How a New HUD Rule Changes Section 8 Housing Vouchers

A new rule will change the way vouchers are calculated. Here's how it can affect the local market.

U.S. News & World Report

How a New HUD Rule Changes Section 8

More photos of Boston and Cambridge, Massachusetts

By changing the way voucher amounts are calculated, recipients in some metro areas may have more housing options.(Getty Images)

On April 1, the Small Area Fair Market Rent rule will go into effect, aimed at appropriately altering the way fair market rent is calculated for Housing Choice Voucher program recipients and reducing the chances of confining recipients exclusively to low-rent areas.

The Housing Choice Voucher program is the largest part of what’s often referred to as Section 8 housing, which provides assisted housing opportunities for low-income households by paying private landlords.

The SAFMR rule was first introduced in 2011 in Dallas by the U.S. Department of Housing and Urban Development, or HUD, as an anti-segregation practice, with plans for expansion to a total of 24 markets announced in 2016 following results of the pilot program in Texas. HUD has been tasked with issuing guidance for the metro areas subject to the change and ensuring it is carried out.

“The goal of the Small Area FMR changes is to enable participants to move into areas they might not otherwise have had access to because the payment standards were too low,” explains Amy Glassman, an attorney focused on real estate and housing and a partner at Ballard Spahr in the District of Columbia.

The previous practice, which still stands for those areas not subject to the SAFMR rule, calculates housing vouchers based on rent in the entire metro area, factoring in both high-income and low-income areas. The argument stands that particularly in major metro areas, factoring in such a wide-ranging area drives down the voucher amount, forcing recipients to live in the areas with the lowest rent, which tends to keep them in high-poverty neighborhoods.

SAFMRs are set at the ZIP code level instead, making a voucher in a high-rent ZIP code worth more – and therefore potentially a feasible option for a voucher recipient.

Of course, by restructuring the calculation by ZIP code, vouchers for low-rent areas can ultimately see the voucher amount decrease. This has been an argument against putting the SAFMR rule into effect. In August 2017, HUD issued a delay on the rule for two years, to 2020, citing the pilot program where the decrease in voucher amounts limited the available housing to recipients by as much as 10 percent in low-income areas of Long Beach, California, for example.

In December 2017, a federal judge issued an injunction, requiring HUD to implement SAFMR, citing a lack of specific reasons and authority for delaying the process and mandating the rule be effective Jan. 1, 2018. HUD has since issued guidance for implementing SAFMR, with a deadline of April 1.

Public housing authorities and housing advocates are also concerned with the use of ZIP codes to delineate between one area and another. Courtney Hunter, an associate at Ballard Spahr, notes that “ZIP codes aren’t designed to reflect housing markets, they’re designed to deliver the mail.”

Gregory Brown, senior vice president for government affairs for the National Apartment Association, uses the example of two houses across the street from each other that happen to be in separate ZIP codes. Under normal circumstances, the houses influence each other's value and are in the same real estate market, but they would be viewed as separate under the new rule. "[T]here needs to be a larger conversation about what the right geographical boundary makes the most sense," Brown says via email. "We don't think ZIP codes are the best option, but the current system also has its challenges. Others in our industry have suggested perhaps counties are a better boundary."

New York University’s Furman Center, which researches housing and urban policy, released a report in January that estimates a small reduction in the number of affordable units in just four metro areas implementing SAFMR: Gary, Indiana; Hartford, Connecticut; Monmouth, New Jersey; and Sarasota, Florida. The fact that the rule allows for public housing agencies to set payment standards above the SAFMR calculation – as much as 110 percent – helps to offset the potential for decrease in rent for low-income ZIP codes, the report argues.

Here are four things you need to know about the SAFMR rule.

Eligibility for vouchers doesn’t change. While voucher amounts will change based on ZIP code rather than the overall metro area, voucher recipient eligibility and how people apply for a voucher will not change.

Voucher recipients typically pay 30 percent of their income toward their rent, with the rest of their rent covered by the voucher, which is determined by the fair market rent of that area. With the fair market rent calculated by ZIP code rather than metro area, if the voucher recipient is looking to live in a ZIP code where fair rent is higher, the voucher will cover the additional rent. In low-rent areas, however, that voucher amount can go down as well.

More landlords won’t necessarily accept vouchers. As is the goal of the rule, voucher recipients will have more freedom to live in parts of a metro area that may have been previously out of their price range. But that doesn’t necessarily mean landlords will take on all voucher recipients who apply for a lease.

Laws for landlords accepting tenants receiving rental assistance can vary greatly by city, whether that’s requiring all Section 8 voucher recipient applications to be considered or issuing little to no guidance on the matter. The District of Columbia, for example, has a law prohibiting landlords from discriminating based on income source – which includes housing vouchers.

The goal of the rule is certainly to bring more housing voucher recipients to apartment communities that previously saw few, if any, living there, but Brown notes there's limited research on the program's results. Instead, public housing agencies and landlords have to wait for full implementation, "and everyone is wondering if that will indeed be the case," Brown says.

In order to be allowed to house a Section 8 voucher recipient, the property must also apply for eligibility, pass yearly inspections, be able to collect the expected security deposit (which is not covered in the voucher) and run the same background check required of all other tenants. While housing authorities may have been able to make the process easier or more enticing for landlords in some places, property participation depends on the metro area, neighborhood and individual landlord.

Other community needs aren’t factored in. While a voucher allows greater choice in where you live, the potential for greater mobility can also mean there are fewer affordable commuting, daycare and community gathering spaces that may cost more or be nonexistent in higher-rent parts of the metro area.

“If you move out to the suburbs, that means you need a car to access services rather than being able to take a bus or train,” Hunter says.

While offering a greater number of housing options throughout the area is certainly part of the conversation, Hunter adds, “It’s not the whole solution.”

Some public housing authorities will need extra time. HUD’s final guidance on implementing the SAFMR rule also notes that public housing authorities can apply for a suspension or temporary exemption if they offer alternate rent policies or payment standards, or if implementation can’t be done before April 1.

Glassman and Hunter say they expect at least some public housing authorities to request a suspension or delay for both reasons, particularly because the injunction in December put housing authorities on a timeline few have the resources to keep up with. “It takes a really long time to issue regulations. It takes a really long time to modify regulations,” Glassman says.

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