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FEDERAL RENTAL ASSISTANCE PROGRAMS “If we don’t do a good job with rural rental housing, there will be a lot more people homeless.” For the millions of rural renters with very low incomes and suffering from extreme cost burden, rental assistance, which subsidizes their housing costs, is a vital resource. For one million of these households, however, federal aid to ease housing affordability concerns has not been available. For these worst case households, the search for decent and affordable rental housing is a frustrating one. The U.S. Department of Agriculture’s (USDA) Rural Housing Service (RHS) has been the primary provider of housing assistance to farmers and rural communities since 1949. The major rental assistance program offered by the USDA, Section 521, is a project-based rental assistance program. Rural renters can also receive assistance from the Department of Housing and Urban Development (HUD) through its Section 8 program. 16 Funding for both of these programs has not kept pace with the increasing demand from low-income renter households. For rural areas, this has been particularly problematic, as they have generally received less funding for rental programs than urban areas. 17 Section 521 Program Description Section 521, Rental Assistance (RA), is a project-based assistance program used in conjunction with the Section 515 and Section 514/516 programs. Project owners sign a five-year contract with RHS, which subsidizes the rental unit for occupancy by low-income tenants. 18 The agency then makes payments on behalf of the tenant to lower housing costs. Subsidies under the Rural Rental Assistance Program are equal to the difference between 30 percent of the tenant’s monthly income and the tenant’s monthly housing expenses. This subsidy is attached to the unit, not to the tenant. Thus, if and when the tenant moves, they leave the subsidy with the unit. The demographic make up of RA households is almost identical to that of the rural worst case needs population. Almost 90 percent of the households using RA are very low-income. According to the USDA’s 1999 data, the average adjusted income for tenants receiving RA is $7,300. RA provides about $180 of support for these households each month. Almost one quarter of RA recipients are minorities. Three quarters of all RA recipients are single female or female-headed households, and 12 percent are either handicapped or disabled. Elderly households receive over 40 percent of all RA. 19 Issues and Concerns Roundtable participants noted how the demand for decent, affordable rental housing is evidenced in the crush of applicants for assisted rental units. Some housing sponsors have had to resort to lotteries when they open new apartment complexes, with one group receiving 1,200 applications for a 35-unit project. Another housing sponsor observed that between 800 and 1,000 people typically show up when a new 50-unit project has been completed. In another case, an organization sponsoring an informational meeting on rental housing cooperatives expected no more than 20 local residents to attend. The group was overwhelmed when over 50 people came to the meeting. RHS is aware of the incredible level of demand for Section 521 assistance. According to the agency’s calculations, there are over 90,000 rural households in need of rental assistance. The agency also estimates that approximately 88 percent of the 200,000 applicants on the current waiting lists for RHS-financed apartments will require rental assistance when and if they can be accommodated in these units. Although this estimate acknowledges a need to add over 250,000 new Section 521 slots, it is well below the HAC calculation of 1 million rural worst case households in need of assistance. Panelists identified additional demands that may be placed on the RA program, as well as several important trends. Roundtable participants commented that welfare reform may place additional burdens on the RA program. A Kansas City panelist commented that as clients begin to hit their time limits, there will be a need to increase rental assistance payments if incomes decrease. Despite this possibility, it has been difficult to communicate the important link between welfare reform and housing and the need for additional RA resources to members of Congress. 20 Rural Development staff at each of the sessions suggested that there will be an emphasis on renewing existing rental assistance contracts. As Table 5 shows, without a significant new commitment to RA, RHS anticipates that an increasing proportion of RA resources will have to be allocated to contract renewals and servicing, as opposed to new construction. 21 Given this projected use of funds, the likelihood that the one million worst case needs households will receive RA is limited. Every current Section 521 recipient would have to move out of his/her subsidized unit, in order for a small percentage of rural worst case households to gain access to this subsidy. The reduced emphasis on new construction presents a problem for future affordable rental housing development. RA is an important component of most rural rental housing developments. Roundtable participants agreed that deep subsidy is necessary if rural rental projects are going to be affordable to the poorest of the poor. This assertion was made not only by nonprofit housing developers and low-income housing advocates, but also by the bankers, government agency staff, and for-profit developers at the roundtables.
Section 521 Projected Use of Estimated Funding 22
Source: National Rural Housing Foundation, 1998 Section 8 Program Description The Section 8 rental voucher and certificate programs are the federal government’s primary programs for assisting very low-income households to rent decent, affordable housing in the private market. Section 8 is a tenant-based subsidy administered by HUD through local housing authorities (HAs). Participating households locate housing that meets program health and safety requirements, and for the certificate program, meets a pre-determined rent cap. The HA, using HUD funds, then pays a rental subsidy directly to the landlord on behalf of the participating household. Under the rental certificate program, a family pays 30 percent of its adjusted monthly income for housing costs. Rent for units occupied by Section 8 certificate holders cannot exceed a maximum limit set by the local HA. The certificate payment makes up the difference between the HUD-determined Fair Market Rent (FMR) 23 for the unit and the tenant’s contribution. The voucher program differs in that the qualifying family is not limited by the maximum rent cap. The HA will subsidize a set amount of rent based on a payment standard determined by the HA. As part of its 1994 housing legislation, HUD proposed to merge the certificate and voucher programs, essentially eliminating the certificate program. This merger occurred in October 1999. Issues and Concerns Waiting lists for the Section 8 program are notoriously long. The average waiting time for a voucher increased from 26 months in 1996 to 28 months in 1998. Not only has the time on waiting lists increased, the number of families on waiting lists has increased as well, typically by 10 to 25 percent. The recent HUD study, Waiting in Vain, examined 40 waiting lists across the nation and found that there are almost 1 million households waiting for assistance, with an average of almost 25,000 households on each list. 24 Housing authorities are allowed to close these lists when demand for Section 8 greatly exceeds the available resources. Local and state housing authorities may establish their own preferences for administering Section 8 waiting lists. Priority is often given to homeless individuals and families, displaced households, those living in substandard housing, and those paying more than 50 percent of their income for housing costs. None of the roundtable participants had seen housing authorities establish preferences for people from rural areas, or for significant rural population groups like farmworkers. As of 1989, less than 20 percent of households receiving Section 8 assistance lived in nonmetro areas. Several other important observations were made by the roundtable panelists. A Washington roundtable panelist noted that Section 8 “vouchers do not stick.” Unlike the RHS Section 521 program, if the tenant moves out of the project, the next tenant moving in will not necessarily have rental assistance available. This makes it hard for project owners, particularly nonprofit groups, to maintain cash flow and make their mortgage payments. Many panelists agreed that the success of vouchers and certificates in rural housing is often limited by a lack of affordable rental housing. There are few private rental units that meet HUD housing quality standards and rent for less than the FMR or the payment standard 25 in many small rural towns. Section 8 recipients who live in rural towns with limited rental markets may not be able to use their vouchers locally. Many recipients have been forced to relocate to find places where they can use their vouchers. Some of the panelists observed a definite pattern in their areas where people are being pushed out of small rural towns and into larger regional population centers in search of affordable housing. A Kansas City panelist also observed that many rural landlords are reluctant to accept Section 8. A disagreement over rental assistance issues surfaced in the San Francisco roundtable. One participant felt that targeting Section 8 voucher use to tax credit projects (see LIHTC section below) was a “double subsidy,” which produced no net gain in affordable units for low-income rural residents. Encouraging Section 8 voucher holders to live in these projects “takes these units away” from other low-income households. Voucher holders can receive the same level of housing assistance to rent privately owned apartments, leaving the tax credit units for those not receiving other subsidies. Another panelist disagreed with this point, stating that without the additional subsidy it would be difficult for many lower income families to afford tax credit units. Further, in many rural areas there are not enough private rental units charging less than the FMR and meeting HUD’s housing quality standards. In these small rural communities, a new tax credit project is often the only opportunity for people to use their vouchers.
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