Section 8 Housing

Abstract

The Section 8 Existing Housing Program, currently the largest housing program administered by HUD, provides subsidies to low-income families living in privately-owned rental units of their own choosing. Under current rules and budgets, funds have not been sufficient to serve all eligible families willing to participate in the program, and public housing agencies have not limited assistance to the poorest eligible families. Instead, they serve many families above the poverty line while denying assistance to the majority of those below it. A simple proposal for targeting more assistance to the poorest families and eliminating the horizontal inequity resulting from offering assistance to some, but not all, families with the same characteristics is to decrease the subsidy at each income level by the same amount while continuing to spend the program's current budget. One objection to this proposal is that the poorest eligible families would not be able to find units meeting the program's space and quality standards if subsidies were lower. This paper finds that the program's subsidy to the poorest eligible families greatly exceeds the minimum rent of units meeting the program's standards. It also shows that the most common objections to reducing subsidy levels under the program are inconsistent with existing evidence or standard economic theory. Finally, it argues for converting the Section 8 Existing Housing Program into an entitlement program for the poorest eligible families.

Table of Contents

Section 8 Housing4

Introduction4

Literature4

Methods9

Are fair market rents excessive?13

Effects of lowering fair market rents on income targeting16

Conclusions21

References22

Appendix A.25

Section 8 Housing

Introduction

The tenant-based Section 8 Existing Housing Program administered by the US Department of Housing and Urban Development (HUD) provides housing subsidies to low-income families living in privately owned rental units chosen by these families. It has grown to become HUD's largest housing program, recently surpassing the much older Low-Income Public Housing Program. The purpose of the Section 8 subsidies is to induce families to occupy housing that meets certain minimum standards.

Literature

Under the program, local public housing agencies provide subsidies to selected eligible families. Eligibility depends on income and family size. For a family of four, the income limit is 80% of the area's median income.2 Reducing this income limit by a percentage that is the same throughout the country yields the income limit for a smaller family of a particular size. Similarly, the income limit for a larger family is obtained by increasing the area's four-person limit by a nationally uniform percentage.

At the time of the data used in this study, HUD operated two programs of tenant-based assistance called the Certificate Program and the Voucher Program. In order to receive a subsidy, the certificate or voucher holder must find a unit that meets minimum standards with respect to space, condition, equipment and neighborhood. A certificate holder must also find a unit that rents for less than a stated ceiling, which is dubbed “the Fair Market Rent” or FMR. For voucher recipients, the FMR determines the subsidy received but does not limit the total rent of the unit.3 The FMR is higher for dwelling ...