Multifamily Housing

Section 8 rental housing assistance, the main form of federal housing aid for the poor, is tied either to units in specific properties or to families and individuals who live in affordable rental housing of their own choosing. Residents of housing units that receive project-based assistance must pay part of their income--generally 30 percent--for rent; the Department of Housing and Urban Development (HUD) pays the balance. HUD provides Section 9 project-based rental assistance to units in about 22,000 multifamily properties, almost half of which are insured by HUD's Federal Housing Administration. The remaining properties, which are not insured by FHA, are known as HUD's "uninsured" Section 8 portfolio. This report discusses (1) the information HUD has on the Section 8 assistance provided to properties in the uninsured portfolio, (2) the financial benefits that may be available to state and local housing finance agencies that participate in the Section 8 program and the impact of these benefits on the Section 8 program's costs, and (3) the information that HUD and the state agencies have on the physical and financial shape of the properties.

GAO noted that: (1) according to HUD's data, rental assistance payments for the uninsured section 8 portfolio totalled over $3.3 billion in fiscal year 1998; (2) a majority of these payments--about $2.3 billion--were associated with the two largest programs in the uninsured portfolio, one of which is the state agency program; (3) complete data were not available for assessing the relationship of the rents for section 8 units, or section 8 contract rents, to actual market rents; (4) nevertheless, available information indicates that some contract rents exceed market rents; (5) when section 8 contract rents exceed market rents, the section 8 subsidies support higher rents than the properties generally command without federal assistance; (6) the federal government will continue to incur these high costs each year until its existing section 8 contracts expires; (7) these contracts will expire at various times, generally from within the next 5 years to about 20 years; (8) contracts in the state agency program will generally be among the last to expire; (9) under the section 8 program, state and local agencies may derive financial benefits, or savings, from refunding their tax-exempt bonds; (10) the agencies may receive one of two available fees for administering their section 8 contracts; (11) the agencies are required to use the savings from refunding their bonds, and in some cases may use a portion of their fee, to provide affordable housing for low-income residents within their jurisdictions; (12) GAO found that HUD has not resolved three long-standing issues associated with these financial benefits; (13) as a result, HUD has missed opportunities to reduce its section 8 costs by tens of millions of dollars, particularly in the state agency program; (14) to monitor the physical and financial condition of properties in the uninsured portfolio, HUD requires annual physical inspections and generally requires annual audited financial statements; (15) as of December 1998, HUD had limited information on the physical condition of properties in the uninsured portfolio and no information on their financial condition; (16) according to HUD's central database, which included the results of inspections for about 63 percent of the properties, most of the properties were in satisfactory or better physical condition, however, these ratings were not based on objective criteria and their reliability is therefore unknown; and (17) in mid-1998, HUD began to establish centralized procedures to improve the monitoring of multifamily properties in its uninsured and other portfolios.

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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