PAYING THE RENT:

An evaluation of the Section 8 Existing
Housing Program in New York City

A CHPC Research Report

October, 1997

Chapter 1: The Program

The idea of providing rent subsidies to the housing needy has been around since the beginning of federal housing assistance. When a national public housing program was initially debated during the Great Depression, many argued for a direct rent subsidy program instead.[1] With the critical support of the building trades the direct production approach narrowly won out and remained, in one form or another, the basis of all federal housing programs for the next 30 years.

Genesis of the Rent Subsidy Program

It wasn't until 1965 that national policy took the first steps in addressing the demand-side of the housing equation. In the Housing and Urban Development Act of 1965 two rent supplement programs were created. One provided rent subsidies directly to landlords on behalf of low-income residents in 221(d)(3) projects and thus was a predecessor of the Section 8 project-based construction program. The other, the Section 23 leasing program, was a more direct antecedent of what would become the Section 8 Existing Housing program. Under Section 23, public housing authorities (PHAs) directly leased private-sector apartments and subleased them at a lower rent to low-income families.

Renewed interest in a tenant-based rent subsidy arose during the late 1960s amid a growing academic preference for anti-poverty programs that could be more cost effective, less bureaucratic, and that could enhance recipient mobility.[2] Heightened concern about the concentration of very poor minorities into public and publicly assisted housing also contributed to a growing interest in choice-oriented approaches. These considerations coalesced with a trend toward more sophisticated policy research methods to produce several important experimental demonstrations of rent subsidy programs.

Beginning in 1970, two early demonstrations were conducted in Kansas City, Missouri and Wilmington, Delaware under the auspices of the Model Cities program. [3] Also in that year, the Housing and Urban Development Act of 1970 authorized a much more extensive rent allowance demonstration known as the Experimental Housing Allowance Program (EHAP). EHAP was designed as a "social experiment" intended to measure not only the effects on recipients' housing circumstances but also on market-wide housing supply and price conditions. [4]

Ironically, the demonstration was barely underway when the Nixon administration proposed a radical shift of federal housing resources from production programs to allowances. In testimony before Congress, HUD Secretary James T. Lynn argued that the agency's analysis showed that all eligible low-income American families could be provided safe, decent and sanitary housing through rent allowances at an annual cost of $11 billion per year, compared to $34 billion, if construction programs were used. [5] He also cited economic studies that showed that new construction programs provided families "more" housing services than they would consume if provided with an equivalent cash subsidy, and he stressed the potential preservation benefits to the nation's older, inner-city housing stock that would accrue if tenants were better able to pay the cost of its upkeep. Lynn suggested that the Nixon administration would seek budget authority to fund a rent subsidy program for elderly households on public assistance in fiscal 1976, expand it to all low-income elderly within several years, and ultimately seek to cover all eligible low-income families. While arguing that the rent subsidy approach should be the federal government's principal form of housing assistance, the Nixon administration also proposed a new construction approach that it claimed would be more efficient than those then existing. [6]

Congress reacted skeptically, partly because the Nixon administration's "moratorium" on housing construction programs, then in effect, raised doubts about the administration's commitment to housing programs in general. Housing Committee members expressed fears that a cash subsidy approach would create rent inflation and require an unwieldy new bureaucracy to enforce federal housing quality standards. Some also argued that a tenant-based subsidy program could work only in areas with high vacancy rates.

New York's Mayor John Lindsay was particularly critical of the Nixon administration's rent subsidy plan. He termed it "a wholly inadequate proposal" that revealed "a marked absence of sensitivity to housing problems." He expressed the fear that in cities with a tight housing supply, like New York, rent subsidies would "exacerbate an already difficult situation" by pumping money into the economy without increasing the supply of housing, thus fueling inflation. The Mayor called for a single federal block grant that could be used for a wide range of housing and urban renewal purposes.

From these controversies Congress fashioned the Housing and Community Development Act of 1974, which was signed into law by President Ford in August 1974. The act stands as one of the most important housing bills ever, creating the Community Development Block Grant program, the Section 8 New Construction and Substantial Rehabilitation program, and the Section 8 Existing Housing Rent Rubsidy program. The rent subsidy program was to provide housing certificates to eligible families that would pay the difference between 25 percent [7] of the recipients' monthly income and the monthly rental cost of their apartment, up to a HUD established Fair Market Rent (FMR).

In 1983 Congress amended the Section 8 program, creating a new form of tenant based Section 8 subsidy known as a "voucher." The basic difference between certificates and vouchers is that with vouchers, tenants may rent apartments for more than a Payment Standard, which is set by the issuing PHA and can be no higher than the FMR, but must pay the difference themselves. They also offer a "shopping incentive," which allows the tenants to keep the difference between the rent they pay and the FMR, if the former is less.

The NYCHA Program: Rent Subsidies in the Marketplace

Initial allocations of Section 8 funding for existing housing began in fiscal year 1975. Then, as now, the majority of federal funding for the program was allocated by a formula that distributed subsidies according to regional needs, but the process was also geared to encourage some competition among housing authorities within a region. In the early years of the program funding was somewhat erratic, both for the city in general and among its two eligible housing agencies, the Housing and Development Agency and the New York City Housing Authority. Allocations became somewhat more regular during the 1980s.

Source: New York City Housing Authority and the New York City Department
of Housing Preservation and Development

New York has always been creative in its application of new federal programs, and proposals for targeted ways to use the Section 8 certificates emerged almost immediately. With the city in a severe fiscal crisis, the Beame administration immediately sought not only to assist low-income renters but also to ease the city's fiscal pressures. In early 1976 the city asked HUD for permission to distribute some 8,000 Section 8 certificates to residents of city- and state-financed public housing projects, which at that time included about 70,000 units requiring annual city subsidies since they were not eligible for federal operating assistance. When reports of the city's request surfaced there was an immediate outcry from both for-profit and not-for-profit housing providers, who charged that such use would "subvert" the intent of the program. HUD denied the city's request in May 1976.

The distribution of Section 8 certificates to low-income families for non-targeted use in the existing housing stock started off slowly in New York, as it did elsewhere in the country. NYCHA began accepting applications for its first allocation of 1,075 certificates in January 1976, expecting as many as 50,000 applications, but in the first seven weeks only 4,600 applications had been received. However, as the Housing Authority stepped up its outreach efforts and as social workers, community groups and others became more familiar with the program, tenant interest in the program increased. By the early 1980s NYCHA was receiving over 40,000 new applications per year. By the early 1990s, new applications were running at 60,000 annually, and in December 1994 the Housing Authority stopped taking applications from families not falling into one of three high- preference categories.

Tenant interest in receiving the rent subsidies was never the anticipated problem, however. The hostility of many early skeptics of the tenant-based subsidy approach was based on the belief that certificate holders would not be able to find apartments meeting federal quality [8] and rent standards in New York's low-vacancy housing market. Under the terms of the program, a recipient has 60 days to find an appropriate housing unit or else the certificate must be returned (the period may be extended by another 60 days). The recipient can elect to use the certificate "in place," providing the current apartment passes the housing quality inspection. If the certificate is returned, the housing agency may reissue it to another applicant.

In some respects the skeptics were borne out. "Success rates" of certificate holders in New York City have been, until recently, well below those of other cities. Between 1984 and 1988, for example, only about one-third of the holders of NYCHA Section 8 certificates were able to find eligible apartments, and since the inception of the program, the success rate has been just over 50 percent. Since 1990, however, success rates have soared along with a dramatic change in the nature of the program discussed below.

Federal regulations do not require that local housing authorities provide certificate and voucher holders with direct placement services, and the New York City Housing Authority has never provided such assistance nor maintained a database of vacancy listings. The Authority, in effect, relies on the normal workings of the private market. Once a landlord is enrolled in the program through the search activities of certificate holders, however, the building or development becomes part of the Authority's database, which is made available to new certificate holders seeking accommodations.

One private effort to create a true listings service for Section 8 certificate holders was established by the Settlement Housing Fund (SHF) and operated between October 1975 and October 1977. SHF developed an outreach program to encourage landlords to participate in the program and to list their buildings in the organization's data bank. Those listings were forwarded to the Housing Authority which in turn referred the vacancies to Section 8 certificate holders. During that two-year period SHF enrolled 324 landlords who made 2,450 vacant units available for referral. [9] About 2,100 Section 8 tenants found apartments in buildings or developments listed by the SHF database, accounting for two-thirds of all Section 8 tenants moving to new units during the period. SHF terminated its program in October 1977.

A 1994 report commissioned by HUD explored the search process of certificate holders in thirty-three cities, utilizing a separate survey sample specifically for New York City. [10] At the time the survey was taken (1993),

Source: HUD Section 8 Utilization Survey

NYCHA was issuing about 80 percent of its certificates and vouchers to homeless families; the sample of 393 New York participants was drawn from non-homeless enrollees, of whom about three-quarters were elderly or handicapped. Of the participants in the sample, 257 (62 percent) found eligible housing and began receiving Section 8 subsidies while the rest were unsuccessful and returned the certificates or vouchers.

About one-quarter of the 136 unsuccessful participants never tried to move and another 9 percent never looked at a unit. Those who did, however, visited an average of 12 housing units within the time period allotted. The most common obstacles were that they never found an apartment they wanted to rent, or found one but the landlord refused to allow it to be inspected.

One of the distinguishing features of the Section 8 program in New York City has been the disproportionate number of recipients who utilize the subsidy in place. Between 1983 and 1990, 62 percent of households receiving Section 8 rent subsidies through NYCHA used them to reduce their rent burden in the apartment in which they already lived. This could

Source: New York City Housing Authority

be for a number of reasons: the condition of the city's housing stock is better than elsewhere and so more recipients qualify in place; rent burdens are higher so more applicants with otherwise sound housing qualify for the program; or low vacancy rates make it more difficult for certificate holders to move within the time allotted. The 1994 HUD study facilitates a comparison between program enrollees in New York and other cities, and is consistent with each of the above explanations. More Section 8 recipients in New York ask their current landlord to accept the certificate or voucher, more landlords agree to an inspection, and of those units where enrollees qualified in place, fewer required repairs in order to do so. Overall, more New York City Section 8 enrollees who ask their current landlord to accept the subsidies actually wind up qualifying in place. As more of NYCHA's certificates and vouchers were allocated to the homeless after 1990, however, the percentage utilizing them in place naturally declined.

The lower success rate and higher proportion of recipients who utilize the subsidies in place support the view that New York's tight housing market adversely affects the mobility of Section 8 enrollees. The record also suggests, however, that this is not a significant flaw in the program.

To the degree that enrollees use the subsidies in place, it often allows them to reduce their rent burdens substantially. In the HUD New York City sample, 73 percent of successful Section 8 enrollees previously had ratios of gross rent paid to total annual income of 50 percent or more, and the median rent burden was 74 percent of income. As of 1995, 97 percent of the applicants on NYCHA's Section 8 waiting list who reported that they wished to use the subsidy in place had rent/income ratios of 40 percent or more. In general, Section 8 certificates and vouchers allow the recipients to lower their rent burdens to 10 percent of gross income or 30 percent of income after certain deductions, whichever is larger.

Furthermore, prior to Congress's termination of funding the city had typically utilized all of the Section 8 rent subsidy allocation and in recent years had to impose stringent rationing measures. This contrasts with some of HUD's production programs over the years, whose funding for which the city has occasionally been unable to utilize because of particular housing, cost or site availability conditions. [11]

The HPD Program: Emphasis on Rehabilitation

The city's Department of Housing Preservation and Development has operated a smaller and much different Section 8 program. Almost from the start, HPD sought to integrate the rent subsidies with its other housing development and preservation programs. Congress has over the years been ambivalent about the use of tenant based rent subsidies to further housing rehabilitation objectives. At times it has amended the law and earmarked funds for such purposes; at others it has insisted on maintaining a clear distinction between project-based and tenant-based subsidies.

One early idea that has proven to be quite useful was to set aside certificates to mitigate rent increases for low-income tenants in recently rehabilitated buildings. In 1976 the city created the Participation Loan Program (PLP), which was designed to stabilize the older, marginal housing stock by providing low-cost loans for major rehabilitation of occupied buildings. Even with low-interest loans, however, the renovations often necessitated rent increases, which were permitted under the authorizing legislation. HPD initially proposed a set-aside of 800 Section 8 certificates that would be provided to low-income tenants who could not afford the rent increases occasioned by PLP renovations. This use of the certificates, which was approved by HUD, became a key component of the very effective PLP program. Since its inception, over 6,000 apartments have been rehabilitated through the PLP program, with about 20 percent of the tenants receiving Section 8 rent subsidies from HPD.

HPD's request for permission to set aside certificates for moderate rehabilitation purposes held such logic that Congress amended the law in 1978, creating a moderate rehabilitation component of the project-based Section 8 program. In 1983 a broader program, Rental Rehabilitation, was created to further similar ends. [12] The Rental Rehabilitation Program coupled federal rehabilitation grants, which could be used to renovate private rental housing, with earmarked allocations of Section 8 vouchers for tenants impacted by rent increases necessary to carry any additional debt. The vouchers were tenant-based in the sense that eligible residents could choose to remain in the renovated housing or use them to move to the housing of their choice. HPD received nearly 5,000 vouchers through this program between 1984 and 1986.

In the years since, HPD has utilized its allocation to further a number of housing rehabilitation efforts. In the city's massive program to rehabilitate vacant, in rem buildings initiated during the Koch Administration, all homeless families placed in rehabilitated apartments through the LISC and Enterprise programs received Section 8 subsidies, as did many residents of occupied in rem buildings renovated as non-profit housing or as tenant cooperatives. Section 8 rent subsidies have also been critical to the city's SRO Loan Program, which provides capital grants to non profit developers of single room occupancy residential hotels for the homeless, persons with AIDS and other special needs populations. Homeless singles who receive Section 8 certificates or vouchers, many of whom are mentally or physically disabled, are referred to these facilities, which provide both quality housing and a rich assortment of social services.

The importance of Section 8 rent subsidies to the city's housing development and rehabilitation programs is due to the decline of public assistance payments, minimum wages and other sources of income for the very poor relative to the cost of operating housing. The original concept of public housing, for example, was that public subsidies would cover the capital costs of the housing construction and rents would generate revenue sufficient to cover operating costs. Over time the rent paying capacity of tenants fell below the operating costs of the housing, and Congress instituted an operating subsidy program for public housing. For the same reasons, various HPD programs cannot serve very low-income families and individuals unless they are provided with rental assistance through the Section 8 program.

The loss of an annual new supply of Section 8 certificates and vouchers now poses serious problems for non-profit housing managers. Their loan contracts with the city typically require them to maintain a tenant mix that includes a significant portion of very low-income families or individuals (usually 30 percent or more). Since those requirements were initially met by leasing apartments to very low income or homeless families who held tenant-based Section 8 certificates or vouchers, residents are free to use their rent subsidies to move to other housing. At the time the contracts were drawn, it was anticipated that vacancies created through attrition of those tenants would also be filled by Section 8 tenants. That now appears impossible. If the financial condition of the housing is not to be undermined, the city will eventually have to provide an additional subsidy or relax its tenant mix requirements.

To Next Chapter

Chapter 1: The Program | Chapter 2: The Tenants | Chapter 3: The Housing

Disclaimer: The New York City Rent Guidelines Board has converted this CHPC report to an electronic format and posted it on its web site. We do so to inform the public and the housing community, and further the debate on rent-subsidized housing. The Rent Guidelines Board did not participate in this study and does not necessarily agree with the findings of this report. The report is solely a production of the Citizen's Housing and Planning Council.

Found this page through a search engine? Click Here to see all of Housing NYC: Rents Markets & Trends

Notes:

1. Winnick, Louis. The Triumph of Housing Allowance Programs: How a Fundamental Policy Conflict Was Resolved. Cityscape, Vol. 1, No. 3, September 1995. U. S. Department of Housing and Urban Development, Office of Policy Development and Research.

2. See Haveman, Robert H. Poverty Policy and Poverty Research: The Great Society and the Social Sciences and Moynihan, Daniel Patrick, The Politics of a Guaranteed Income.

3. See Solomon, Arthur P., and Fenton, Chester G. The Nation's First Experience with Housing Allowances: The Kansas City Demonstration. Land Economics, August 1974.

4. The results of EHAP are analyzed extensively in Struyk, Raymond J. and Bendick, Marc, Jr. Housing Vouchers for the Poor: Lessons from a National Experiment. Urban Institute Press, 1981.

5. Hearings of House Subcommittee on Housing and Urban Development, October 11, 12, 13, 1973.

6. That proposal was the origin of the Section 8 New Construction and Substantial Rehabilitation program, which utilized project-based rent subsidies to assist new housing production.

7. Congress increased this to 30 percent in 1981.

8. Apartments must meet federal Housing Quality Standards (HQS) in order to be eligible for the Section 8 Existing Housing certificate or voucher programs. Regulations governing quality standards for the Section 8 program can be found at 24 CFR 882.109.

9. Muchnick, David M. Empowering Section 8: A Report on the Settlement Housing Fund's Computerized Data Bank Project. The Settlement Housing Fund, 1978.

10. Abt Associates. Results of the National Section 8 Utilization Survey. US Department of Housing and Urban Development.

11. Until recently, for example, NYCHA was unable to utilize funding it received for 2,468 new public housing units. Federal site and neighborhood standards prevented the Authority from building the units where low-cost land was available, and federal cost limitations prevented construction in areas of the city where land costs were high. In 1995, the federal government finally allowed the Housing Authority to use the funds for modernization of existing public housing units instead.

12. This program was also known as Section 17.