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Department of Housing and Urban Development

Recommendations and Actions

HUD09: Consolidate Section 8 Housing Certificates and Vouchers

Background

HUD low-income housing activities are most identified with programs like public housing through which eligible families are housed in housing projects. The projects are either publicly owned--for example, public housing--or owned by private developers under contract with the government, such as projects built through the Section 8 New Construction Program. In the jargon of low-income housing, these are project-based low-income housing subsidy programs. HUD also manages tenant-based low-income housing programs. In these programs, the assisted tenant chooses an apartment in the private rental housing market, and a HUD-funded subsidy is paid directly to the private landlord to make up the difference between the tenant rent contribution and the actual rent of the apartment.

The two major HUD tenant-based subsidy programs, the Section 8 Certificate Program and the Section 8 Voucher Program, are very similar in concept and operation. Both programs allocate assistance to local public housing authorities (PHAs), which provide rental assistance to tenants. Both programs use the same tenant eligibility and PHA waiting list. The program differences are primarily procedural.

In addition to the general advisability of combining similar programs to simplify administration, there is at least one substantive difference requiring attention: the voucher program shopping incentive. The certificate program pays the difference between a required tenant contribution (calculated by HUD formula) and the actual rent charged, up to a maximum for the area (the Section 8 Fair Market Rent, or FMR). The tenant cannot use an apartment that rents above the FMR and the tenant has no savings if the actual rent is below the FMR.

The voucher program makes a similar calculation of what a tenant should be able to afford and uses the same rental data as the FMR to calculate a theoretical rent cost. The difference between these amounts is the subsidy payment made on behalf of the tenant. The tenant can choose an apartment with a rent higher than the FMR and make a higher tenant contribution. A tenant with a certificate is not permitted to rent an apartment with rent above the FMR, even if the tenant is willing to pay the additional cost. The voucher tenant also has an incentive to shop for an apartment with a lower rent because, subject to some limits, the tenant gets the full benefit of the rent reduction. The HUD assistance stays the same as for a higher-cost apartment. This reduction in the contribution of the tenant, below the level which the HUD formula determines to be affordable to the tenant, can be viewed as an excess payment by the government, which should be recaptured in whole or in part.

Action

The voucher and certificate programs should be combined into one program with one set of rules.

The shopping incentive should be eliminated to provide a savings to taxpayers. Other differences between the two programs should be individually reviewed in light of the extensive experience to date to select the best features of each.

Implications

Data on the certificate and voucher programs show similar patterns of rental incidence below the maximum FMR despite the shopping incentive built into the voucher program. It is to be expected, therefore, that the pattern would continue for the combined programs and that tenants would not search out higher-rent apartments and thus reduce the savings expected for the taxpayer. If that does appear to happen, HUD should, in the future, experiment with shopping incentives with benefits shared between the tenants and taxpayer.

In addition to savings from abolishing the shopping incentive, administrative procedures and regulations could be combined, reducing some of the bureaucratic program overhead.

Fiscal Impact

The merger of the two programs will generate up to $130 million in outlays savings over the 1995 to 1999 period. While not reducing the agency's budget or spending levels, these savings will enable PHAs to provide housing assistance to many additional eligible persons, without increasing agency expenditures.

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