How To House More People at Lower Costs Under the Section 8 New Construction Program

The Section 8 New Construction Program was reviewed including: (1) the nature and magnitude of financial benefits afforded to developers and investors in subsidized housing built under the program; (2) the reasonableness of development and operating costs for this housing; and (3) the possibilities for reducing costs and improving the results of this program.

Substantial financial incentives exist to attract developers and investors to the section 8 program. Projects can be undertaken with a fairly small cash investment in relation to total project development costs. Government-subsidized, below-market interest rates on project mortgages are provided to developers, and developers earn profits by syndicating projects they undertake. Significant tax shelters are provided to owners and investors in new projects through the highly accelerated depreciation allowed for the projects and the way losses can be distributed. Other benefits include profits from construction, management fees, anticipated gains from the future sale or conversion to condominiums, operating profits, cash distributions, and other types of tax savings. GAO found that, for the caliber of housing being built, development costs were generally reasonable. The quality of housing was generally better than the housing in the area in which the projects were built. GAO suggested that the quality of the housing could be lowered somewhat in order to increase cost savings. GAO in no way suggested that section 8 housing be less than decent, safe, and sanitary.

Recommendations

Our recommendations from this work are listed below with a Contact for more information. Status will change from "In process" to "Open," "Closed - implemented," or "Closed - not implemented" based on our follow up work.

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