Rental Housing

Use of Smaller Market Areas to Set Rent Subsidy Levels Has Drawbacks Gao ID: RCED-94-112 June 24, 1994

To ensure that needy families are able to live in adequate housing, the Department of Housing and Urban Development (HUD) provides rent subsidies to low-income households. This program, known as the Section 8 program, served more than one million households at a cost of about $7 billion in 1992. The amount of rental assistance that a household receives varies with the market area in which the household lives. The size and nature of a market area can vary greatly: Entire states, large metropolitan areas, and medium-sized cities can all be considered market areas. In response to congressional concerns that these market areas are too broadly defined to permit rental assistance payments that reflect true market rents, this report determines (1) the effects of basing rent subsidy payments on smaller market areas, including any effects that doing so would have on recipient households' access to education and employment and (2) the extent to which payments made under the current program have an inflationary effect on the rental rates in surrounding areas. GAO also provides information on where Section 8 recipients lived and their proximity to key services and businesses. GAO based its analysis on the following four market areas: Oklahoma City, Oklahoma; Seattle, Washington; Washington, D.C.; and Wilmington, Delaware.

GAO found that: (1) establishing fair market rents on the basis of smaller market areas would more closely reflect rents within those areas and increase housing choices for assisted households; (2) the cost of collecting the additional data needed to accurately determine and update fair market rents could range up to $750 million annually; (3) individual household costs could increase and fewer households will be served by the Section 8 program unless HUD increases the program's total funding; (4) HUD costs could increase if assisted households move from market areas where the fair market rents are the most advantageous; (5) the decrease in fair market rents could restrict assisted households' housing choices; (6) using smaller market areas to set fair market rents may have little effect on households' access to employment or educational opportunities because public transportation is available in many areas; (7) there is insufficient evidence to estimate whether setting fair market rent levels on smaller markets would have an inflationary effect on marketwide rental rates; and (8) the presence of a housing subsidy does not increase rents for the market as a whole.

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