Government Subsidy of Private Property

Section 8 changed : Housing Choice Voucher Program

Government housing projects: The federal government administers the majority of multifamily programs for housing projects and cooperatives. Financing mechanisms include below market interest rate end loans, direct loans for new construction and rehabilitation, direct rent subsidies and mortgage insurance.

HUD multifamily and subsidy programs are covered in Section 221(d)3, 221(d)4, Section 202, Section 8, Section 236, Section 231, Rent Supplement and Rental Assistance. The multi-family Section 8 program involves a HAP (Housing Assistance Program) Contract between HUD and the project owner. These contracts are usually for 20 years.

There are some 10,000 properties nationwide receiving project-based rental assistance under Section 8 of the U.S. Housing Act of 1937 that also have mortgages insured by FHA. The properties, built largely in the late'70s and early '80s under the New Construction/Substantial Rehabilitation and other programs, house about 1.6 million low-income families.

For various reasons, including higher construction costs resulting from urban bureaucracies, (See: Cost Vs. Value ) 90 percent of project properties have rents above 120 percent of  Fair Market Rent (FMR). Tenant damages were also contractually included for reimbursement, but HUD has since "changed" the contract to exclude them. They have been excluded in some locales, such as Houston, for several years. Vacancies claims can be applied for too, but only for a limited period and amount. (Lately, HUD routinely disallows these claims.)

Without changes to the current rent formulas, the cost to the government to continue Section 8 project subsidies balloons to an unfeasible $7.4 billion by 2006.

Housing project programs were being phased out by HUD in favor of a mixed approach to affordable housing that integrates low-income tenants into the community.

Project housing has not only been more expensive for taxpayers, the history of public housing projects has resulted in a taxpayer perception that they all become slums; communities don't want them and tenants don't want to live in them.

Consequently the project subsidies that were still available were usually in the form of low-income tax credits. Some new programs allowed for 20% of a project's units to be subsidized if the balance are private market rental units.

However, owners and developers with expiring rent guarantee contracts, threatened mass evictions unless their existing project subsidies were renewed. As a result of some rather spectacular lobbying efforts, property owners who's 20 year contracts have run out, are getting a second helping of guaranteed profits for their old, and in many cases slum, "projects".

Remember, under some project subsidy programs, the federal government insured and usually paid a percentage of the mortgage. The owner was supposed to pass on the debt-servicing savings to the tenants through reduced rents, sometimes in all the units of the building, sometimes in only a portion of the projects units. Remember too that in many older programs the owner was given a contract that guaranteed the HUD portion of tenant's rents and the guarantee often even applied to vacant units. The 20 year contracts were usually long enough to amortize the initial financing on a development.

As with HUD insured mortgages, an annual audit is required for Section 8 rent increases, with extensive reporting requirements. But experienced developers will tell you there is nothing "automatic" with HUD. To get a rent increase, you must apply and cross your fingers. Some projects in dire need of a rent increase are often ignored. Others, that are cash flowing great, with the owner bringing home $100,000 per year or better, are given a rent increase.

With the right project (elderly is usually better) and adequate approved rentals from HUD, the owner can do very well with a Section 8 project. With the increased administration costs, you could also lose your shirt.

Ten thousand properties, containing one point six million units.
The situation cried out for lobbyists.

The lawyers and lobbyists were successful. The Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRAA), was contained in the FY '98 VA, HUD and Independent Agencies Appropriations Act, which passed both houses of Congress in October and was signed into law by President Clinton on Oct. 27.

HUD Secretary Andrew Cuomo hailed the bill's passage through  Congress as a "historic achievement. It will complete the work of solving the Section 8 crisis - a goal I set as my top priority when I became Secretary of HUD," he stated. 

"MAHRAA is the most significant housing legislation passed since 1990," stated Charles L. Edson, counsel to the National Leased Housing Association (NLHA), Washington, D.C., and partner with the law firm of Peabody & Brown,  Washington, D.C., in a special memorandum to clients detailing the legislation shortly after the passage of the bill.

The appropriations bill increases funding by $4.5 billion for the renewal of all expiring Section 8 contracts in FY'98 during which 1.8 million units covering 4.4 million people will expire. It provides permanent legislation effective in 1999 authorizing HUD to renew Section 8 contracts at not more than street rents (rents at "comparable" properties), and addresses the issue of restructuring the mortgages of Section 8, FHA-insured properties whose rents have been lowered.

"Below Market Rate" Cooperatives

Coops are owned and managed by the people who live in them. Income eligibility, carrying charges (monthly rent), family composition requirements and buy-in costs vary. "Below market rate" coops were strongly advocated during the Carter administration when HUD loaned tenants the money to buy the low-income projects they lived in from the developers to establish tenant cooperatives. They are much different from "market rate" coops, which function more like condominiums.

After being accepted into a coop, tenants buy a membership share which entitles them to lease a unit and vote in decisions. Shares are generally refundable at the end of the tenancy minus any damage and resale fees. In many of the coops, these initial buy-in costs have been increasing at a rate prohibiting many people from becoming tenants. However, if you can afford the buy-in cost, "below market rate" coops can be an affordable alternative to the long waiting lists and large bureaucracy of subsidized housing. Coop management is done by a board of directors, elected by tenant shareholders and landlord-tenant law generally applies. When repairs are not done, residents have the same right to withhold rent as private market tenants. Security deposit law does not apply to the return of membership share. Membership agreements usually cover other costs (such as repainting) that tenants may be required to pay out of their buy in cost when they leave.

Getting Repairs Done :

When the landlord does not respond to a written requests for repairs in Section 8 subsidized developments, tenants can withhold rent the same way that tenants in the private market do. Additional pressure is often applied when tenants call the municipality for an inspection to cite housing code violations. Tenants can also apply pressure through complaints to the subsidizing agency or HUD.

Section 8

In Section 8 certificate/voucher tenancies, the withholding procedure varies depending on where the certificate is from. Generally, tenants are expected to alert their Section 8 worker to the problem. The unit will be inspected and the worker will give the landlord a certain amount of time to repair before stopping payments. If the landlord refuses to make repairs or the unit is condemned, the payment is stopped. The tenant will be given time to look for another unit without returning to the bottom of the waiting list. Some Section 8 tenants are able to withhold their portion of the rent, although some caseworkers discourage or even prohibit it because of possible legal interpretation of cause. Some subsidy offices will allow tenants to make repairs themselves and deduct the cost from their portion of the rent.

Social Services rent payment

In any type of housing, if rent is paid by the a department of Social Services, a tenant has the right to withhold the full rent when the landlord does not keep the house up to code. It is important to document a history of notifying the landlord for repairs. If the rent is vendored directly to the landlord, a tenant may contact the worker and tell them to stop vendoring and send payments to them instead. This presents the problem of what to do with the money the tenant is having sent to them. There are some rules that allow tenants to bank the rent money without affecting their grant, if they are taking positive steps to solve the problem with the landlord. Tenants can also cash the check and buy money orders with both theirs and the landlord's name on it. Tenants should get the money orders at a bank versus a convenience gas/food store because they may not be able to obtain proof of the purchase from the gas/food stop if a money order is lost or a landlord denies receiving it from the tenant.

Just Cause Protection from Eviction

The federal government allows subsidized housing providers to evict tenants only when they have just cause, or good reason. This is a protection that tenants in the private rental market in most states do not have. In the private market, a landlord can give any reason, or none at all, for terminating tenancy or not renewing a lease. Low-income just cause protections are identical in all the subsidized programs except coops where the members agreement may address eviction issues.

In subsidized units, a landlord must offer lease renewal unless one of the following "just causes" exists:

• tenant repeatedly refuses to comply with lease terms;
• tenant has used or permitted the unit to be used for illegal purposes;
• there is excessive traffic or noise from the unit;
• the tenant has habitually paid rent late;
• the tenant has created a health hazard;
• the tenant has not adequately cleaned the unit.

      Some officials believe the listed causes may leave some room for landlords to apply different standards to different tenants. So if someone feels they have wrongly been served an eviction or non-renewal notice, and live in a subsidized development, they have the right to a conference with the manager and have a representative to help them. If they live in public housing, they have the right to a full-blown grievance procedure. In a Section 8 voucher certificate situation, the Section 8 office may fight non-renewal on behalf of the tenant.

See: Affordable Housing | Government Programs | Section 8 Program | Section 8 Updates | Public Housing