of all new voucher holders must have extremely low incomes, at or below 30% of the area median income (AMI). The remaining 25% of new vouchers can be distributed to tenants with incomes up to 80% of AMI.

Approximately 2,500 local and state housing agencies administer housing vouchers. Public housing agencies (PHAs) distribute vouchers to qualified families who then conduct their own housing searches. Housing vouchers are portable, meaning families can use them to move nearly anywhere in the country where there is a functioning voucher program; their use is not limited to the jurisdiction of the administering agency. A PHA is permitted to impose some restrictions on portability in the first year if a family did not live in the jurisdiction of the PHA when it applied for assistance. Portability has been restricted or disallowed by some PHAs due to cost constraints of the overall voucher program.

Beginning in 2004, the program went through almost three years of upheaval and poor federal management, which resulted in the loss of more than 150,000 vouchers nationwide. The 110th Congress, in its fiscal year 2007 (FY07) funding resolution for HUD, turned HUD’s voucher mismanagement around and began to restabilize the program.

In FY04, HUD recalibrated how it funded voucher administrators for vouchers and imposed tight restrictions on the availability of funds for vouchers that were not in use before the beginning of the fiscal year. In FY05, Congress again tied a PHA’s voucher funding to past voucher costs with very little room for adjustments for legitimate voucher program costs. A PHA’s voucher funding was based on average May, June and July 2004 voucher costs plus adjustments for tenant protection vouchers and for an annual adjustment factor. Coupled with this faulty funding distribution system, Congress underfunded the voucher program for FY05 by $570 million. Thus, about 80,000 authorized vouchers were not available to low income people in need of housing assistance in FY05 because of the combined pressure of the funding shortfall and the flawed funding distribution system.

In FY06, Congress approved sufficient funding to for the voucher program but continued the inefficient voucher funding distribution system, causing the loss of additional vouchers in FY06.

The FY06 funding allocation mechanism was based on FY05 funding, which, in turn, was based on the three month (May, June and July) 2004 snapshot. So, the policy that cost the country 80,000 vouchers in FY05 was again used to determine future funding mechanisms. The Center on Budget and Policy Priorities (CBPP) estimates that more than 150,000 vouchers have been lost nationally since the funding distribution system change in 2004.

There were two basic problems with the funding distribution system. First, some PHAs received more than they needed, resulting in pure waste since PHAs can only administer up to their authorized number of vouchers. Second, some PHAs received less than what their actual voucher program costs were and were left to figure out to how to fund vouchers without sufficient federal funding. Many PHAs had to freeze their housing assistance waiting lists because they could not afford to reissue a voucher that had been turned in by a household. Some PHAs adjusted voucher payment standards downward and/or restricted portability. Adequate payment standards and the portability of vouchers bring mobility to the voucher program.

The voucher funding system, as provided in H.J. Res. 20, the FY07 funding resolution, distributed funds based on the most recent 12 months of voucher cost and leasing data, plus reasonable adjustments. The resolution also provided $100 million for underfunded PHAs. The FY08 housing appropriations bill provided sufficient funds to renew all vouchers in use as well as additional resources for approximately 15,000 new vouchers for homeless veterans, non-elderly disabled people and the Family Unification Program.

The U.S. House of Representatives’s Section 8 Voucher Reform Act, H.R. 1851, would base each PHA’s annual voucher appropriations on its actual leasing and costs in the last completed calendar year with various adjustments to ensure actual legitimate costs are met.

Section 8 Voucher Reform Act. The House’s Section 8 Voucher Reform Act, H.R. 1851, passed the House on July 12, 2007. This legislation addresses distribution of voucher funds to administering agencies, simplification of rents, voucher portability, replacement vouchers for lost project-based assistance, project-based vouchers, fair market rents, rent burdens, inspections, the moving to work/housing innovation program and the family self-sufficiency program, among other voucher issues. The bill also authorizes 20,000 new, incremental vouchers each year for FY08-FY12.

Incremental Vouchers. For many years, the primary source of increased federal housing assistance for very poor people was new annual appropriations for additional vouchers, called “incremental” vouchers. Between FY95 and FY98, however, no incremental vouchers were funded. Congress then approved the following incremental vouchers from FY99 through FY02: 50,000 new vouchers for FY99; 60,000 for FY00; 87,000 for FY01; and 26,000 for FY02. Congress approved no new vouchers in FY03, FY04, FY05, FY06 or FY07. In FY08, Congress appropriated funding for 15,000 incremental vouchers.

Project-Basing Vouchers. Since January 2001, PHAs have been permitted to attach up to 20% of their vouchers to particular units of housing through project-basing of vouchers. In other words, the subsidy attached to these vouchers stays with the unit, as opposed to the household. In October 2005, HUD issued a final rule providing the specific guidelines for project-basing vouchers. No more than 25% of the total units in a property may receive project-based voucher assistance, with certain exceptions. The decision about where to project-base vouchers must be consistent with the goal of deconcentrating poverty and expanding housing opportunities. The final rule grants preferences to families with disabilities who require the services offered at a particular project.

If the PHA is interested in establishing project-based units, it enters into a contract with the owner of the property for a specified term. The initial contract for the project-basing of vouchers can be for up to five years, subject to appropriations.

The House’s Section 8 Voucher Reform Act would make many improvements to the project-basing of vouchers. Project-basing vouchers allows families with extremely low incomes to afford to live in otherwise unaffordable housing, like low income housing tax credit units.

Fair Market Rent and the Payment Standard. Voucher holders are limited to housing that meets HUD housing quality standards and is owned by landlords willing to enter into a Housing Assistance Payment (HAP) contract with the PHA. Under the voucher program, the subsidy covers the difference between 30% of the tenant’s income and the “payment standard,” which is the total rent and utility costs that the PHA will cover. The PHA has the authority to modify the payment standard to as low as 90% of the Fair Market Rent (FMR) and as high as 110%. Subject to certain limitations, a qualified tenant can rent a unit for any amount of money so long as the PHA finds the rent to be reasonable. A tenant new to the voucher program or moving to a new unit may not rent a unit that would require him or her to pay more than 40% of adjusted monthly income for rent and utilities.

Originally, FMRs were set at the median rent. FMRs were then ratcheted down to the 45th percentile of rents and are now set at the 40th percentile of the value of rental housing in most jurisdictions as determined by HUD. Starting in January 2001, HUD increased the FMRs in some metropolitan areas to the 50th percentile rent due to concerns about the concentration of poverty and low income housing in these areas.

The level at which the FMR is set by HUD is important because the determination of the PHA’s payment standard relies on the FMR, so the higher the FMR, the higher the rents that can be covered by a voucher. To set its payment standard outside of the range of 90% to 110% of FMR, the PHA must receive a waiver from HUD to use “exception payment standards.” A PHA may set payment standards at different percentages of the FMR in different neighborhoods or for units of different bedroom sizes.

The PHA’s determination of the payment standard for the voucher program has important implications for housing affordability. As tenants renting units for more than the payment standard pay 30% of their income plus the difference between the payment standard and the actual rent (up to 40% of adjusted income, for new and relocating voucher holders), a higher payment standard would mean that fewer families would pay more than 30% of their income. The payment standard proposed by the PHA for the voucher program is subject to tenant and community review as part of the PHA planning process.

The House’s Section 8 Voucher Reform Act would require HUD to set FMRs for smaller geographic areas with the goal of allowing vouchers to be used in as wide a range of communities as possible, including low-poverty communities.

Rent Simplification. Calculating rents can be a complicated process, for both PHA staff and residents. There is general agreement that the rent-setting process can be simplified. While some would like the entire system to be reformed, the overwhelming policy thrust has been to maintain the historic policy of keeping rents tied to incomes and retaining the “Brooke Amendment,” which caps rents of public and assisted housing residents at generally 30 percent of adjusted gross income. That said, some simplifications are included in the House’s Section 8 Voucher Reform Act. These provisions would apply to voucher holders, public housing residents and project-based Section 8 residents.

Among these rent simplification proposals, for example, is that the recertification of incomes would only be required at least every three years (instead of the current annual recertification) for elderly and disabled families on fixed incomes (at least 90% of their incomes from Social Security, Supplemental Security Income (SSI) or some similar source). And, interim income recertifications would be required, at the tenant’s request, for annual income decreases of $1,500. Interim income recertifications for earnings increases would not be required. The bill would also increase the standard deduction for elderly and disabled households to $725 from the current $400, while narrowing medical individual deductions to those expenses exceeding 10% of income from the current 3% of income. The bill would also allow 10% of all employment earnings to be deducted from income.

Moving to Work. Moving to Work (MTW) is a PHA demonstration program that provides flexibility from most statutory and regulatory rules. Its provisions impact everything a participating PHA does, including administration of its voucher program. Under MTW, a PHA may combine its public housing operating, capital and voucher funds to assist substantially the same total number of families as otherwise would have been served. Current MTW sites can serve higher income people, impose time limits and work requirements, and change their rent policies (for example, rents may no longer be income based but must merely be “reasonable”). Because many of the original 30 MTW demonstration sites are still running their initial demonstrations, adequate evaluation of the MTW has not occurred, and, critically, because the potential for harm to residents and the long-term health of the PHAs are at stake, NLIHC believes the MTW program is not ready for expansion or permanent authorization. Various legislative vehicles seek to maintain and expand the current MTW program. (See the chapter on the Moving to Work program.)

Advocacy for Housing Choice Vouchers in 2008
In 2008, advocates will continue to seek sufficient funding to renew all vouchers in use and funding to issue already-authorized yet unused vouchers. And, pressure will remain to authorize and appropriate funding for at least 100,000 new incremental vouchers in FY09 compared to the $125 million appropriated for about 15,000 new vouchers in FY08. These were the first new vouchers appropriated since FY02 but more are desperately needed.

Enactment of the Section 8 Voucher Reform Act (SEVRA) will be important in 2008. Since the bill passed the House in 2007, focus will be on Senate action. The Senate’s bill is expected to be introduced very early in the second session of the 110th Congress by Senate Banking, Housing and Urban Affairs Chair Christopher Dodd (D-CT). Housing advocates should urge speedy Senate consideration, passage and negotiation with members of the House to ensure enactment in 2009. The bill would make many long-lasting improvements to the housing choice voucher program.

In the Senate, SEVRA must have the support of the Senate Committee on Banking, Housing and Urban Affairs so the full Senate can then consider the measure. Then, the differences between the Senate and House bills will have to be negotiated by a conference committee.

For More Information
National Low Income Housing Coalition • 202-662-1530 • www.nlihc.org

Center on Budget and Policy Priorities • 202-408-1080 • www.cbpp.org

National Housing Law Project • 510-251-9400 • www.nhlp.org