Savings Possible Through Recognition of Favorable Financing and Tax Abatements in Contract Rents

Under the new construction and substantial rehabilitation portion of the section 8 lower-income rental program, rents must be approved individually for each proposed unit based on rents for comparable units in the area. Appropriate reductions in contract rents (total rents payable to the owner including the portion payable by the family) may be made where a project proposal is expected to benefit from tax-exempt financing. However, adjustments are not allowed for other favorable financing or for real property tax abatement. Savings in rental assistance payments could result if similar adjustments were made in the same manner as for tax-exempt financing. Applicable regulations should be changed to allow the downward adjustment of contract rents on the basis of favorable financing or real property tax abatements to a level which optimizes savings to the Federal Government while encouraging program participation by project sponsors.