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63
HOUSING VOUCHERS: AN ALTERNATIVE TO CURRENT HOUSING PROGRAMS?
ISSUE BRIEF NUMBER IB8lOO5
AUTHOR:
Grace Milgram
ECOIIOIIIJLCS DiViSiOI1
THE LIBRARY OF CONGRESS
CONGRESSIONAL RESEARCH SERVICE
MAJOR ISSUES SYSTEM
DATE ORIGINATED O2/O2/81
DATE UPDATED O6/23/82
FOR ADDITIONAL INFORMATION CALL 287-5700
0629
CRS- 1 IB8l005 UPDATE-06/23/82
IL JE DEFINITION
Federal housing subsidy programs currently assist approximately 3.2
million households, and between 250,000 and 400,000 families are added each
year. (This does not include households receiving more general welfare aid
or tax benefits.) Because the programs usually, though not always, rely on
new construction, the cost per family is higher than if only older housing
were used, and thus fewer families receive assistance. Outlays for FY80
totaled $5.6 billion, an amount that assisted p15 to 20% of the eligible
households; the subsidy for a family in existing units was approximately
two-thirds of that for one housed in new construction. Housing vouchers have
been proposed as a substitute for the current programs on the grounds that
vouchers would be less costly, therefore permitting reduction of the
expenditures or aiding more families at the same cost. Major issues concern
the specific form of such a system, and whether it would be cost-effective
when the non-welfare aspects of housing goals are considered.
BACKGROUND AND POLICY ANALYSIS
Although the term "housing voucher" may be new, the concept is not.
Called a "rent certificate" in the 1930s and 1940s and a "housing allowance"
or "rent supplement" in the 1960s and 1970s, the idea of providing some form
of rental payment to or on behalf of families rather than building new units
specifically for them is at least as old as the public housing program
i elf. As this diverse terminology indicates, a program for rental
assistance payment can take a number of forms. These alternatives are not
merely technically different; for any given cost, they affect the number and
type of beneficiaries, the amount of assistance received, and the probable
market effects.
Aside from considerations of administrative procedures, major decisions
with respect to any housing voucher program that have to be made relate
first, to whether the payment should be tied to housing, with quality
standards and an inspection mechanism, or act primarily as an income
supplement with no housing conditions attached; second, who is to receive the
payment from the government, the owner, on behalf Of the tenant, or the
tenant directly; and third, whether there should be maximum allowable rents
or, alternatively, a maximum allowance, with the tenant permitted to pay as
much rent as he wishes. i
There would also have to be a decision as to whether the allowance would
be an entitlement program, as with food stamps, or limited with criteria
other than income affecting eligibility. Alternatively, the amount of
funding could be limited even with an entitlement program, either by setting
the maximum income limits for eligibility at a considerably lower level than
those now used, such as the poverty level or 50% rather than the current 80%
of median income; or by having a first-come first-serve system until funds
are exhausted, as with some employment programs. ‘
President Reagan, prior tO making recommendations on housing policy,
.appointed a President's Commission on Housing. Its report, issued Apr. 29,
1982, recommended that housing assistance be in the form of a "housing
payments" program, with eligibility limited to families with incomes under
50% of the median, and priority further limited by such criteria as living in
CRS- 2 IB&lOO5 UPDATE-O6/23/82
inadequate housing, paying rents over 50% of income, suffering from
displacement, or others. It made no effort to design the method of granting
assistance, or administrative details, but recommended that housing standards
b set by localities rather than Federally, and that subsidy ceilings, but
not rent ceilings, be established. It further recommended the program be
administered by~housing agencies now administering the Section 8-Existing
program, or by States in areas without such housing agencies. It recognized
that if the increased reliance on the private market underlying its
recommended actions was to work efficiently and equitably, there would have
to be strong support for mechanisms assuring fair treatment to minorities and
assistance to new construction and substantial rehabilitation in some areas
and for some types of families. It recommended that such assistance be made
an eligible activity in the Community Development Block Grant program, and
that categorical housing assistance programs of HUD and Farmers Home
Administration be eliminated in favor of a Housing Component of the CDBG
program. A special funding formula based only on housing need should be
established for the Housing Component, but there should not be an absolute
requirement for entitlement cities that such designated funds in fact be used
for housing. The amount of assistance given to a family or to a landlord in
its behalf should be the difference between an established payment standard
for "decent" housing and a percentage of the family's income. “ ‘ A
History
Federal housing assistance programs were adopted during the 1929
depression with three inter-related purposes: to assist low-income families
unable to obtain standard quality housing in the private market; to eliminate
s standard housing and slum neighborhoods; and to bolster the construction
industry and employment of construction workers. Consequently, assistance
took the form of construction of new units for occupancy by low-income
families. Because of both budgetary and physical constraints, only a small
proportion of eligible families could be helped, but over time the proportion
was expected to increase. In fact, operation of the private market in a
growing economy has served to lessen the incidence of substandard housing,
while additional programs have become major tools in improvement of
neighborhoods and assistance to the construction industry. In recent years,
however, the cost of obtaining standard quality housing, has become the
dominant problem, although in some areas there may be an absolute shortage of
units of a particular type, such as those suitable for large families or for
the handicapped. At the same time that rental assistance to low-income
families has emerged as the chief purpose of the subsidized housing programs,
the per—family cost of supplying that housing has increasedp enormously.
Revisions in the programs have been made to'provide assistance in existing
buildings, at a per-unit cost that is now approximately two-thirds of that in
new construction. Nevertheless, the dominant mode of assistance remains~ new
construction.
Various proposals for rental payments have been considered and rejected
over the years, partially because of a perceived need to add to the stock of
standard quality housing and partially because of a prevalent fear that
increasing effective demand without directly adding to supply would force up
rents not only for recipients of aid but for all low-income ‘renters. There
w e concerns that abandonment of all new construction would lead to a
situation in which public funds were used to pay landlords of substandard, or
even slum, housing unless costly regulations could be strictly enforced.
Despite these considerations, increasing COStS Of new COI1StI'1lCtiOl'l, the
CRS- 3 IB8lO05 UPDATE-O6/23/82
need for operating subsidies in assisted housing, and the desire to obtain a
mix of income groups in subsidized developments, led to legislation in 1965
permitting public housing agencies to rent units in existing housing for
S7 -leasing to eligible tenants (the "Section 23" program) and payments to
owners of rent on behalf of special groups of .low-income tenants in new
developments built under moderate income programs ("rent supplements").
The Experimental Housing Allowance Program (EHAP): %A_ Test of "Voucher"
Systems
In l968,the President's Committee on Urban Housing (the Kaiser Committee)
recommended that a housing allowance be tried on an experimental basis. It
viewed an allowance as a means to increase reliance on the more efficient
mechanisms of the free market, to increase consumer choice, and to lower
administrative costs. At the same time, it stated that shifting to a
full-scale allowance system immediately would probably inflate rents and
would not serve to stimulate needed new construction. Moreover, to be
effective, an allowance program would require strong enforcement of fair
housing laws and a major consumer educational program.
Following exploration of this proposal through a number of studies and two
pilot programs, a massive experimental program was mandated in the 1970
Housing and Community Development Act. One of the largest social experiments
ever undertaken in the United States, EHAP contained three parts: a Demand
Experiment, testing the effects of the program upon the behavior of tenants;
a Supply Experiment, testing the reactions of housing suppliers to the
program and neighborhood effects; and an Administrative Experiment, testing a
vr iety of agencies and administrative methods for the most cost—effective
p.,cedures. A
Varying formulas for giving assistance were tested, but little difference
in behavior resulted. In the Supply Experiment, the payment to the tenant
was the difference between 25% of the recipient's income and a standard rent
calculated to be necessary to obtain a unit which met program standards. The
allowance was independent of the actual refit which was negotiated between the
landlord and tenant. A recipient with less bargaining skill or who valued
housing highly might spend more than 25% of his income for rent; a more
skilled negotiator or one who valued other goods more than housing, might
spend less, so long as the unit met minimum standards. The only control was
that the allowance could not be greater than thekrent actually paid.
Although analysis of the experimental data is still continuing, a number
of reports have been issued. These reports seem to indicate the following:
participation rates range between a quarter and a half of those eligible,
with considerable variation among places and sub-groups of households;
applicants already living in units that met program standards were more
likely to become recipients than those in deficient housing, and, similarly,
those living in units with fewer or less serious deficiencies were more
likely to become recipients than those in worse housing; allowances were used
primarily to reduce rent burdens, which averaged about 40% of income among
applicants prior to the subsidy, rather than to increase total rent payments;
some households chose to improve their housing substantially and paid more
t’ n the required portion of their income for rent. For the most part, only
minor repairs were made tof meet standards (though this may reflect the
quality of the stock in the Supply Experiment cities), but there is weak
evidence that units that qualified were maintained at a higher level than
comparable units in the unassisted stock. No general escalation of rents was
CRS- 4 IB8lOO5 UPDATE-06/23/82
apparent, probably because of the low participation rates and the low
incidence of assisted households increasing their rent payments. with regard
to administration, differences seem to affect the participation rates, the
re -ability of income determination, and hence, of program costs, reliability
of inspection for conformity with housing standards, and the usefulness of
non-monetary services, such as supplying information on available housing
units.
Section 8-Existing Housing Program
Shortly after the start of EHAP, the Housing and Community Development Act
of l974 changed the form of the major assisted housing programs through a
program known as Section 8. Assistance is provided to eligible households
through a form of rental allowance that is paid to the landlord on behalf of
tenants, rather than to the tenant himself. Assistance can be given either
‘in existing units, including the tenant's current unit if it meets standards,
or in new construction or substantial rehabilitation. The tenant pays up to
30% of his income for rent, and HUD pays the difference between the tenant's
payment and a previously agreed-upon contract rent. Contract rents, 'with
certain exceptions, can be no higher than HUD-determined fair market rents
for units of the same size in modest accommodations in the same housing
market area, and also cannot exceed rents for comparable units in the
neighborhood. 1
The Section 8-New Construction program is a form of construction
assistance. The Existing Housing program can be considered a type of housing
V- :her system which differs from that tested by EHAP in that the assistance
payment is made by a public housing agency directly to the landlord, the
tenant's share of the rent is determined by his income, regardless of the
total rent, and the total rent is determined by negotiation between ‘the
tenant and landlord but subject to fair market and rent-comparability tests.
An evaluation of the experience with the Section 8-existing housing
program is now under way. ,There is some indication that Section 8 recipients
are of a lower income than those in EHAP, and that a slightly larger amount,
on average, is spent by landlords on repairs to meet HUD standards. It is
not clear whether this difference is significant, or if it is, whether it
results from the difference between HUD's and EHAP's housing standards, from
the owners‘ feeling more confident of recovering costs with payment coming
from HUD rather than only from the tenant, or from owners being able to get
higher rents because of the way the programs are structured.
Cost Estimates
Income-eligibility in the Section 8 program is set at 80% of the area
median, adjusted for family size and; at HUD discretion, for abnormally low
median incomes or high construction costs in the area. In the EHAP Supply
Experiment, the maximum income was defined as not more than four times the
fstendard rent for adequate housing for the household size. The amount of
a. istance also varies, as discussed above. Nevertheless, an estimate made
by the Urban Institute can be taken as indicative of the additional costs
that might be incurred by shifting to an entitlement voucher program. Based
on participation rates and eligibility criteria of the Supply Experiment, it
was estimated that 6.6 million households would participate, at a cost of
CRS- 5 IB8l005 UPDATE-06/23/82
$4.4 billion in 1976 dollars. (In reporting this estimate, Urban Institute
points out that participation rates and costs would vary, depending upon the
housing standards adopted, the outreach programs conducted, and other
a inistrative decisions. However, the Institute believes the variance would
not be significant.) In comparison, for FY80, HUD requested $3.1 billion, in
l976 dollars, for 3.2 million households. The difference in average cost per
household implied by these figures results for the most part from the lower
cost of relying entirely upon the existing stock rather than primarily on new
construction.
Proposals Of Reagan Administration
FY83 Budget Proposals. The FY83 budget proposals contain a sharp change
in both the nature and dimension of housing assistance. There would be no
new construction or substantial rehabilitation program, except for 10,000
units of Section 202 housing for the elderly and handicapped, which would
also carry Section 8 assistance. A "modified certificate" program is
proposed to replace Section 8, similar to Section 8-Existing, butd with- the
subsidy for a particular household and unit set at the beginning "of 0a
five-year period and not adjusted thereafter for rent increases. Family rent
payments of 30% of income would be assumed in calculating the subsidy amount,
-but actual rent payments made by the family could be more or less. A total
of lll,600 modified certificates is proposed, of which 30,000 would apply to
rental rehabilitation units, 60,600 would be for families in Section
8-Existing units who would shift to certificates, 1,000 for tenants of
Section 8-New Construction units whose owners fail to renew the initial
5 ear contract, and T5,000 for tenants in publics housing units to be
demolished. The rest would be used for conversions of Section 23 leased
units, and for loan management-property disposition assistance for troubled’
FHA-insured projects. The Administration's bill dealing with the Housing and
community Development Amendments of 1982 (H.R. 6020, and S. 3261) specifies
the details for the rental certificate program suggested in the budget. It
would establish a "modified certificate" Section 8 program under which the
Secretary determines a "payment standard" for dwelling units of various types
and sizes. Assistance to families would be the difference between the
standard and 30% of adjusted income (except that the family shall pay at
least 10% of its gross income or the amount it receives from welfare
assistance that is specifically designated for rent, whichever is more). The
contract for assistance shall not extend for longer than 5 years, and the
Federal payment shall not increase over that period. Eligibility is limited
to very low-income families or those previously assisted. Preference shall
be given to those occupying substandard housing, involuntarily displaced, or
paying more than 50% of income for rent. The limit on rent increases
resulting from the changed maximum rent-income ratio and changes in income
definition, for those currently receiving housing assistance, is raised to
not more than 20% per 12-month period, from the current 10% limit. I
No authorization of funds is made for this program in the bill. Funding
is supposed to come from unused or recaptured funds previously appropriated
for public housing, Section 8 -- New Construction, and Substantial
Rehabilitation. Neither House has adopted this proposal entirely, but that
b are the Senate (5. 2607, described in the legislation section)
incorporates much of it. s
CRS- 6 IB8l005 UPDATE-06/23/82
E; 'SLATION
H.R. 6296 (Gonzales)
Housing and Urban-Rural Recovery Act of 1982. This is the 1982 housing
authorization bill, which, with respect to assisted housing, continues the
Section 8 program, rather than shifting to other forms of subsidy. It does,
however, emphasize use of the Section 8-Existing Housing program, rather than
new construction br substantial rehabilitation. Funds are authorized for an
estimated 101,000 existing units, of which 10,000 would be moderate
rehabilitation units, 25,000 regular Existing Housing, 1,000 converted new
construction units with expiring 5-year contracts, and 65,000 units converted
from Rent Supplement and Section 23 to Section 8. No new construction would
be authorized except for use in public housing, and Section 202; and
substantial rehabilitation would be limited to units in neighborhood Strategy
Areas. Adopted by Banking Committee on May 11, 1982 and reported to the
House on May 17, 1982.
S. 2607 (Banking Committee bill)
Housing and Community Development Amendments of 1982. This is the Senate
1982 housing authorization bill. With respect to assisted housing, a
modified Section 8 -- Existing Certificate program is adopted under which a
"payment standard" is established for units of different sizes and types, and
families receive assistance in the amount by which the appropriate ‘payment
st'ndard exceeds the greater of 30% of adjusted income, 10% of gross income,
or the portion of welfare payment designated for rent (or 30% of the payment
if a rent amount is not designated). Only a very low income family or one
previously assisted under the U.S. Housing Act of 1937 shall receive such
assistance. The amount of payment may be adjusted twice in any five-year
period. Adopted by Banking Committee, May 6, 1982. Reported to Senate, May
28, 1982.
REPORTS AND CONGRESSIONAL DOCUMENTS
House Report, H.R. 6296. Report no. 97-532, May 17, 1982.
Senate Report, S. 2607, Report no. 97-463, May 28, 1982.
A decent home. The report of the President's Committee on
Urban Housing. Washington, U.S. Govt. Print. Off., 1969:
71-72.
The President's Commission on Housing. Report. Rwashington,
U.S. Govt. Print. Off., 1982. Chapter 2, "Housing Payments
Program and Block Grants."
Recommendations on government housing policies and programs.
A report of the President's Advisory Committee on Government
Housing Policies and Programs. Washington, U.S. Govt.
Print. Off., 1953: 261-264.
U.S. Department of Housing and Urban Development. Office of
Policy Development and Research. First annual report of the
Experimental Housing Allowance Program. Washington, May
CRS- 7 IB8l005 UPDATE-06/23/82
1973.
-----FY1983 Budget, Summary, Feb. 1982, p. H-2-H-4.
ADDITIONAL REFERENCE SOURCES
Bourdon, E. Richard. A review of the Experimental Housing
Allowance Program (EHAP) after five years and 25,000
recipients. Congressional Research Service, Report
79-140E, June 25, 1979.
Struyk, Raymond J. and Marc Bendick, Jr., "Housing vouchers for
the poor," in The Urban Institute policy and research
report, 10:4 (Winter 1980): 1-7.
Zais, James P., "Housing allowances: ongoing experiments and
policy options," in The politics of housing in older areas,
Robert B. Mendelson and Michael A. Quinn, eds. New York:
Praeger, l976.