Securing Decent Homes For All: The Ins and Outs of Housing Vouchers
Securing Decent Homes For All: The Ins and Outs of Housing Vouchers
The Section 8 Voucher Reform Act is a strong first step, but Andrew Jakabovics suggests the law can be improved in significant ways.
The Section 8 Voucher Reform Act of 2007, which is slated for debate on the floor of the House of Representatives later this week, will make substantive changes—many for the better—to the current Housing Choice Voucher program, often referred to as Section 8. Action by Congress to ensure everyone in our nation can live in decent housing is long overdue, yet the new legislation needs to be strengthened in some instances, and more carefully crafted in other places.
The Section 8 Housing Voucher Choice program currently provides funds to more than 2,400 Public Housing Authorities. These PHAs, in turn, offer housing vouchers to almost 2 million low-income households, according to the Center on Budget and Policy Priorities. Eligible households earn no more than 80 percent of area median income.
Under the Housing Voucher Choice program, households with vouchers pay 30 percent of their adjusted incomes in rent. The PHA then pays the difference between the household’s payment and the area’s so-called Fair Market Rent, which is usually set at the 40th percentile rent in the market. This housing assistance voucher program is currently the largest housing subsidy program for low-income families, giving families the flexibility and mobility to rent units that meet their needs.
When considering programmatic reform, however, we must consider the program’s purpose and how the changes assist or detract from its goals. Greater efficiency and higher utilization of public funds are laudable goals overall, but we must also ensure that the changes do not hurt those whom we intend to help.
The bill offers much in the way of restoring stable, rational funding to the voucher program and simplifying income eligibility calculations. But the proposed Section Eight Voucher Reform Act, or SEVRA, falls short of the Center for American Progress Task Force on Poverty’s call for 200,000 new vouchers annually over the next decade.
SEVRA instead makes provisions for only 10 percent of the annual figure—and only for five years—deemed necessary to cut poverty in half within a decade. More strikingly, the bill even fails to fully replace the estimated 150,000 vouchers lost since 2004. These are serious shortcomings that need to be addressed, but first the good news contained in the proposed legislation.
Public housing authorities today have limited resources, both with respect to funds and manpower. SEVRA reduces bureaucratic requirements on PHAs, giving them the opportunity to better serve low-income families in need of housing assistance. SEVRA streamlines the income certification process and shifts to the use of a household’s previous year’s income, reducing uncertainty for households currently receiving housing assistance.
SEVRA also exempts 10 percent of earned income as an incentive to work, a helpful provision that simplifies participants’ reporting requirements. SEVRA also exempts full-time students’ wages as an incentive for completing degrees. And households on fixed incomes will have their incomes reviewed every three years under SEVRA.
Deductions are also simplified under the proposed legislation, with an income deduction of $725 for elderly or disabled families and $500 per dependent. The existing statute requires that 75 percent of new vouchers in any given year be given to households earning below 30 percent of area median income, with the balance available for households earning up to 80 percent of area median income. SEVRA expands the pool of eligible households in rural areas by using the higher of 30 percent of area median income or the federal poverty line as the upper bound for the target population for 75 percent of the vouchers.
Although SEVRA will restore fewer vouchers than were lost over the past three years, changes to the voucher program will reduce uncertainty for PHAs in addition to families with vouchers. The PHAs benefit from the rule changes by allocating funds based on the previous year’s expenditures. In addition, PHAs will be allowed to maintain a small pool of reserves and to borrow a limited amount against the following year’s allocation.
Both of these changes will allow PHAs to fully utilize their allocations without needing to worry about changes in rents or influxes of new voucher holders that could break their budgets. The new bill also rewards efficiency by restoring the requirement that administrative fees be based on the number of vouchers allocated.
Voucher recipients will also benefit substantially from changes made to the program. Assisted tenants typically pay 30 percent of their income toward rent, with the PHA paying the balance up to the area’s fair market rent. But the bill mandates the use of the prior year’s income less 10 percent to determine eligibility. By using prior earnings, a family would know in advance if it were eligible for a voucher.
More importantly, SEVRA would eliminate barriers to portability—the ability to keep a voucher after moving to a new jurisdiction. Portability is important because it allows voucher recipients to move to take advantage of job opportunities in a new community without losing the rent assistance provided by the voucher. In the past portability was allowed, but it was (in the words of recent congressional report) “administratively cumbersome,” which led many PHAs to limit mobility. SEVRA eliminates the costs to PHAs of allowing portability and thus allows low-income households greater mobility without risking rent support.
Fair market rents under SEVRA would be calculated more precisely. Instead of using metropolitan area–wide calculations of rents, cities with 40,000 rental units would be calculated separately. Rents could also be calculated for sub-areas with at least 20,000 units. This more precise calculation of fair market rents could potentially reduce the costs to participating families by covering a greater share of the gross rent in higher-cost areas.
In higher-cost neighborhoods, the fair market rent often does not cover the asking rent, leaving tenants to pay the difference. Currently, almost half of voucher recipients pay more than 30 percent of their income in rent, according to the Congressional Budget Office. Greater accuracy in determining fair market rents will translate into a reduction in the number of families with vouchers who have a heavy rent burden.
These reforms are all steps in the right direction to give lower-income families the necessary financial assistance, flexibility, and security they need to get ahead in life. Still, there are two programmatic areas of concern.
The first of these is the newly renamed Housing Innovation Program, or HIP, a demonstration program that experiments with deregulation. The danger is that HIP allows a potentially large number of voucher recipients to be subject to experimental rules that may eliminate tenant protections currently in place. For more on the potential pitfalls of HIP, see Barbara Sard and Will Fischer’s excellent analysis of the bill.
The second programmatic change is the little-commented-upon homeownership down payment assistance provision. SEVRA would authorize the Department of Housing and Urban Development to allow PHAs to give voucher holders a one-time, lump-sum payment of up to $10,000 to be used as a down payment on the purchase of a house.
At first glance, this is an important new provision to encourage lower-income families to begin acquiring financial assets for their long-term security. But unlike an existing provision that lets PHAs establish programs for low-income homeowners to use vouchers to make mortgage payments for up to 15 years, recipients of the new down payment assistance would get no further help.
Realistically, this is a serious legislative misstep. Housing voucher recipients are a high credit risk, even with a demonstrable year of full employment. As they transition to down payment assistance programs they are unlikely to be deemed creditworthy for a fixed-rate, prime home mortgage loan. This means they are going to be highly susceptible to predatory lenders or steered into mortgages with unfavorable terms, even with credit counseling.
The chances are very high that recipients of down payment assistance will probably only be able to arrange adjustable-rate mortgages with short fixed terms, which means many of these new homeowners may well face foreclosure within a year or two after the interest rates on their ARMs adjusts. After all, in the past quarter, 15.75 percent of subprime ARMs were delinquent. PHAs have the authority to establish some loan criteria, which may protect borrowers from some predatory behaviors, but they are prohibited from specifying lenders.
This already precarious financial burden for low-income families purchasing homes with down payment assistance is sure to be exacerbated by the perhaps costly maintenance required on houses they are likely to be able to afford. Congress should not be setting up these households to fail. Instead, we should first help families with housing vouchers transition them off subsidies into decent, privately-owned rental units, then encourage them to begin the homeownership quest.
Buying a home involves a lot of risk that households at the lowest end of the income spectrum are ill-prepared to bear. Besides the dangers of expensive mortgages, high maintenance costs, and the additional burden of property taxes, lower-income families are less able to set money aside for reserves in the event of major (or even minor) repairs or a sudden family medical emergency or change in employment. Given that families under the proposed legislation would be ineligible for rental assistance for 18 months after receipt of the down payment assistance, families could suddenly be left homeless under the proposed changes to the down payment assistance program in the event of a foreclosure shortly after purchase.
Congress and the American public can and should debate whether homeownership for all Americans is an appropriate policy goal, but the rewards offered by the down payment assistance provision in SEVRA do not justify the risks borne by our most vulnerable families. What’s not up for debate today in our society, however, is the right to live in a decent home.
SEVRA has the potential to significantly increase the number of families helped by housing vouchers by reducing funding uncertainty and encouraging PHAs to be more efficient, which in turn would translate into more vouchers available. This is an important reform, yet it could be strengthened by limiting the scope of the Housing Innovation Program and by eliminating the down payment assistance provision.
The current plan for 100,000 vouchers phased in over five years does not make up for recent voucher losses, let alone make serious inroads in reducing poverty in America. SEVRA should be amended to boost the number of vouchers to meet the Center’s goal of cutting poverty in half across the United States over the next 10 years.
Andrew Jakabovics is Associate Director for the Economic Mobility Program at the Center for American Progress.
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