In Brief: Section 8 Project-Based Rental Assistance: The Potential Loss of Affordable Federally Subsidized Housing Stock

Approximately 1.2 million renter households benefit from a Section 8 project-based rental subsidy, including 500,000 older households. Under this form of assistance, HUD contracts with for-profit owners of private multifamily housing, who in turn make specific rental properties available to qualified low-income households. Typically, the subsidy will pay the difference between 30 percent of the household's income and the contract rent; this subsidy is paid by HUD to the landlord.

Unfortunately, most Section 8 contracts have expired or will expire soon, and the property owners must now decide whether to renew their contract or leave the program (“opt out”). The problem is concentrated among those projects for which the rent levels set by the Section 8 contract are below the prevailing market rents for comparable units. Owners thus have an incentive to leave the program and convert their property to private market rentals.

Key Findings

• In 1999 HUD estimated that approximately one million subsidized units would be subject to contract expiration in the next 5 years, about half of which have contract rents below prevailing market rental rates for comparable units.
• Older Americans are found throughout the program and reside in approximately 40 percent of at-risk units, both in seniors and mixed-age Section 8 housing.
• According to the National Housing Trust, approximately 38,000 subsidized units were lost between 1996 and 1998 because of opt-out.

 Current Policy

Federal government policy provides for three major approaches when the Section 8 contracts expire.

1. Renew under the Mark-Up-To-Market Initiative. For qualified projects, rents may be renewed at the lesser of comparable market rents or 150 percent of HUD's Fair Market Rent standard. Although this initiative is still very young, it seems to have met with some success. But federal appropriations are too limited to cover all properties with below market rents, and the strategy is less effective in markets with very low vacancy rates and rapidly increasing local rents.
2. Request renewal of rents that are at or below comparable rents. Owners may choose to remain in the program even without a rent markup if they view the contract as a stable source of residents or for other reasons. However, the new contracts have much shorter terms and are subject to annual appropriation by Congress. Therefore, many property owners consider the contracts to be riskier than previous commitments.
3. “Opt out” of the Section 8 contract and raise rents to the prevailing market level. If the owner opts out, current residents may qualify for an “enhanced” tenant-based housing voucher. Unlike a conventional voucher that only provides a subsidy up to the local Fair Market Rent standard, an enhanced offers a subsidy up to the new rent level (but if the resident moves, it reverts to a conventional voucher). In the long run, this may lead to a reduction in available affordable housing as existing tenants move out, since owners are not required to accept new tenants with vouchers.

Policy Options

Although many owners will exit the program for reasons unrelated to rent levels, improvements can be made to encourage them to stay – for instance, an expanded budget to offer competitive subsidies to owners, and matching funds to encourage states to identify and preserve assisted-housing projects. The report describes other innovative options that may help minimize the loss of assisted housing in the project-based Section 8 program, and provide stable long term housing for older persons with low incomes.

Written by Andrew Kochera, Don Redfoot and Jeremy Citro, AARP Public Policy Institute

February 2001
©2001 AARP
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