Rental Housing Assistance
Policy Decisions and Market Factors Explain Changes in the Costs of the Section 8 Programs Gao ID: GAO-06-405 April 28, 2006Annual appropriations for the Department of Housing and Urban Development's (HUD) Section 8 programs--a key federal tool for subsidizing rents of low-income households--have increased sharply in recent years, raising concerns about their cost. Section 8 pays the difference between a unit's rent and the household's payment (generally 30 percent of adjusted income). Section 8 includes a voucher program administered by public housing agencies (PHA) that allows eligible households to use vouchers to rent units in the private market and a project-based program administered by property owners who receive subsidies to rent specific units to eligible households. In both programs, contracts between HUD and the administrators specify the duration and amount of the subsidy. GAO assessed Section 8 trends from fiscal years 1998 through 2004 and examined (1) annual budget authority and outlays for each program; (2) factors that have affected outlays; and (3) the estimated impact of factors, such as market rents, on the average rental subsidy per voucher household.
From 1998 through 2004, annual budget authority for Section 8 grew from $9.4 billion to $19.3 billion (105 percent, or 82 percent after adjusting for inflation), while outlays grew from $14.8 billion to $22.2 billion (50 percent, or 33 percent after inflation adjustment). The steep rise in budget authority was partly due to the additional funding needed to cover the cost of renewing long-term contracts. GAO estimates that voucher outlays grew by 93 percent from 1998 through 2004 (71 percent after inflation adjustment), accounting for almost all of the growth in total Section 8 outlays. Estimated project-based outlays grew by 6 percent (and actually declined after inflation adjustment) over this period. GAO estimates that about 43 percent of the growth in voucher outlays from 1998 through 2004 stemmed from policy decisions that increased the number (from 1.6 million to 2.1 million) and use of vouchers, while over half of this growth was due to an increase in the average rental subsidy per household. For the project-based program, a modest increase in the average rental subsidy per household drove the growth in outlays but was partly offset by a reduction of 62,000 in the number of units. On the basis of statistical analysis of cost data, GAO estimates that growth in the average annual rental subsidy per voucher household from 1999 through 2004 is primarily explained by changes in market rents (about one-half of the growth), PHAs' decisions to increase the maximum subsidized rents (about one-quarter), and lagging growth in assisted household incomes (about 16 percent.) Household and neighborhood characteristics, while important cost determinants, did not vary enough to cause a substantial change in the average rental subsidy per household.
GAO-06-405, Rental Housing Assistance: Policy Decisions and Market Factors Explain Changes in the Costs of the Section 8 Programs
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Report to the Chairman, Subcommittee on Housing and Community
Opportunity, Committee on Financial Services, House of Representatives:
April 2006:
Rental Housing Assistance:
Policy Decisions and Market Factors Explain Changes in the Costs of the
Section 8 Programs:
GAO-06-405:
GAO Highlights:
Highlights of GAO-06-405, a report to the Chairman, Subcommittee on
Housing and Community Opportunity, Committee on Financial Services,
House of Representatives.
Why GAO Did This Study:
Annual appropriations for the Department of Housing and Urban
Development‘s (HUD) Section 8 programs”a key federal tool for
subsidizing rents of low-income households”have increased sharply in
recent years, raising concerns about their cost. Section 8 pays the
difference between a unit‘s rent and the household‘s payment (generally
30 percent of adjusted income). Section 8 includes a voucher program
administered by public housing agencies (PHA) that allows eligible
households to use vouchers to rent units in the private market and a
project-based program administered by property owners who receive
subsidies to rent specific units to eligible households. In both
programs, contracts between HUD and the administrators specify the
duration and amount of the subsidy.
GAO assessed Section 8 trends from fiscal years 1998 through 2004 and
examined (1) annual budget authority and outlays for each program; (2)
factors that have affected outlays; and (3) the estimated impact of
factors, such as market rents, on the average rental subsidy per
voucher household.
What GAO Found:
From 1998 through 2004, annual budget authority for Section 8 grew from
$9.4 billion to $19.3 billion (105 percent, or 82 percent after
adjusting for inflation), while outlays grew from $14.8 billion to
$22.2 billion (50 percent, or 33 percent after inflation adjustment).
The steep rise in budget authority was partly due to the additional
funding needed to cover the cost of renewing long-term contracts. GAO
estimates that voucher outlays grew by 93 percent from 1998 through
2004 (71 percent after inflation adjustment), accounting for almost all
of the growth in total Section 8 outlays. Estimated project-based
outlays grew by 6 percent (and actually declined after inflation
adjustment) over this period.
GAO estimates that about 43 percent of the growth in voucher outlays
from 1998 through 2004 stemmed from policy decisions that increased the
number (from 1.6 million to 2.1 million) and use of vouchers, while
over half of this growth was due to an increase in the average rental
subsidy per household. For the project-based program, a modest increase
in the average rental subsidy per household drove the growth in outlays
but was partly offset by a reduction of 62,000 in the number of units.
On the basis of statistical analysis of cost data, GAO estimates that
growth in the average annual rental subsidy per voucher household from
1999 through 2004 is primarily explained by changes in market rents
(about one-half of the growth), PHAs‘ decisions to increase the maximum
subsidized rents (about one-quarter), and lagging growth in assisted
household incomes (about 16 percent.) Household and neighborhood
characteristics, while important cost determinants, did not vary enough
to cause a substantial change in the average rental subsidy per
household.
Figure: Annual Budget Authority and Outlays for Section 8, 1998-2004:
[See PDF for Image]
[End of Figure]
[End of Section]
Contents:
Letter:
Results in Brief:
Background:
Increases in the Number of Vouchers Drove Growth in the Size of Section
8 from 1998 through 2004:
Section 8 New Budget Authority Increased at a Faster Rate than Outlays
from 1998 through 2004:
Policy Decisions and Market Factors Drove Increases in Section 8
Outlays, but HUD and Congress Have Acted to Limit Further Growth:
Policy Changes and Trends in Market Rents and Household Incomes
Increased the Average Subsidy per Voucher Household:
Observations:
Agency Comments:
Appendixes:
Appendix I: Objectives, Scope, and Methodology:
Appendix II: Information on the Section 8 Moderate Rehabilitation
Program:
Appendix III: Description of the Section 8 Rental Housing Assistance
Programs:
Appendix IV: Data on Budgetary Costs for the Voucher and Project-Based
Programs:
Appendix V: Description of the Econometric Analysis of Rental Subsidy
Costs per Household for the Voucher Program:
Appendix VI: Trends in Rents and Household Payments for the Voucher and
Project-Based Programs:
Annual Increases in Voucher Rents and Fair Market Rents Were Similar:
Appendix VII: Comments from the Department of Housing and Urban
Development:
Appendix VIII: GAO Contact and Staff Acknowledgments:
Tables:
Table 1: Number of New Vouchers Awarded by Major Voucher Type, 1998-
2004:
Table 2: Estimated Impact of Policy Decisions and Other Factors on the
Change in Outlays for the Voucher and Project-Based Programs from 1998
through 2004:
Table 3: Number of Authorized Units under the Section 8 Moderate
Rehabilitation Program, 1998-2004:
Table 4: Estimated Outlays for the Section 8 Moderate Rehabilitation
Program, 1998-2004:
Table 5: HUD Programs with Section 8 Rental Assistance, in Order of
Year Authorized:
Table 6: Total Available Budget Authority in Nominal Dollars, 1998-
2004:
Table 7: Total Available Budget Authority in Inflation-Adjusted
Dollars, 1998-2004:
Table 8: Outlays for the Section 8 Programs, 1998-2004:
Table 9: Outlays for the Voucher and Project-Based Programs, 1998-2004:
Table 10: Estimated Impact of Policy Decisions and Other Factors on the
Change in Outlays for the Voucher and Project-Based Programs in
Inflation-Adjusted Dollars from 1998 through 2004:
Table 11: Average Values of Voucher Household Groups from 1999 through
2004:
Table 12: Regression Results:
Table 13: Averages for Selected Variables, 1998-2004:
Figures:
Figure 1: About 59 Percent of Very-Low Income Renter Households Did Not
Receive Housing Assistance and Had Housing Needs in 2003:
Figure 2: The Total Number of Authorized Section 8 Vouchers and Units
Increased from 1998 through 2004:
Figure 3: New Budget Authority for Section 8 More than Doubled from
1998 through 2004, while Outlays Grew by 50 Percent:
Figure 4: Renewals of Expiring Vouchers and Project-Based Units Have
Grown Significantly since 1998:
Figure 5: Total Available Budget Authority for Section 8 Grew, although
Carryover Declined from 1998 through 2004:
Figure 6: Estimated Outlays Grew Faster for Vouchers than for the
Project-Based Program from 1998 through 2004:
Figure 7: Factors Affecting Section 8 Outlays:
Figure 8: The Average Annual Rental Subsidy per Household Grew by 42
Percent for Vouchers and 12 Percent for the Project-Based Program from
1998 through 2004:
Figure 9: Growth in Market Rents Had a Significant Impact on the
Estimated Average Rental Subsidy per Household:
Figure 10: Estimated Growth in the Average Rental Subsidy per Household
Would Have Been Less Had the Average Payment Standard Remained at the
1999 Level:
Figure 11: Had Household Income Grown as Fast as Market Rents, Growth
in the Estimated Average Rental Subsidy per Household Would Have Been
Less:
Figure 12: Average Annual Rents for the Voucher and Project-Based
Programs, 1998-2004:
Figure 13: Average Annual Household Payment for the Voucher and
Project- Based Programs, 1998-2004:
Figure 14: Average Voucher Rents and Fair Market Rents, 1999-2004:
Abbreviations:
AMI: area median income:
CBO: Congressional Budget Office:
CRS: Congressional Research Service:
FMR: fair market rent:
GDP: gross domestic product:
HAP: housing assistance payment:
HUD: U.S. Department of Housing and Urban Development:
HUDCAPS: HUD Central Accounting and Program System:
Mod Rehab: Section 8 Moderate Rehabilitation:
PAS: Program Accounting System:
PHA: public housing agency:
PIC: Public and Indian Housing Information System:
QCT: qualified census tract:
TRACS: Tenant Rental Certification System:
Letter:
April 28, 2006:
The Honorable Robert W. Ney:
Chairman:
Subcommittee on Housing and Community Opportunity:
Committee on Financial Services:
House of Representatives:
Dear Mr. Chairman:
Annual appropriations for the Department of Housing and Urban
Development's (HUD) Section 8 rental housing programs have grown
significantly in recent years, climbing to nearly $21 billion in
2006.[Footnote 1] Authorized by the Housing and Community Development
Act of 1974 (P.L. 93-383), as amended, Section 8 currently comprises
the Housing Choice Voucher (voucher) and project-based programs. While
these programs are the federal government's primary tool for making
rental housing units affordable to low-income households, they are not
entitlements--that is, not all eligible households receive assistance.
HUD and Congress have recently supported changes to the voucher program
designed to limit further growth in appropriations without reducing the
number of households that receive assistance. However, analysis of
factors driving the growth in the budgetary costs of Section 8--which
could assist in such efforts--has been limited, in part because HUD has
not separately reported budget authority or outlays for each
program.[Footnote 2]
The voucher and project-based programs share the common mission of
making housing affordable to low-income households by paying subsidies
that make up the difference between a unit's rent and the household's
payment, which is generally 30 percent of monthly income after
adjustments. Despite their shared goals, the two programs operate
differently. The voucher program, administered by state and local
public housing agencies (PHA), provides vouchers that eligible
households can use to rent houses or apartments in the private market.
The subsidies in the voucher program are tied to the household, rather
than to any particular dwelling unit (i.e., they are tenant-based). In
contrast to vouchers, the project-based program is administered by
property owners who have agreed to rent specific dwelling units to
eligible households. The subsidies in the project-based program are
tied to the rental unit rather than to any specific tenant. Under both
programs, the program administrators enter into contracts with HUD that
specify the number of vouchers or units authorized to receive rental
subsidies and the duration of the subsidy payments. For the voucher
program, PHAs have flexibility to determine the maximum amount of
rental subsidy they can pay for assisted households within limits set
by HUD. For example, HUD establishes "fair market rents" for each
geographic area, based on actual market rents for standard-quality
rental units, but PHAs may choose a "payment standard" that is up to 10
percent lower or higher.
Each year, Congress appropriates budget authority to cover the cost of
Section 8 contracts. HUD uses its budget authority to incur obligations
(e.g., enter into contracts) that result in expenditures, or outlays,
of federal funds. Unlike budget authority, outlays occur when payments
are made and thus reflect the programs' actual annual cost of providing
rental assistance. Originally, Section 8 contracts were written with 5-
to 40-year terms, and Congress appropriated all of the budget authority
needed to cover the projected costs of these contracts up front. Under
this approach, further appropriations were generally not needed; HUD
could make outlays to provide the subsidy in each year, using the
budget authority already appropriated, until the contract expired.
However, for expiring contracts that are renewed, appropriations of new
budget authority are needed to cover the renewed contract term. Today,
contracts are renewed and funded in 1-year increments for vouchers and
either 1-or 5-year increments for the project-based program.
In response to your request, this report provides information on trends
in the size and the cost of the Section 8 programs from 1998 through
2004 (the last year for which data were available at the time of our
analysis). Specifically, the report discusses (1) the annual numbers of
vouchers in the voucher program and units in the project-based program,
(2) the annual new budget authority and outlays for each program, and
(3) the factors that have affected outlays.[Footnote 3] In addition,
for the voucher program--the larger of the Section 8 programs and the
focus of recent efforts to limit costs--the report discusses factors,
such as changes in market rents, that have affected the annual average
rental subsidy cost per household.
To determine the annual number of vouchers and project-based units and
the annual amounts of new budget authority and outlays for each
program, we obtained and analyzed data from HUD's budget office, annual
budget requests and other budget documents, and audited financial
statements. HUD's budget office was not able to report data on budget
authority and outlays for the voucher and project-based programs
separately. We estimated outlays using data from HUD's accounting
systems, which showed the rental assistance payments paid to PHAs and
property owners under each program from 1998 through 2004. Our report
generally presents budget authority and outlay amounts in nominal
dollars; amounts adjusted for inflation are shown in appendix IV. To
identify the factors that have affected outlays, we analyzed data on
rents and household incomes from HUD's administrative databases and
reviewed reports by HUD, Congressional Budget Office (CBO), and
Congressional Research Service (CRS). To assess the impact of different
factors on the average rental subsidy cost per household for the
voucher program, we developed a statistical model using data from HUD
and the Census Bureau. Our model allowed us to estimate the effect of
each of several variables--market rents, household incomes, household
and neighborhood characteristics, and a measure of the relationship
between program policies and market rents--on the average rental
subsidy per voucher household while controlling for the effects of
other variables. Because data on certain variables used in our
statistical model were not available for 1998, our analysis of average
rental subsidy costs in the voucher program covers the period from 1999
through 2004. We assessed the reliability of the data from HUD's
accounting systems and administrative databases by reviewing related
documentation and interviewing agency officials who work with the
systems. In addition, we performed internal checks to determine the
extent to which the data fields were populated and the reasonableness
of the values contained in the fields. We concluded that the data were
sufficiently reliable for the purposes of this report. To address all
of the objectives, we interviewed officials from HUD's Offices of the
Chief Financial Officer, Public and Indian Housing, Housing, and Policy
Development and Research. We also met with CBO and CRS officials and
representatives of various industry and research groups. We conducted
our work in Washington, D.C., and Chicago, Illinois, from April 2005
through March 2006 in accordance with generally accepted government
auditing standards. Appendix I provides additional details on our scope
and methodology.
Results in Brief:
Overall, the size of the Section 8 program--that is, the combined
number of authorized vouchers and project-based units--increased
annually, from 2.93 million in 1998 to 3.36 million in 2004, or 15
percent during the period. This growth resulted exclusively from the
authorization of additional vouchers; the number of project-based units
actually declined. Specifically, the number of authorized vouchers rose
from about 1.60 million in 1998 to 2.09 million in 2004, a 31 percent
increase. At the same time, the number of authorized project-based
units fell from 1.33 million to 1.27 million, a 5 percent decrease,
primarily because property owners and HUD decided not to renew some
project-based contracts. HUD generally provided vouchers to households
in project-based units for which contracts were not renewed so that
these households could continue receiving rental assistance. These
"tenant protection" vouchers, including those provided to households no
longer receiving assistance under other HUD programs, accounted for 42
percent of the increase in the number of vouchers from 1998 through
2004.
Both annual new budget authority and outlays for the Section 8 programs
increased significantly from 1998 through 2004. Appropriations of new
budget authority grew from $9.4 billion to $19.3 billion (from $10.6
billion to $19.3 billion after adjusting for inflation). This new
budget authority was primarily needed to renew expiring contracts
covering 818,095 vouchers and 373,310 project-based units. Annual
outlays rose from $14.8 billion to $22.2 billion (from $16.8 billion to
$22.4 billion after adjusting for inflation). On an annual basis, total
Section 8 outlays typically exceeded new budget authority appropriated
during this period because HUD was making rental assistance payments
under long-term contracts for which Congress had appropriated budget
authority in previous years. Although HUD did not separately track
outlays for the voucher and project-based programs during this period,
we estimate that outlays for vouchers increased from $7.5 billion in
1998 to $14.5 billion in 2004, and accounted for nearly all of the
growth in total Section 8 outlays. Outlays for the project-based
program rose from an estimated $7.3 billion to $7.7 billion.
A number of policy decisions and market factors contributed to the
growth in outlays for the voucher and project-based programs from 1998
through 2004. These include increases in the total number of assisted
households, the average rental subsidy cost per household, and other
program expenses. Specifically, about 43 percent of the growth in
voucher outlays was the result of policy decisions that increased the
number of assisted households--for example, the decision to offer
tenant protection vouchers--while over half was the result of an
increase in the average annual rental subsidy cost per voucher
household from $4,420 to $6,262 (a 42 percent increase, or 25 percent
after adjusting for inflation). In contrast, most of the growth in
project-based outlays resulted from a 12-percent increase in the
average annual rental subsidy per household ($5,305 to $5,948)--an
increase that was partially offset by the declining number of project-
based units. Congress and HUD have taken steps to limit further growth
in the budgetary costs of the Section 8 programs. For example, in 2003,
Congress authorized changes to the method for calculating the amounts
of voucher funding in order to slow the growth in both new budget
authority and outlays. In addition, for the project-based program,
Congress and HUD continued steps begun in 1997 to reduce above-market
rents at some properties and to limit annual rent increases.
On the basis of our statistical analysis of cost data for the voucher
program, we found that three factors primarily accounted for the growth
in the average annual rental subsidy per voucher household from 1999
through 2004:[Footnote 4]
* Over one-half of the total increase was explained by changes in
market rents.
* About one-quarter of the total increase was due to overall higher
payment standards--that is, by PHAs' exercising their flexibility to
increase the maximum amount of rental subsidy they can pay for assisted
households.
* About 16 percent of the increase was due to the fact that the incomes
of assisted households grew modestly during this period and did not
keep up with increases in market rents.
We also found that although household and neighborhood characteristics
were important determinants of per household rental subsidies, on
average, they did not vary enough from 1999 through 2004 to cause a
substantial change in the average per household rental subsidy.
In written comments on a draft of this report, HUD suggested that the
report include a description of its proposed legislation for reforming
the voucher program and provide additional explanations of the
differences between the average per household costs for the project-
based and voucher programs. We revised our final report in response to
HUD's comments where appropriate.
Background:
Prior to the 1970s, the federal government made housing affordable to
low-and moderate-income households by subsidizing the production of
privately and government-owned properties with below-market interest
rate mortgages, direct loans, and other development subsidies. Under
these production programs, the rent subsidies were project based, and
tenants received assistance only while living in the subsidized units.
In the early 1970s, concerns were raised about the effectiveness of
these programs: Many moderate-income tenants benefited from federal
assistance, while lower-income families did not; federal costs for
producing the housing exceeded the private sector costs to produce the
same services; and allegations of waste surfaced. Interest in a more
cost-effective approach led Congress to explore options for using
existing housing to shelter low-income tenants. Section 8 of the
Housing and Community Development Act of 1974, as amended, authorized
programs that reflected both approaches--a tenant-based rental
certificate program (now called the voucher program) for use in
existing housing and a project-based program. The project-based program
comprises multiple subprograms, including Section 8 New Construction/
Substantial Rehabilitation, Loan Management Set-Aside, and Property
Disposition. Appendix III contains detailed descriptions of these
subprograms.
The voucher program provides vouchers to eligible households to rent
houses or apartments in the private market from landlords who are
willing to accept the vouchers. Voucher holders are responsible for
finding suitable housing that complies with HUD's housing quality
standards. The voucher program pays the difference between the lesser
of the unit's gross rent or a local "payment standard," and the
household's payment, which is generally 30 percent of monthly income,
after certain adjustments.[Footnote 5] To be eligible to apply for
assistance, households must have very low incomes--less than or equal
to 50 percent of area median income (AMI) as determined by HUD. Under
the provisions of the Quality Housing and Work Responsibility Act of
1998 (P.L. 105-276), at least 75 percent of new participants in the
voucher program must be households with extremely low incomes--at or
below 30 percent of AMI.[Footnote 6] Households already participating
in the voucher program remain eligible for assistance as long as their
incomes do not rise above 80 percent of AMI. The voucher program is
administered by over 2,500 state and local PHAs that are responsible
for inspecting dwelling units, ensuring that rents are reasonable,
determining households' eligibility, calculating households' payments,
and making payments to landlords. HUD provides funding to PHAs for
administrative expenses as well as rental subsidies.
The project-based program subsidizes rents at properties whose owners
have entered into contracts with HUD to make rents affordable to low-
income households. Often these properties were financed with mortgages
insured or subsidized by HUD or with bonds issued by state and local
housing finance agencies. Property owners and managers are responsible
for administering the program at about 22,000 properties nationwide.
The project-based program operates much like the voucher program,
paying the difference between a HUD-approved unit rent and the
household's payment, which is generally equal to 30 percent of adjusted
monthly income.[Footnote 7] In general, only households with low
incomes (i.e., at or below 80 percent of AMI) are eligible for
assistance, and since 1998 at least 40 percent of new residents must
have extremely low incomes. Private property owners and managers have
requirements similar to those for PHAs for administering the project-
based program--they must ensure that households meet program
eligibility requirements and must calculate households' payments. HUD
pays rent subsidies directly to the property owners but does not pay
them a separate administrative fee, as the owners' administrative costs
are reflected in the HUD-approved rents. However, because of limited
staff resources and the large number of project-based Section 8
contracts, HUD pays contract administrators (state and local PHAs)
administrative fees to oversee most of the contracts, a task that
requires processing monthly payment vouchers, reviewing property
owners' tenant information files, and addressing health and safety
issues.
Each year, Congress appropriates budget authority to cover the costs of
new Section 8 contracts, renewals of expiring contracts, amendments to
existing project-based contracts, and administrative fees.[Footnote 8]
For the period covered by our review (1998 through 2004), Congress
appropriated funds for the Section 8 programs in HUD's Housing
Certificate Fund account.[Footnote 9] Over time, Congress has changed
the way it funds the Section 8 programs. From 1974 to 1983, Congress
made large up-front appropriations to cover the projected costs of
multiyear Section 8 contracts. Initially, voucher contracts were
written for 5 years and were renewable, at HUD's discretion, for up to
15 years, while the terms for project-based contracts ranged from 15 to
40 years. When these initial contracts began to expire in 1989, HUD
required new budget authority to renew them. Owing to budget
constraints, Congress funded Section 8 contracts with amounts that led
to shorter contract terms. HUD initially renewed expiring contracts
generally for 5-year terms but starting in the mid-1990s switched to 1-
year terms for the voucher program and either 1-or 5-year terms for the
project-based program.
The Section 8 programs are not entitlements, and as a result, the
amount of budget authority HUD requests and Congress provides through
the annual appropriations process limits the number of households that
Section 8 can assist. Historically, appropriations for the Section 8
programs (as well as for other federal housing programs) have not been
sufficient to assist all households that HUD has identified as having
housing needs--that is, households with very low incomes that pay more
than 30 percent of their income for housing, live in substandard
housing, or both. According to HUD data for calendar year 2003, Section
8 and other federal housing programs assisted an estimated 4.3 million
households, or 27 percent of all renter households with very low
incomes (see fig. 1).[Footnote 10] HUD estimated that over 9 million
very low income households (about 59 percent) did not receive
assistance and had housing needs. Of these 9 million households with
housing needs, over 5 million had what HUD terms "worst case" needs--
that is, they paid over half of their income in rent, lived in severely
substandard housing, or both.
Figure 1: About 59 Percent of Very-Low Income Renter Households Did Not
Receive Housing Assistance and Had Housing Needs in 2003:
[See PDF for image]
Note: Total = 15.7 million households that rented and had very low
incomes.
[End of figure]
Increases in the Number of Vouchers Drove Growth in the Size of Section
8 from 1998 through 2004:
The combined number of authorized vouchers and project-based units grew
from about 2.93 million to 3.36 million from 1998 through 2004--an
overall increase of about 15 percent and an average annual increase of
about 2 percent (see fig. 2). Most of this increase occurred from 1998
to 2001, when about 327,000 vouchers were added. However, as figure 2
shows, this overall trend masked a difference in the trends for the
individual programs: The number of vouchers grew by 31 percent during
this period, while the number of project-based units declined by 5
percent.
Figure 2: The Total Number of Authorized Section 8 Vouchers and Units
Increased from 1998 through 2004:
[See PDF for image]
Note: Totals may not add because of rounding.
[End of figure]
It is important to note that at any given time the actual number of
households assisted with Section 8 programs is likely to be less than
the number of authorized vouchers and project-based units, because some
authorized vouchers and units may not be in use. For example, vouchers
may go unused because households may not be able to find units that
meet the program's affordability requirements and quality standards.
(As discussed subsequently in this report, the extent to which
authorized vouchers are actually used to rent units--and thus incur
subsidy costs--is called the voucher utilization rate.) Project-based
units may not be in use during the period when landlords are seeking
new occupants for units that have been vacated.
The Number of Vouchers Increased by 31 Percent:
From 1998 through 2004, the number of authorized vouchers grew from
about 1.60 million to almost 2.09 million, an increase of 490,944
vouchers (see fig. 2). This increase represents an average annual
growth rate of almost 5 percent. The new vouchers were composed of both
"incremental vouchers" and tenant protection vouchers. Incremental
vouchers are those that resulted from Congress' decision to expand the
program to serve more households. Notices published in the Federal
Register and HUD data indicate that the agency awarded 276,981
incremental vouchers and 205,853 tenant protection vouchers from 1998
through 2004 (see table 1).
Incremental vouchers consist of three major types: fair share, welfare-
to-work, and special purpose. Fair share vouchers are those that HUD
allocates to PHAs on a competitive basis using a formula that accounts
for poverty rates, renter populations, vacancies, overcrowding, and
other measures, in each county and independent city throughout the
country. Welfare-to-work vouchers are designated for households for
which a lack of stable, affordable housing is a barrier to employment
and that are making the transition to economic self-
sufficiency.[Footnote 11] Finally, special purpose vouchers include
those designated for a variety of special needs populations, such as
persons with disabilities. Fair share vouchers accounted for about 56
percent of the total, while welfare-to-work and special purpose
vouchers represented 18 percent and 26 percent, respectively.
From 1998 through 2002, Congress provided new funding each year for a
large number of incremental vouchers to help address the unmet housing
needs of very low-income households, and fair share vouchers were the
key type of incremental vouchers used to increase the number of
assisted households. Starting in 2003, Congress provided no new funding
for fair share vouchers, but did provide new funding for a smaller
number of special purpose vouchers. By 2004, however, no new funding
was provided for any type of incremental voucher.
Unlike incremental vouchers, tenant protection vouchers do not add to
the total number of authorized units under Section 8 (and other HUD
programs for which they are used) because they replace one form of HUD
assistance with another. Tenant protection vouchers are offered to
eligible households that had received housing assistance under various
HUD programs (including the project-based program, certain HUD mortgage
insurance programs, and public housing) before the assistance was
terminated. As part of its annual budget request, HUD estimates the
number of tenant protection vouchers it will need and the amount of
funding required for these vouchers. As table 1 shows, the number of
tenant protection vouchers awarded from 1998 through 2004 remained
relatively stable, from a low of 22,839 in 2002 to a high of 36,000 in
2001.
Table 1: Number of New Vouchers Awarded by Major Voucher Type, 1998-
2004:
Year: Voucher type: Incremental;
Year: 1998: 32,358;
Year: 1999: 52,540;
Year: 2000: 76,934;
Year: 2001: 90,493;
Year: 2002: 22,856;
Year: 2003: 1,800;
Year: 2004: 0;
Year: Total: 276,981.
Year: Voucher type: Fair share;
Year: 1998: 0;
Year: 1999: 0;
Year: 2000: 60,801;
Year: 2001: 78,475;
Year: 2002: 16,460;
Year: 2003: 0;
Year: 2004: 0;
Year: Total: 155,736.
Year: Voucher type: Welfare-to-work;
Year: 1998: 0;
Year: 1999: 50,000;
Year: 2000: 0;
Year: 2001: 0;
Year: 2002: 0;
Year: 2003: 0;
Year: 2004: 0;
Year: Total: 50,000.
Year: Voucher type: Special purpose[A];
Year: 1998: 32,358;
Year: 1999: 2,540;
Year: 2000: 16,133;
Year: 2001: 12,018;
Year: 2002: 6,396;
Year: 2003: 1,800;
Year: 2004: 0;
Year: Total: 71,245.
Year: Voucher type: Tenant protection;
Year: 1998: 27,736;
Year: 1999: 29,158;
Year: 2000: 29,333;
Year: 2001: 36,000;
Year: 2002: 22,839;
Year: 2003: 26,787;
Year: 2004: 34,000;
Year: Total: 205,853.
Year: Voucher type: Subtotal;
Year: 1998: [Empty];
Year: 1999: [Empty];
Year: 2000: [Empty];
Year: 2001: [Empty];
Year: 2002: [Empty];
Year: 2003: [Empty];
Year: 2004: [Empty];
Year: Total: 482,834.
Year: Voucher type: Unknown[B];
Year: 1998: [Empty];
Year: 1999: [Empty];
Year: 2000: [Empty];
Year: 2001: [Empty];
Year: 2002: [Empty];
Year: 2003: [Empty];
Year: 2004: [Empty];
Year: Total: 8,110.
Year: Voucher type: Total;
Year: 1998: 60,094;
Year: 1999: 81,698;
Year: 2000: 106,267;
Year: 2001: 126,493;
Year: 2002: 45,695;
Year: 2003: 28,587;
Year: 2004: 34,000;
Year: Total: 490,944.
Source: GAO analysis of HUD data.
[A] Special purpose vouchers include Mainstream vouchers, which are
targeted to persons with disabilities, and other smaller voucher
subprograms.
[B] For 8,110 vouchers, or about 2 percent of the total, data
indicating voucher type were not available.
[End of table]
The Number of Project-Based Units Declined by 5 Percent:
The number of authorized project-based units fell from 1.33 million to
1.27 million, a decline of approximately 62,000 units (see fig. 2).
This represented an average annual decrease of less than 1 percent. The
number of project-based Section 8 units declined primarily because
either property owners or HUD decided not to renew Section 8 contracts.
Owners may choose not to renew their contracts and to opt out of the
program for a variety of reasons, including plans to convert the
properties to market-rate rental units. HUD may decide not to renew
some contracts if property owners have not complied with program
requirements, such as maintaining the property in decent, safe, and
sanitary condition.
If a property owner or HUD decides not to renew a project-based Section
8 contract, the property is no longer required to comply with program
rules, including affordability requirements. To protect Section 8
households from rent increases that may result when owners opt out of
their contracts, HUD provides a special type of tenant protection
voucher known as an enhanced voucher. Enhanced vouchers are designed to
ensure that tenants can afford to remain in the properties that are no
longer receiving project-based Section 8 assistance--even if the rents
for these units exceed those for the regular voucher program (such
vouchers are considered enhanced because they allow these higher
subsidies). If HUD terminates a project-based Section 8 contract, the
agency usually provides affected families with regular vouchers to
allow them to find other housing. The substitution of tenant protection
vouchers for subsidies previously paid for project-based units has
helped minimize the net loss of Section 8 units.
Section 8 New Budget Authority Increased at a Faster Rate than Outlays
from 1998 through 2004:
Although both budget authority and outlays for the Section 8 programs
increased significantly from 1998 through 2004, the rates of growth
differed. Appropriations of new budget authority grew more than twofold
during this period (105 percent), partly because HUD needed more budget
authority to cover the cost of renewing long-term contracts that began
to expire in 1989. In comparison, from 1998 through 2004 total Section
8 outlays rose at a slower rate (50 percent). However, this increase
masks substantial differences in the rates of growth for the individual
Section 8 programs. Although HUD did not separately track outlays for
the voucher and project-based programs during this period, we estimate
that outlays increased by 93 percent for the voucher program and by 6
percent for the project-based program.
Renewal of an Increasing Number of Expiring Contracts Contributed to
Much of the Growth in Budget Authority:
Appropriations of new budget authority for Section 8 grew from $9.4
billion in 1998 to $19.3 billion in 2004, an overall increase of about
105 percent and an average annual rate of 13 percent (see fig. 3).
During 2001, new budget authority grew by 22 percent, the largest
single-year increase during this period.[Footnote 12] For the other
years, the annual increase in new budget authority ranged from 10 to 17
percent. Over the same period, new budget authority for Section 8
accounted for an increasing share of HUD's total annual appropriations,
growing from 41 percent in 1998 to 54 percent in 2004.[Footnote 13]
Part of the growth reflects the effects of inflation. After adjusting
for inflation, new budget authority rose from $10.6 billion in 1998 to
$19.3 billion in 2004 (82 percent).[Footnote 14] Appendix IV contains
detailed information on budgetary costs in nominal and inflation-
adjusted dollars.
Figure 3: New Budget Authority for Section 8 More than Doubled from
1998 through 2004, while Outlays Grew by 50 Percent:
[See PDF for image]
Notes:
Because HUD does not report budget authority separately by subprograms,
we were unable to exclude the Moderate Rehabilitation program from
budget authority.
New budget authority dropped in 2000 because it did not include a $4.2
billion advance appropriation that was contained in the 2000
appropriations but was not available for obligation until 2001.
New budget authority reflects across-the-board reductions by Congress
in 2001 (0.22 percent), 2003 (0.65 percent), and 2004 (0.59 percent).
Outlays for the Section 8 programs are based on our estimate of outlays
for rental assistance payments and certain administrative expenses
under the voucher and project-based programs only. The Moderate
Rehabilitation program, for example, is not included in our estimate of
outlays.
We adjusted outlays for 1999 to include an advance payment of $680
million that was made in 1998 for the 1999 voucher program and reduced
outlays for 1998 by the same amount.
[End of figure]
HUD did not separately track budget authority for the voucher and
project-based programs for the period covered by our analysis. HUD
budget officials told us they had no need to do so because Congress
funded both programs under a single budget account, the Housing
Certificate Fund. However, to provide better transparency and
strengthen oversight of the programs, Congress directed HUD to create
two new budget accounts--Tenant-Based Rental Assistance and Project-
Based Rental Assistance--for all new Section 8 appropriations.[Footnote
15] Beginning with its 2006 budget, HUD has provided separate
information for each program.
The substantial growth in new budget authority stemmed primarily from
decisions to renew expiring long-term Section 8 contracts. From 1974 to
1983, Congress made large up-front appropriations to cover the
projected costs of multiyear Section 8 contracts that were written in
those years. Because Congress and HUD funded these long-term contracts
up front, they generally did not require new budget authority during
the years specified in the contracts.[Footnote 16] During the early to
mid-1990s, large numbers of these long-term contracts reached the end
of their terms. Decisions to renew the contracts created the need for
new budget authority. As figure 4 shows, the trend in the numbers of
expiring contracts continued from 1998 through 2004. Specifically, the
number of project-based units with expiring contracts that were renewed
grew significantly--by 373,310 units from 1998 through 2004. (As noted
previously, because some project-based contracts were not renewed, the
total number of authorized project-based units declined during this
period--even as the number needing new budget authority grew.)
Additional new budget authority was required each year to cover the
renewal of 818,095 vouchers from 1998 through 2004.[Footnote 17]
Figure 4: Renewals of Expiring Vouchers and Project-Based Units Have
Grown Significantly since 1998:
[See PDF for image]
[End of figure]
A factor also contributing to the need for new budget authority was a
declining amount of "carryover" budget authority. Carryover consists of
unobligated budget authority (not yet committed to specific contracts),
including funds that have been "recovered" (de-obligated from expired
contracts that did not need all of the budget authority that had been
obligated for them). Congress may rescind any portion of such unused
budget authority and in fact enacted rescissions in the Section 8
program during each of the years we examined.[Footnote 18] Total budget
authority available to renew Section 8 contracts in any year thus
consists of both the carryover, net of rescissions, as well as new
budget authority, and represents all of the funds available to HUD for
future obligations and outlays.
Typically, HUD has had large amounts of carryover funds in the Section
8 programs, and these carryover funds have helped offset the need for
new budget authority. However, as shown in figure 5, the carryover
amounts generally declined during the period we examined. For example,
about $7.5 billion in carryover funds in 1998 lessened the need for new
appropriations of budget authority in that year, whereas the decline in
carryover funds in later years increased the need for new
appropriations. Partly because of declining carryover amounts during
this period, total available budget authority grew at a slower rate
than new budget authority. More specifically, total available budget
authority grew from $14.0 billion to $20.9 billion over this period
(fig. 5), an average annual rate of about 7 percent. Congress rescinded
between $1.6 billion and $2.9 billion each year during the period.
Figure 5: Total Available Budget Authority for Section 8 Grew, although
Carryover Declined from 1998 through 2004:
[See PDF for image]
Notes:
Total available budget authority may not add because of rounding.
New budget authority dropped in 2000 because it did not include a $4.2
billion advance appropriation that was contained in the 2000
appropriations but was not available for obligation until 2001.
Appendix IV provides detailed information on total available budget
authority in inflation-adjusted dollars.
[End of figure]
Total Section 8 Outlays Grew by 50 Percent:
As figure 3 shows, annual outlays for Section 8 programs grew from
$14.8 billion in 1998 to $22.2 billion in 2004, an overall increase of
about 50 percent and an average annual increase of 7 percent.[Footnote
19] About 78 percent of this growth occurred from 2002 to 2004, with
2003 representing the largest annual increase ($2.5 billion). Despite
this growth, total Section 8 outlays accounted for a relatively stable
share of HUD's total outlays over this period, ranging from 45 percent
in 1998 to 52 percent in 2004.[Footnote 20]
Outlays for Section 8 generally exceeded new budget authority for the
program each year from 1998 through 2004 (see fig. 3). This pattern
resulted primarily from the way the program was originally funded. As
noted previously, initial Section 8 contracts generally had long terms
and received large up-front appropriations of budget authority to cover
their projected costs. As a result, HUD has for many years--including
the 1998 through 2004 period--made outlays for contracts that have not
required new budget authority. During this period, the gap between
outlays and new budget authority narrowed as the number of expiring
vouchers and project-based units that required new budget authority
grew and were renewed on an annual basis. If all Section 8 contracts
had reached the end of their multiyear terms and were renewed annually,
new budget authority requirements would more closely approximate the
expected annual outlays.
Estimated Outlays for Vouchers Rose by 93 Percent, while Those for the
Project-Based Program Remained Relatively Stable:
Since HUD did not separately track outlays for the voucher and project-
based programs (for the same reasons it did not do so for budget
authority), we developed our own estimates of outlays for both programs
based on data from the accounting systems HUD uses to record Section 8
rental subsidy payments.[Footnote 21] On the basis of these data, we
estimated that from 1998 though 2004:
* Outlays for the voucher program rose from $7.5 billion to $14.5
billion (fig. 6)--an overall increase of 93 percent and an average
annual rate of increase of 12 percent. The largest annual increases--
approximately 20 percent--occurred both in 2002 and 2003. About 56
percent of the total increase in outlays also occurred in these 2
years. As discussed in more detail in a subsequent section of this
report, the growth in voucher program outlays resulted in large part
from increases in the average rental subsidy per household and
decisions by Congress to expand the number of vouchers.
* In contrast, outlays for the project-based program remained
relatively stable, rising from $7.3 billion to $7.7 billion, or about 6
percent from 1998 through 2004--an average annual rate of about 1
percent.
Figure 6: Estimated Outlays Grew Faster for Vouchers than for the
Project-Based Program from 1998 through 2004:
[See PDF for image]
Note: We adjusted voucher outlays for 1999 to include an advance
payment of $680 million that was made in 1998 and reduced voucher
outlays for 1998 by the same amount.
[End of figure]
Because of its much faster rate of growth, the voucher program
accounted for nearly all of the growth in total Section 8 outlays from
1998 through 2004. Specifically, the program accounted for about $7.0
billion (94 percent) of the $7.4 billion increase in total Section 8
outlays during this period. In contrast, the project-based program
accounted for only $419 million (6 percent) of the overall increase in
total Section 8 outlays. In 1998, the voucher and project-based
programs each represented about half of the total outlays for the
Section 8 programs. In a relatively short time span, voucher outlays
surpassed those for the project-based program by a significant margin,
and by 2004 the voucher program was responsible for about 65 percent of
total Section 8 outlays.
Outlays for the project-based program increased at a rate slower than
inflation from 1998 through 2004. Specifically, after adjusting for
inflation, outlays dropped from $8.3 billion to $7.8 billion, a
decrease of 6 percent. The growth in voucher outlays, however,
significantly outpaced the rate of inflation, increasing from $8.5
billion to $14.6 billion (71 percent) in inflation-adjusted
dollars.[Footnote 22] Additional information on outlays in nominal and
inflation-adjusted dollars appears in appendix IV.
Policy Decisions and Market Factors Drove Increases in Section 8
Outlays, but HUD and Congress Have Acted to Limit Further Growth:
A number of policy decisions and market factors contributed to the
growth in total Section 8 outlays from 1998 through 2004, including
decisions to expand the number of households receiving vouchers,
increases in the average rental subsidy per household, and other
program costs. Figure 7 shows the general relationship between these
policy decisions and market factors and Section 8 outlays. Although
these factors also affected budget authority, our analysis focuses on
outlays because, unlike budget authority, outlays occur when payments
are made and thus reflect the actual annual cost of providing rental
assistance. Congress and HUD have taken steps to limit further growth
in Section 8 program costs--for example, by changing the program's
funding formula for vouchers.
Figure 7: Factors Affecting Section 8 Outlays:
[See PDF for image]
[End of figure]
Policies to Expand the Number of Assisted Households Resulted in an
Increase in Voucher Outlays, while the Declining Number of Units
Limited Growth in Project-Based Outlays:
Decisions to increase the number of households receiving vouchers were
a significant driver of growth in voucher outlays from 1998 through
2004. As noted previously, between 1998 and 2004 Congress authorized
funding for a total of 490,944 incremental and tenant protection
vouchers. This trend, coupled with a rise in the percentage of
authorized vouchers in use (the utilization rate) that started in 2001,
increased the number of assisted households and, in turn, the amount of
outlays for vouchers. We estimate that about $3.0 billion (43 percent)
of the increase in voucher outlays from 1998 through 2004 was
attributable to the additional assisted households resulting from the
authorization of new vouchers and higher utilization rates (table
2).[Footnote 23]
Certain policy changes were designed to increase average voucher
utilization rates. For example, starting in 2002, PHAs that applied for
fair share vouchers had to maintain utilization rates of at least 97
percent to be eligible to receive them. Also, according to HUD,
Congress' decision in 2003 to limit the funding basis for voucher
contracts to only vouchers that were actually in use effectively
encouraged PHAs to increase their utilization rates in order to receive
more funding.
Table 2: Estimated Impact of Policy Decisions and Other Factors on the
Change in Outlays for the Voucher and Project-Based Programs from 1998
through 2004:
Dollars in millions.
Change in the number of assisted households/units;
Estimated change in outlays: Vouchers: $3,028;
Estimated change in outlays: Project- based: -$367[A].
Change in rental subsidy per household[B];
Estimated change in outlays: Vouchers: 3,569;
Estimated change in outlays: Project-based: 616.
Change in administrative costs[C];
Estimated change in outlays: Vouchers: 368;
Estimated change in outlays: Project-based: 170.
Total;
Estimated change in outlays: Vouchers: $6,966;
Estimated change in outlays: Project-based: $419.
Source: GAO analysis of HUD data.
[A] This amount represents the estimated outlays that did not occur in
2004 because the number of project-based units declined. This amount
partially offset the increase in outlays caused by growth in the
average rental subsidy per household. Taken together, these two factors
produced a net increase of $250 million (-$367 million plus $616
million) in outlays, or about 60 percent of the total change in outlays
for the project-based program.
[B] For each program, these amounts were derived by taking the
difference between the (1) change in total program outlays for this
period and (2) individual changes in program outlays due to the other
two factors.
[C] These amounts comprise actual increases in the administrative fee
for vouchers and the cost of Performance-Based Contract Administrators
for the project-based program. Limitations in the data did not allow us
to identify other program costs.
[End of table]
Using the average annual household subsidy in 2004 for the project-
based program ($5,948), we estimate that the decline of about 62,000
units reduced project-based outlays by roughly $367 million (see table
2). However, this decrease was more than offset by the other factors,
leading to an overall increase of $419 million.
Although the decline in the number of project-based units caused
outlays for the project-based program to be less than they would have
been otherwise, its effect on total Section 8 outlays was offset to a
large degree by the issuance of tenant protection vouchers to
households displaced from their project-based units. As noted
previously, under the project-based program (or other HUD programs),
tenants in units receiving assistance that is terminated (e.g., because
the unit owner decides not to renew an expiring contract) may face
higher rental payments. To protect these tenants from potentially
unaffordable rent increases and continue providing assistance, Congress
made tenant protection vouchers available. In effect, outlays from the
project-based program were shifted to the voucher program, although not
on a one-for-one basis because the per household subsidy costs were
different for project-based units and vouchers.[Footnote 24]
Increases in the Average Rental Subsidy per Household Contributed to
Higher Outlays for Both Programs:
Increases in the average rental subsidy per household also contributed
to the growth in outlays for the voucher and project-based programs,
although the average subsidy increased more for vouchers than for
project-based programs.[Footnote 25] As figure 8 shows, the average
subsidy for vouchers grew from $4,420 to $6,262 from 1998 through 2004,
an overall increase of 42 percent.[Footnote 26] The annual rate of
increase in the average per household subsidy for vouchers was 6
percent during the period, ranging from a low of 1 percent in 1999 to a
high of 11 percent in both 2002 and 2003. The high rate of growth in
2002 and 2003 coincided with the largest yearly increases in voucher
outlays (see fig. 6). For 2004, the annual rate of increase slowed to
over 2 percent after several years of substantial growth. The growth in
the number of enhanced vouchers, which, as previously noted, allows for
higher subsidies, may have contributed to the overall increase. As
described in table 2, an estimated $3.6 billion (51 percent) of the
increase in voucher outlays was due to growth in the average rental
subsidy per household.[Footnote 27]
Figure 8: The Average Annual Rental Subsidy per Household Grew by 42
Percent for Vouchers and 12 Percent for the Project-Based Program from
1998 through 2004:
[See PDF for image]
Note: These averages do not include an administrative fee for vouchers
or the cost of Section 8 contract oversight for the project-based
program. However, the costs to property owners for administering the
project-based program, which are reflected in the units' rents, are
accounted for in these averages.
[End of figure]
In comparison, the average rental subsidy per household for the project-
based program grew more modestly during the period--from $5,305 to
$5,948, an overall increase of 12 percent and an average annual
increase of 2 percent.[Footnote 28] The annual rate of increase in
average per household subsidy did not exceed 1 percent from 1998
through 2001 and remained at less than 4 percent from 2002 through
2004. As described in table 2, we estimate that this raised outlays for
the project-based program by about $616 million.[Footnote 29] The
decline in the number of project-based units partially offset this
increase in program outlays, however.
As figure 8 shows, during the period we examined, the per household
subsidy in the voucher program was initially less than the project-
based per household subsidy but then became greater. However, this
trend does not mean that the project-based program has become more cost-
effective. Any comparison of the cost-effectiveness of these programs
should account for all subsidies received during the properties' life
cycles, adjusted for any differences in unit and household
characteristics, such as the number of bedrooms and family
size.[Footnote 30] For example, the average project-based subsidy per
household during the period we examined did not account for the effects
of past subsidies or for potential future subsidies that may be needed
to maintain properties in the program. Similarly, it is important to
note that the nationwide trends we present do not reflect the
considerable variation that exists across local rental housing markets.
That is, even during the period we examined, in some markets the per
household subsidy for vouchers may have remained below that for the
project-based program.
For both the voucher and project-based programs, many policy decisions
and market factors influenced the average per household rental subsidy,
such as HUD's fair market rent (FMR) determinations, housing market
conditions, household incomes, and policies for limiting the cost of
rental assistance. More detailed information on the trend in the
average rental subsidy per household and the specific impact of these
factors on per household rental subsidies for vouchers are discussed in
a subsequent section of this report.
Administrative and Special Program Costs Contributed Modestly to the
Increase in Outlays for Both Programs:
Other costs for program administration and special programs contributed
to the change in outlays for the voucher and project-based program,
although to a lesser extent than the other factors (see table 2). More
specifically, according to data from HUD's accounting systems,
administrative costs for vouchers increased by about $368 million from
1998 through 2004. Although complete data on administrative costs for
the project-based program were not available, a major administrative
expense was HUD's Performance-Based Contract Administrator initiative,
which started in 2000. This initiative, intended to augment HUD's
oversight of project-based Section 8 contracts, added $170 million in
outlays from 1998 through 2004.
According to HUD, outlays for special programs increased but were
relatively small during the period covered by our analysis. There have
been multiple special programs, including the Family Self-Sufficiency
program, which paid for service coordinators to help participating
families achieve economic independence. The Family Self-Sufficiency
program accounted for about $50 million in outlays in 2004. Since
detailed data on the outlays for special programs were not readily
available for this period, we were unable to comprehensively estimate
their impact on outlays.
HUD and Congress Have Taken Steps to Limit Growth in the Cost of Both
Programs:
HUD has implemented measures to limit increases in the cost of the
Section 8 programs. For example, as noted previously, in 2003 Congress
authorized changes to HUD's policies for funding vouchers to slow the
growth in new budget authority and, in turn, outlays. Before 2003,
Congress appropriated budget authority using a unit-based approach that
covered all vouchers authorized in each contract, whether or not all of
the vouchers had been utilized. Concerned that appropriations were
exceeding actual program needs, Congress changed the formula for
funding voucher contracts to a dollar-based approach, basing it on
actual expenditures from the previous year plus an inflation factor. In
addition, Congress authorized a contingency fund to cover increases in
rental costs in excess of the inflation factor.
In HUD's 2004 budget, Congress authorized the creation of a Quality
Assurance Division within HUD to provide more oversight of the
administration and cost of the voucher program. A key part of this
effort involves monitoring and verifying program costs reported by
PHAs. The division also audits PHAs' program records to ensure that
voucher costs were reported accurately and monitors local rental market
trends to determine whether HUD's FMRs were set too high or too low. In
addition, quality assurance staff review PHAs' compliance with HUD's
requirement that rents for voucher units be reasonable--that is,
comparable to rents for similar unassisted units in the market.
Congress and HUD have taken further steps since the period of our
analysis to limit cost growth. For example, Congress made further
changes to the voucher's dollar-based formula in 2005 that eliminated
all contingency funding, so that PHAs were expected to absorb all
additional cost increases during the year. To help PHAs keep their
costs within their funding levels, HUD issued guidance in 2005
concerning options PHAs could exercise to limit costs.[Footnote 31]
These options included the following.
* Reduce payments standards: Because PHAs may set their own payment
standards--that is, the maximum rent that can be used to calculate
rental subsidies--anywhere between 90 and 110 percent of the FMR for
their area, reducing payment standards allow PHAs to limit growth in
rental subsidy payments.
* Ensure reasonable rents: Statute and HUD regulations require PHAs to
compare rents for voucher units to those for comparable unassisted
units and reduce rents for voucher units if warranted.[Footnote 32] To
ensure that rents are reasonable, PHAs can conduct more frequent
reviews of rents charged by landlords. Any rent reductions would reduce
the rental subsidy payments that PHAs make.
* Deny moves within and outside PHA jurisdiction: The voucher program
allows households to move anywhere within and outside of a PHA's
jurisdiction. However, if a PHA has insufficient funding, it can deny a
voucher household's move to an area that would result in higher subsidy
costs--for example, an area with a higher payment standard.
* Not reissue vouchers or terminate assistance: Vouchers can become
available to new households when assisted households leave the program
(turnover). To limit costs, PHAs can choose not to reissue turnover
vouchers or pull back outstanding vouchers for other unassisted
households searching for housing. PHAs can also terminate assistance if
they determine that the funding provided by HUD is insufficient,
although according to HUD, the department is not aware of any instance
in which a PHA has terminated voucher assistance.
* Set higher minimum rents: HUD policy allows PHAs to set a minimum
rent for households that can range from as low as $0 to as high as $50.
Some PHAs currently allow certain households with very little income to
pay rents that are below the minimum rent ceiling (i.e., less than
$50). To reduce their costs, these PHAs can raise the minimum rent to
$50.
Furthermore, HUD supports proposed legislation--the State and Local
Housing Flexibility Act of 2005--that would replace the existing
voucher program with the "flexible voucher program."[Footnote 33] This
proposed program would, among other things, allow individual PHAs to
set (within broad federal guidelines) eligibility requirements, the
maximum period that a household could receive assistance, and
households' contributions toward rents. According to HUD, this proposed
program, which would initially continue to fund vouchers using the
dollar-based approach, would create incentives and provide
flexibilities for PHAs to manage their funds in a cost-effective
manner.[Footnote 34]
For the project-based program, Congress has taken steps to control the
cost of rental subsidies, and as our analysis shows, these steps have
limited growth in the program's average rental subsidy per household
and thus in outlays. In 1997, Congress passed the Multifamily Assisted
Housing Reform and Affordability Act, which established the Mark-to-
Market program. When properties entered the project-based program in
the late 1970s through the mid-1980s, HUD often subsidized rents that
were above local market levels to compensate for high construction
costs and program-related administrative expenses. Thereafter, these
rents were adjusted annually using an operating cost factor determined
by HUD. In the early 1990s, HUD concluded that the continued growth in
subsidy levels would be unsupportable within HUD's budget limitations.
The Mark-to-Market program, which began in 1998, authorized HUD to
reduce rents to market levels on project-based properties with HUD-
insured mortgages.[Footnote 35] According to HUD, the program has
reduced project-based rental subsidy costs at over 2,700 properties by
an estimated $216 million per year since 2000.[Footnote 36]
Policy Changes and Trends in Market Rents and Household Incomes
Increased the Average Subsidy per Voucher Household:
We developed a statistical model to assess the impact that certain
variables--specifically, market rents, payment standards, household
incomes, and household and neighborhood characteristics--had on the
change in the average rental subsidy per household for the voucher
program.[Footnote 37] Changes in market rents explained a significant
part of the increase in the average rental subsidy per household.
Specifically, we estimate that from 1999 through 2004, over one-half of
the increase in the average per household subsidy was explained by
higher market rents, all other things being equal.[Footnote 38] Higher
payment standards and the relatively slow growth in household incomes
also contributed to the increase. Although we found that household and
neighborhood variables were important determinants of per household
rental subsidies, their average values did not vary enough from 1999
through 2004 to cause a significant change in the average per household
rental subsidy over this period.
Growth in Market Rents:
Because voucher households rent units in the private market, trends in
market rents have a major effect on per household rental subsidies. To
assess the impact of market rents on per household rental subsidies, we
used HUD's FMRs as indicators of local market rents.[Footnote 39] Our
model estimated the average per household subsidy that HUD paid in each
year (baseline estimate).[Footnote 40] We then used the model to
estimate the average per household subsidy HUD would have paid in each
year, had the average market rents remained at the 1999 level, adjusted
for overall price level changes. Comparing this figure with the
baseline estimate indicates the influence of changes in rents. We
estimate that from 1999 through 2004 the average annual rental subsidy
per household would have grown from $5,225 to $5,800 (an increase of 11
percent), if the average market rents had remained at 1999 levels,
compared with the 24 percent growth, from $5,225 to $6,478, in the
baseline estimate (fig. 9).[Footnote 41] Expressed differently, the
effect of market rents accounted for over half of the increase in the
average per household subsidy, all other things being equal.[Footnote
42]
Figure 9: Growth in Market Rents Had a Significant Impact on the
Estimated Average Rental Subsidy per Household:
[See PDF for image]
[End of figure]
PHAs' Exercise of Flexibility in Setting Payment Standards:
In 1998, the Quality Housing and Work Responsibility Act (P.L. 105-276)
authorized PHAs to set local payment standards anywhere between 90 to
110 percent of the FMR without the need for prior HUD approval. This
flexibility was intended to make it easier for voucher households to
find housing successfully, reduce concentrations of poverty by helping
voucher households find housing in neighborhoods with higher incomes,
and allow PHAs to respond to local market conditions. The result of
this policy was that the average payment standard, as a percentage of
the FMR, increased from about 96 percent in 1999 to 103 percent in
2004. The average voucher rent as a percentage of the FMR also
increased, rising from about 94 percent in 1999 to 97 percent in 2004
(see app. VI for detailed discussion of the trends in voucher rents).
To assess the impact of higher payment standards on the change in per
household rental subsidies, we compared our baseline estimate with the
average per household subsidy that our model predicted HUD would have
paid in each year had the average payment standard, as a percentage of
the FMR, remained at its 1999 value. As shown in figure 10, we estimate
that over this period the average per household subsidy would have
grown from $5,225 to $6,169 (an 18 percent increase) if the average
payment standard as a percentage of the FMR had remained at the 1999
level, compared with the 24 percent growth, from $5,225 to $6,478, in
the baseline estimate. Further, we estimate that the impact of higher
payment standards accounted for about one-quarter of the increase in
the average per household subsidy from 1999 through 2004, all other
things being equal.[Footnote 43]
Figure 10: Estimated Growth in the Average Rental Subsidy per Household
Would Have Been Less Had the Average Payment Standard Remained at the
1999 Level:
[See PDF for image]
[End of figure]
Slower Growth in the Average Income for Voucher Households:
Slow growth in household incomes, which did not keep pace with the
increases in market rents, also contributed to higher per household
rental subsidies. Specifically, from 1999 through 2004, the average
income of voucher households grew from $8,779 to $10,086, an overall
increase of 15 percent and an average annual rate of about 3 percent.
However, market rents, as measured by FMRs, increased by about 23
percent over this period, or an average annual rate of over 4 percent.
To determine the impact of household income on the change in per
household rental subsidies, we compared the baseline estimate with the
estimated amount that our model predicted HUD would have paid had the
average household income grown at the same rate as the average market
rent. As shown in figure 11, we estimate that over this period the
average per household subsidy would have grown from $5,225 to $6,279
(an increase of 20 percent) if the average income had grown as fast as
the average market rent, compared with the 24 percent growth, from
$5,225 to $6,478, in the baseline estimate. Further, we estimate that
the effect of relatively slow growth in the average household income
accounted for about 16 percent of the increase in the average per
household subsidy, all other things being equal.[Footnote 44]
Figure 11: Had Household Income Grown as Fast as Market Rents, Growth
in the Estimated Average Rental Subsidy per Household Would Have Been
Less:
[See PDF for image]
[End of figure]
Household and Neighborhood Characteristics of Voucher Holders Did Not
Have a Significant Effect on the Growth in the Average Rental Subsidy
per Household:
We analyzed certain household characteristics, such as family size,
family types (for example, whether the household was headed by an
elderly person or a person with a disability), and others, and found
that, while they were major determinants of per household rental
subsidies, they did not vary enough over this period to effect
significant change in the average per household rental subsidy. Stated
differently, these factors exhibited about the same influence on per
household voucher subsidies throughout the period, and thus do not help
explain the overall trend of increased rental subsidy.
In addition, we analyzed the characteristics of the neighborhoods--also
important determinants of per household subsidies--where voucher
holders live.[Footnote 45] Specifically, given the significant
increases in voucher rents and payment standards, we explored the
extent to which the increase in the average per household subsidy was
the result of voucher households moving to neighborhoods with less
poverty and other favorable characteristics. However, just as with the
household characteristics, the average values of these variables did
not vary enough from 1999 through 2004 to cause a substantial change in
the average per household rental subsidy over this period. Because we
did not have comprehensive data on the quality of rental units in the
voucher program, we could not explore whether the trends in higher
voucher rents and payment standards were also accompanied by changes in
the quality of units occupied by voucher holders.
Observations:
The cost of providing rental assistance has been a long-standing issue
for policymakers and has led Congress, on different occasions, to
reform various housing programs. Recent proposals for reform have
focused on the voucher program, which experienced a significant growth
in outlays and constituted nearly all of the increase in total Section
8 outlays from 1998 through 2004. We found that the growth both in the
number of assisted households--driven largely by policy decisions to
expand this nonentitlement program--and in the average rental subsidy
per household explain much of the increase in voucher outlays over this
period. In turn, the average per household subsidy rose in large part
because of changes in the rental market, use of higher payment
standards by PHAs, and household incomes that grew more slowly than
rents.
To the extent that policymakers wish to stem the rising cost of the
voucher program, our analysis suggests that future increases could be
mitigated by reducing the number of assisted households, lowering
payment standards, requiring households to pay a larger share of their
incomes toward rent, subsidizing households with higher incomes, or a
combination thereof. However, these actions require making difficult
trade-offs between limiting program costs and achieving long-standing
policy objectives, such as serving more needy households, having
assisted households pay a relatively small share of their incomes in
rents, making it easier for voucher holders to find housing (especially
in tight rental markets), reducing the concentration of poverty, and
giving PHAs the flexibility to respond to local rental market
conditions.
Congress and HUD have already responded to the increasing cost of
vouchers by changing the way the program is funded. Specifically, HUD
no longer provides funding to PHAs based on the number of authorized
vouchers, but rather based on the prior year's level of voucher
expenditures, adjusted by an inflation factor. While this approach
allows HUD to limit the annual rate of increase in the program's cost,
it does not directly address the policy decisions and market factors
that we identified as contributing to the increase in program costs.
Instead, it will be up to PHAs to exercise their flexibilities and make
decisions regarding how to use the voucher funding that they receive
from HUD. For example, some PHAs may choose to reduce their local
payment standard, a course that, as our analysis suggests, would likely
limit growth in voucher costs. The decisions that PHAs make will
eventually influence trends in outlays, per household subsidies, and
unit rents, and these trends will become more apparent in the years
following the period covered by our analysis.
Agency Comments:
We provided HUD with a draft of this report for review and comment. In
a letter from the Acting Deputy Chief Financial Officer (see app. VII),
HUD suggested technical clarifications, which we incorporated where
appropriate, and made the following comments:
* HUD noted that the draft report's discussion of efforts to limit
growth in program costs did not cite the department's recent
legislative proposal--the State and Local Housing Flexibility Act--to
reform the voucher program. The proposal's primary mechanism for
limiting cost growth is the continued implementation of a dollar-based
approach for funding the voucher program. Our draft report discussed
the dollar-based approach and its intended impact on program costs.
However, in response to HUD's comment, we added language to the final
report describing the legislation's key provisions and objectives.
* HUD indicated that the draft report was incorrect in stating that to
be eligible for assistance under the voucher program, households must
have very low incomes--less than or equal to 50 percent of AMI. HUD
said that households must have low incomes--less than or equal to 80
percent of AMI--to be eligible. The income limit that HUD referred to
generally applies to households already participating in the voucher
program. The income limit cited in our draft report referred to the
eligibility criteria for new applicants. We revised the final report to
make this distinction clearer.
* HUD said that our draft report's discussion of the growth in
appropriations from 1998 through 2004 that was due to expiring Section
8 contracts may have inadvertently cited 1989 (rather than 1998) as the
year in which contracts began to expire. Based on our analysis of prior
studies on this issue, 1989 is generally regarded as the year in which
Section 8 contracts started to expire. Contracts that expired, and were
renewed with shorter terms in 1989 and afterwards, required new
appropriations for renewals in subsequent years, including the years
covered by our analysis. Accordingly, we made no changes to the final
report.
* Finally, HUD stated that the draft report did not mention a critical
reason that the lower cost per unit in project-based programs did not
imply greater cost effectiveness--specifically, that vouchers are used
for units that, on average, have more bedrooms and serve larger
households than project-based units. In response to HUD's comments, we
revised the final report to reflect the fact that determining the cost-
effectiveness of HUD's housing programs must account for not only all
subsidies received over time but also unit and household
characteristics.
As agreed with your office, unless you publicly announce its contents
earlier, we plan no further distribution of this report until 30 days
from the report date. At that time, we will send copies to the
Secretary of Housing and Urban Development and other interested
congressional committees. We will also make copies available to others
upon request. In addition, this report will be available at no charge
on the GAO Web site at [Hyperlink, http://www.gao.gov].
If you have any questions about this report, please contact me at (202)
512-8678 or WoodD@gao.gov. Contact points for our Office of
Congressional Relations and Public Affairs may be found on the last
page of this report. GAO staff who made major contributions to this
report are listed in appendix VIII.
Sincerely yours,
Signed by:
David G. Wood:
Director, Financial Markets and Community Investment:
[End of section]
Appendix I: Objectives, Scope, and Methodology:
This report provides information on trends in the size and cost of the
Department of Housing and Urban Development's (HUD) Section 8 program
from 1998 through 2004. Specifically, our report objectives were to
determine (1) the annual numbers of vouchers in the voucher program and
units in the project-based programs, (2) the annual new budget
authority and outlays for each program, (3) the factors that have
affected outlays, and (4) the impact of factors on the average rental
subsidy cost per household for the voucher program.
To determine the annual numbers of vouchers in the voucher program and
units in the project-based program, we obtained and reviewed data on
the numbers of authorized vouchers and project-based units from 1998
through 2004 from HUD's budget office. We compared the annual numbers
of vouchers and project-based units that HUD provided with information
reported in the agency's annual budget requests to ensure that they
were consistent. We obtained data on the number of units authorized
under the Section 8 Moderate Rehabilitation program from HUD's program
offices. We compiled and analyzed HUD notices of funding announcements
and awards published in the Federal Register to determine the different
types of new vouchers that were added to the program.
To determine the annual amount of new budget authority and outlays for
each program, we obtained and analyzed data from HUD's budget office,
annual budget requests and other budget documents, and audited
financial statements. We also reviewed relevant prior reports from HUD,
HUD's Office of Inspector General (OIG), the Congressional Budget
Office (CBO), and the Congressional Research Service (CRS). Because
HUD's budget office was not able to report data on outlays for the
voucher and project-based programs separately, we obtained data on
rental assistance payments from HUD's accounting systems and estimated
the amount of rental assistance payments paid to public housing
agencies (PHA) and property owners under each program from fiscal years
1998 through 2004. Specifically, from the HUD Central Accounting and
Program System (HUDCAPS), we obtained information on rental assistance
payments and other expenses for the voucher and the Section 8 Mod Rehab
program, as well as for a limited number of contracts for the project-
based program. From HUD's Program Accounting System (PAS), we obtained
similar information for the remaining project-based Section 8
contracts. In total, the data we used comprised approximately 3 million
payment records. Our analysis included payment records associated with
the voucher and project-based programs only and did not include payment
records for other HUD rental assistance programs, such as the Section
202 Supportive Housing for the Elderly and Section 811 Supportive
Housing for Persons with Disabilities programs. We included payment
records for certain administrative expenses, such as fees paid to PHAs
for the voucher program and to Performance-Based Contract
Administrators for the project-based program.
We compared our estimate of outlays for the voucher, project-based, and
Mod Rehab programs and other related expenses (total outlays) with
published totals in HUD's annual budget requests. Our estimates using
HUDCAPS and PAS were, on average, 0.7 percent less than the totals in
HUD's annual budget requests. For 1998 and 1999, our estimate of total
outlays varied from the published totals by -1.2 percent and -4.2
percent, respectively. For 2000 through 2004, our estimates of total
outlays were within 0.4 percent. One reason for the variation between
our estimates and the published totals is that our analysis did not
include certain nonrental assistance activities paid for with Section 8
funds.
In order to assess the reliability of the data from HUDCAPS and PAS, we
reviewed related documentation and interviewed agency officials who
work with these databases. In addition, we performed internal checks to
determine the extent to which the data fields were populated and the
reasonableness of the values contained in the fields. We concluded that
the data were sufficiently reliable for the purposes of this report.
To identify the factors that have affected outlays, we analyzed our
reports and reports by HUD, CBO, CRS, transcripts of congressional
committee hearings, and congressional committee reports. We also
obtained and analyzed data on rental subsidies per household, a key
factor affecting outlays, from two HUD databases--the Public and Indian
Housing Information Center (PIC) for the voucher program and the Tenant
Rental Assistance Certification System (TRACS) for the project-based
program. Using these data, we analyzed trends in unit rents, household
incomes, and household rental payments. In order to assess the
reliability of the data from PIC and TRACS, we reviewed related
documentation and interviewed agency officials who work with these
databases. In addition, we performed internal checks to determine the
extent to which the data fields were populated and the reasonableness
of the values contained in the fields. We concluded that the data were
sufficiently reliable for the purposes of this report.
To assess the impact of different factors on the average rental subsidy
cost per household for the voucher program, we developed a statistical
model using data from HUD and the Census Bureau. Specifically, we
obtained household-level data from PIC on the rental subsidies per
household, unit rents, household incomes, various demographic
characteristics, and geographic information about where households were
located. We also incorporated information from the 2000 Decennial
Census and HUD on neighborhood characteristics at the census tract
level. Our model allowed us to estimate the effect of each variable--
market rents, household incomes, household and neighborhood
characteristics, and a measure of the relationship between the payment
standard and HUD's fair market rent--on the average rental subsidy per
voucher household, while controlling for other variables. The PIC data
for 1998 did not have complete information for certain fields (such as
the fair market rent associated with an individual household), and
consequently, we did not include data for 1998 in our model. Appendix V
contains further information on the results of our statistical
analysis.
To address all of the objectives, we interviewed officials from HUD's
Offices of the Chief Financial Officer, Public and Indian Housing,
Housing, and Policy Development and Research. We also met with CBO and
CRS officials and representatives of various industry and research
groups: the Center for Budget and Policy Priorities, the Council of
Large Public Housing Authorities, the National Leased Housing
Association, and the National Low Income Housing Coalition. We
conducted our work in Washington, D.C., and Chicago, Illinois, from
April 2005 through March 2006 in accordance with generally accepted
government auditing standards.
[End of section]
Appendix II: Information on the Section 8 Moderate Rehabilitation
Program:
This appendix provides information on the Section 8 Moderate
Rehabilitation (Mod Rehab) program. The Mod Rehab program was created
in 1978 to add to the existing stock of assisted housing. It did this
by providing funding to upgrade a portion of the estimated 2.7 million
then-unassisted rental housing units with deficiencies that required a
moderate level of repair, and rental subsidies for low-income
households to live in them. Congress funded no new contracts for the
Mod Rehab program after 1989 and repealed the program in 1991.
Under annual contracts with public housing agencies (PHA) that
administer the Mod Rehab program, HUD provides the funding for rental
subsidies as well as an administrative fee to the agencies. The
administering agencies, in turn, enter into contracts with property
owners. Under these contracts, property owners rehabilitate their
housing units to meet HUD's standards for housing quality by completing
repairs costing at least $1,000 and make the rehabilitated units
available to eligible households. In exchange, PHAs screen applicants
for eligibility and pay the difference between the approved contract
rent and the household's portion of the rent. The Mod Rehab has
features that are common to both the project-based and voucher
programs. For example, similar to the voucher program, the Mod Rehab
program is administered by PHAs and was intended to utilize the
existing stock of privately owned rental housing. However, Mod Rehab is
fundamentally a project-based program because the rental subsidy is
tied to a specific unit, not the household.
During the 11 years that Congress funded new contracts under the Mod
Rehab program, the term for the Section 8 contracts was 15 years. When
the oldest of these contracts began to expire in 1995 and 1996, HUD
instructed PHAs to replace them with vouchers. Since fiscal year 1997,
however, HUD has renewed expiring contracts on an annual basis if the
owners opt to do so and the properties consist of more than four rental
units.
As shown in table 3, the Mod Rehab program has undergone significant
reductions in the number of units--from 71,659 in 1998 to 34,141 in
2004, a decline of about 52 percent. As with project-based Section 8,
owners of Mod Rehab properties can choose to leave the program upon
contract expiration, and in these cases, eligible households can
receive enhanced vouchers.
Table 3: Number of Authorized Units under the Section 8 Moderate
Rehabilitation Program, 1998-2004:
Year: 1998;
Authorized units: 71,659.
Year: 1999;
Authorized units: 64,463.
Year: 2000;
Authorized units: 57,777.
Year: 2001;
Authorized units: 52,342.
Year: 2002;
Authorized units: 49,013.
Year: 2003;
Authorized units: 42,504.
Year: 2004;
Authorized units: 34,141.
Source: HUD.
[End of table]
Data on budget authority for the Mod Rehab program were not available
separately. From 1998 through 2004, HUD received budget authority for
the Mod Rehab program as part of the overall appropriations for Section
8 in the Housing Certificate Fund account. Starting in its 2006 budget
request, HUD included renewal funding for the Mod Rehab program in its
Project-Based Rental Assistance budgetary account. Similarly, data on
Mod Rehab outlays were not available. However, as we did for the
voucher and project-based programs, we estimated Mod Rehab outlays
using data from HUD's accounting systems. As table 4 shows, from 1998
through 2004, estimated Mod Rehab outlays decreased by over 50 percent,
from $472 million to $246 million. The decrease in outlays was due to
significant reductions in the number of units assisted under the
program.
Table 4: Estimated Outlays for the Section 8 Moderate Rehabilitation
Program, 1998-2004:
Dollars in millions.
1998;
Dollars in millions: Estimated outlays: Nominal dollars: $472;
Dollars in millions: Estimated outlays: Inflation-adjusted dollars:
$536.
1999;
Dollars in millions: Estimated outlays: Nominal dollars: 364;
Dollars in millions: Estimated outlays: Inflation-adjusted dollars:
408.
2000;
Dollars in millions: Estimated outlays: Nominal dollars: 351;
Dollars in millions: Estimated outlays: Inflation-adjusted dollars:
386.
2001;
Dollars in millions: Estimated outlays: Nominal dollars: 332;
Dollars in millions: Estimated outlays: Inflation-adjusted dollars:
358.
2002;
Dollars in millions: Estimated outlays: Nominal dollars: 305;
Dollars in millions: Estimated outlays: Inflation-adjusted dollars:
322.
2003;
Dollars in millions: Estimated outlays: Nominal dollars: 280;
Dollars in millions: Estimated outlays: Inflation-adjusted dollars:
289.
2004;
Dollars in millions: Estimated outlays: Nominal dollars: 246;
Dollars in millions: Estimated outlays: Inflation-adjusted dollars:
248.
Source: GAO Analysis of HUD Central Accounting and Program System:
[End of table]
[End of section]
Appendix III: Description of the Section 8 Rental Housing Assistance
Programs:
Federal rental housing assistance, which began with the enactment of
the U.S. Housing Act of 1937, includes subsidies to construct new
affordable housing and to make rents affordable in existing rental
housing. From 1937 through 1974, the emphasis was almost exclusively on
new construction. Questions about the cost-effectiveness of new
construction led Congress to explore options for using existing housing
to shelter low-income families. In 1974, it added Section 8 to the U.S.
Housing Act of 1937 and created the Existing Housing Certificate
program, the first major program to rely on existing privately owned
rental housing and to provide tenant-based, rather than project-based,
assistance. Another type of Section 8 assistance, the voucher program,
started as a demonstration program in 1983, was made permanent in 1988,
and operated simultaneously with the certificate program until 1998. At
that time, the two programs were consolidated into the Housing Choice
Voucher program, which combined features of both earlier programs. This
program is now the largest federal housing assistance program. Table 5
summarizes the Section 8 rental housing assistance programs, including
their authorization date and current status.
Table 5: HUD Programs with Section 8 Rental Assistance, in Order of
Year Authorized:
Program: Section 202 Elderly and Disabled Housing Direct Loan Program;
Type of subsidy: Project-based: direct loan with below-market interest
rates,; rental assistance payments generally through Section 8;
Year authorized: 1959;
Status: No new commitments since 1991;
Description: Provides direct loans at below-market rates for up to 40
years to finance the construction of rental housing for the elderly and
disabled. All projects built since 1974 also receive Section 8 rent
subsidies.
Program: Section 8 New Construction and Substantial Rehabilitation;
Type of subsidy: Project-based: rental assistance payment, below-
market interest rate loans[A];
Year authorized: 1974;
Status: No new commitments since 1983, except for Section 202 program
(see above);
Description: Provides rent subsidies in new or substantially
rehabilitated projects. Subsidy initially covered the difference
between tenants' payment and fair market rent, determined by HUD.
Subsidy contracts were for 20 to 40 years. Tax incentives and financing
arrangements also may reduce owners' effective mortgage interest rates
and project rents. Current restructuring of ongoing contracts will
result in realignment of subsidy payments.
Program: Section 8 Loan Management Set-aside and Property Disposition;
Type of subsidy: Project-based: rental assistance payment;
Year authorized: 1974;
Status: No new commitments;
Description: Provides subsidies to units in financially troubled
projects in the FHA-insured inventory and on the sale of HUD-owned
projects. Subsidies ensure improved cash flows and preserve projects
for lower-income tenants. Subsidies cover the difference between tenant
payments and unit rents, which often are below market rates because of
other federal subsidies.
Program: Section 8 Existing Housing Certificates;
Type of subsidy: Tenant-based: rental assistance payment;
Year authorized: 1974;
Status: Merged in 1998 with the voucher program to become the Housing
Choice Voucher program;
Description: Aids low-income households to rent housing units in the
market. Rent cannot exceed the HUD-established fair market rent for the
geographical area. HUD pays the difference between the actual unit rent
and the tenant payment. Administered by local public housing
authorities, which enter into contracts with landlords.
Program: Section 8 Moderate Rehabilitation;
Type of subsidy: Project- based: rental assistance payment;
Year authorized: 1978;
Status: No new commitments since 1989;
Description: Provides rental subsidies to units in privately owned
properties where the owners agreed to make up to $1,000 per unit in
repairs in order to receive rental assistance. Although the program was
repealed in 1991, property owners may request 1-year renewals of
existing contracts. Unlike project-based Section 8, Mod Rehab relied on
existing private housing and was administered by public housing
authorities. However, like project-based Section 8, rental assistance
under Mod Rehab is tied to the unit, and a household can benefit from
the subsidy only if it remains in the unit.
Program: Section 8 Vouchers;
Type of subsidy: Tenant-based: rental assistance payment;
Year authorized: 1983;
Status: Merged in 1998 with Existing Housing Certificates to become the
Housing Choice Voucher program;
Description: Similar to the Section 8 Certificate program in that
assisted households could live in privately owned units, and public
housing authorities administered the program. Unlike the certificate
program in that recipients could occupy units whose rents exceeded the
voucher payment standard--roughly equivalent to the fair market rent--
if they paid the difference. If rents were below the payment standard,
households could keep the difference (also known as the shopper's
incentive).
Program: Housing Choice Voucher Program;
Type of subsidy: Tenant-based: rental assistance payment;
Year authorized: 1998;
Status: Active;
Description: Aids low-income households to rent housing units in the
market. Public housing authorities have discretion to set voucher
payment standard anywhere between 90 and 110 percent of the fair market
rent. HUD pays the difference between the payment standard (or, if
less, the unit's rent) and the total tenant payment, which is usually
at least 30 percent of adjusted household income. If the unit's rent
exceeds the payment standard, the tenant can pay the difference,
provided that household initial rent burden does not exceed 40 percent
of adjusted income).
Source: GAO.
[A] The subsidy is provided by another housing program.
[End of table]
[End of section]
Appendix IV: Data on Budgetary Costs for the Voucher and Project-Based
Programs:
This appendix provides detailed data on total available budget
authority and outlays for the Section 8 programs. Since we are
evaluating budget trends over a 7-year period, we present the budgetary
data in both nominal (current) and inflation-adjusted dollars. We use
the gross domestic product (GDP) index to adjust for inflation and 2004
as the reference year.
Table 6: Total Available Budget Authority in Nominal Dollars, 1998-
2004:
Dollars in millions.
Fiscal Year: 1998;
Dollars in millions: New budget authority: $9,373;
Dollars in millions: Carryover: $7,542;
Dollars in millions: Rescission: -$2,897;
Dollars in millions: Total available budget authority: $14,018.
Fiscal Year: 1999;
Dollars in millions: New budget authority: 10,327;
Dollars in millions: Carryover: 6,366;
Dollars in millions: Rescission: -2,000;
Dollars in millions: Total available budget authority: 14,692.
Fiscal Year: 2000;
Dollars in millions: New budget authority: 7,177;
Dollars in millions: Carryover: 7,721;
Dollars in millions: Rescission: -2,243;
Dollars in millions: Total available budget authority: 12,655.
Fiscal Year: 2001;
Dollars in millions: New budget authority: 18,110;
Dollars in millions: Carryover: 5,375;
Dollars in millions: Rescission: -1,947;
Dollars in millions: Total available budget authority: 21,538.
Fiscal Year: 2002;
Dollars in millions: New budget authority: 16,281;
Dollars in millions: Carryover: 4,093;
Dollars in millions: Rescission: -1,589;
Dollars in millions: Total available budget authority: 18,786.
Fiscal Year: 2003;
Dollars in millions: New budget authority: 17,112;
Dollars in millions: Carryover: 3,549;
Dollars in millions: Rescission: -1,600;
Dollars in millions: Total available budget authority: 19,060.
Fiscal Year: 2004;
Dollars in millions: New budget authority: 19,257;
Dollars in millions: Carryover: 4,439;
Dollars in millions: Rescission: -2,844;
Dollars in millions: Total available budget authority: 20,852.
Source: HUD.
Note: Totals may not add because of rounding.
[End of table]
Table 7: Total Available Budget Authority in Inflation-Adjusted
Dollars, 1998-2004:
Dollars in millions.
1998;
Dollars in millions: New budget authority: $10,552;
Dollars in millions: Carryover: $8,491;
Dollars in millions: Rescission: -$3,262;
Dollars in millions: Total available budget authority: $15,782.
1999;
Dollars in millions: New budget authority: 11,476;
Dollars in millions: Carryover: 7,075;
Dollars in millions: Rescission: -2,223;
Dollars in millions: Total available budget authority: 16,328.
2000;
Dollars in millions: New budget authority: 7,817;
Dollars in millions: Carryover: 8,410;
Dollars in millions: Rescission: -2,443;
Dollars in millions: Total available budget authority: 13,784.
2001;
Dollars in millions: New budget authority: 19,272;
Dollars in millions: Carryover: 5,720;
Dollars in millions: Rescission: -2,072;
Dollars in millions: Total available budget authority: 22,919.
2002;
Dollars in millions: New budget authority: 17,000;
Dollars in millions: Carryover: 4,274;
Dollars in millions: Rescission: -1,659;
Dollars in millions: Total available budget authority: 19,616.
2003;
Dollars in millions: New budget authority: 17,521;
Dollars in millions: Carryover: 3,633;
Dollars in millions: Rescission: -1,638;
Dollars in millions: Total available budget authority: 19,516.
2004;
Dollars in millions: New budget authority: 19,257;
Dollars in millions: Carryover: 4,439;
Dollars in millions: Rescission: -2,844;
Dollars in millions: Total available budget authority: 20,852.
Source: HUD.
Note: Totals may not add because of rounding.
[End of table]
Table 8: Outlays for the Section 8 Programs, 1998-2004:
Dollars in millions.
1998;
Dollars in millions: Nominal dollars: $14,773;
Dollars in millions: Inflation-adjusted dollars: $16,794.
1999;
Dollars in millions: Nominal dollars: 15,306;
Dollars in millions: Inflation-adjusted dollars: 17,148.
2000;
Dollars in millions: Nominal dollars: 15,681;
Dollars in millions: Inflation-adjusted dollars: 17,267.
2001;
Dollars in millions: Nominal dollars: 16,488;
Dollars in millions: Inflation-adjusted dollars: 17,734.
2002;
Dollars in millions: Nominal dollars: 18,235;
Dollars in millions: Inflation-adjusted dollars: 19,225.
2003;
Dollars in millions: Nominal dollars: 20,715;
Dollars in millions: Inflation-adjusted dollars: 21,414.
2004;
Dollars in millions: Nominal dollars: 22,159;
Dollars in millions: Inflation-adjusted dollars: 22,372.
Source: GAO analysis of data from the HUD Central Accounting and
Program System (HUDCAPS) and Program Accounting System (PAS).
[End of table]
Table 9: Outlays for the Voucher and Project-Based Programs, 1998-2004:
Dollars in millions.
Dollars in millions: Fiscal year: Voucher: [Empty].
1998;
Dollars in millions: Voucher: Nominal dollars: $7,513;
Dollars in millions: Voucher: Inflation-adjusted dollars: $8,540;
Dollars in millions: Project-based: Nominal dollars: $7,261;
Dollars in millions: Project-based: Inflation-adjusted dollars: $8,254.
1999;
Dollars in millions: Voucher: Nominal dollars: 8,109;
Dollars in millions: Voucher: Inflation-adjusted dollars: 9,101;
Dollars in millions: Project-based: Nominal dollars: 7,197;
Dollars in millions: Project-based: Inflation-adjusted dollars: 8,047.
2000;
Dollars in millions: Voucher: Nominal dollars: 8,641;
Dollars in millions: Voucher: Inflation-adjusted dollars: 9,516;
Dollars in millions: Project-based: Nominal dollars: 7,040;
Dollars in millions: Project-based: Inflation-adjusted dollars: 7,750.
2001;
Dollars in millions: Voucher: Nominal dollars: 9,328;
Dollars in millions: Voucher: Inflation-adjusted dollars: 10,037;
Dollars in millions: Project-based: Nominal dollars: 7,160;
Dollars in millions: Project-based: Inflation-adjusted dollars: 7,697.
2002;
Dollars in millions: Voucher: Nominal dollars: 11,083;
Dollars in millions: Voucher: Inflation-adjusted dollars: 11,684;
Dollars in millions: Project-based: Nominal dollars: 7,153;
Dollars in millions: Project-based: Inflation-adjusted dollars: 7,541.
2003;
Dollars in millions: Voucher: Nominal dollars: 13,247;
Dollars in millions: Voucher: Inflation-adjusted dollars: 13,694;
Dollars in millions: Project-based: Nominal dollars: 7,468;
Dollars in millions: Project-based: Inflation-adjusted dollars: 7,720.
2004;
Dollars in millions: Voucher: Nominal dollars: 14,479;
Dollars in millions: Voucher: Inflation-adjusted dollars: 14,617;
Dollars in millions: Project-based: Nominal dollars: 7,680;
Dollars in millions: Project-based: Inflation-adjusted dollars: 7,755.
Source: GAO analysis of data from HUDCAPS and PAS.
[End of table]
Table 10: Estimated Impact of Policy Decisions and Other Factors on the
Change in Outlays for the Voucher and Project-Based Programs in
Inflation-Adjusted Dollars from 1998 through 2004:
Dollars in millions.
Change in the number of assisted households/units;
Estimated change in outlays: Vouchers: $3,053;
Estimated change in outlays: Project-based: -$369.
Change in rental subsidy per household[A];
Estimated change in outlays: Vouchers: 2,742;
Estimated change in outlays: Project-based: -302.
Change in other program costs[B];
Estimated change in outlays: Vouchers: 282;
Estimated change in outlays: Project-based: 172.
Total;
Estimated change in outlays: Vouchers: $6,077;
Estimated change in outlays: Project-based: -$499.
Source: GAO analysis of HUD data.
[A] This amount represents the difference between the (1) total outlays
for the period and (2) individual changes in outlays due to the other
two factors.
[B] This amount comprises increases in the administrative fee for
vouchers and the cost of Performance-Based Contract Administrators for
the project-based program. Limitations in the data did not allow us to
identify other program costs.
[End of table]
[End of section]
Appendix V: Description of the Econometric Analysis of Rental Subsidy
Costs per Household for the Voucher Program:
This appendix provides an overview of the econometric analysis we used
to investigate trends in Section 8 rental subsidies per household
(housing assistance payments, or HAP) between 1999 and 2004 for the
voucher program. These subsidies, which make up the difference between
households' payments (usually 30 percent of adjusted income) and the
actual unit rent, are limited by the payment standards set by local
public housing agencies. PHAs set these payment standards based in part
on fair market rents (FMR) that the Department of Housing and Urban
Development (HUD) establishes for individual housing markets, generally
at the 40th percentile (in some cases 50th percentile) of the
distribution of rents. Raising the payment standard relative to the FMR
can provide assisted households with a wider choice of housing, but
renting more expensive units raises both the cost of the subsidies and
thus of the Section 8 programs.
Because of the potential influence on program costs, we wanted to
investigate the role of HUD and PHA policies in setting payment
standards. Since 1998, PHAs have had more leeway than they did
previously to increase (or decrease) payment standards relative to the
FMR. According to HUD, this authority has been exercised too generously
and is a major cause of the recent increase in HAPs.
Model and Data:
We developed a pooled cross-section time-series model explaining
monthly HAPs as depending on a variety of housing market, program, and
household characteristics. The results and descriptive statistics are
based on a 10 percent sample of voucher (and certificate) household
records obtained from HUD's Public and Indian Housing Information
Center files. These files provide snapshots of the program as of the
end of each calendar year from 1998 through 2004 and provide
information on HAPs, gross rents, FMRs, and payment standards as well
as household income and other characteristics. The information in a
file on a particular assisted household is current as of a point in
time--for instance, the date of a program action, usually the date of
an annual recertification for program eligibility. HUD's Office of
Policy Development and Research worked with the underlying
administrative files to (1) correct various coding errors and
inconsistencies, (2) identify the census tract of each household based
on tenants' addresses, and (3) add information of analytical interest
that was not necessarily required for program administration.[Footnote
46] The date of admission to the program and the date of the program
action were used to measure how long the household had been in the
program, and other fields were used to indicate any change in the
household's rental unit and whether the household left the program. We
used information on the household's census tract to identify
neighborhood characteristics. We also used the census tract information
to develop an indicator of neighborhood quality by determining whether
the voucher household's census tract was a HUD-designated qualifying
census tract (QCT).[Footnote 47]
We excluded observations with extreme or missing values for key
variables, and we excluded duplicate observations in the latest record
and the record from the previous year. We also excluded households that
appeared to have entered or left the program more than once.
We placed each household in one of four categories, based on
demographic and labor market characteristics: single female-headed
households with children (nonelderly, nondisabled), elderly (including
elderly disabled), nonelderly disabled, and all other.[Footnote 48]
Because groups could face different housing and labor market conditions
and the variables in our model could have different effects on the
level of HAP in each group, we estimated the same model separately for
each of the four categories. For instance, disabled households are
typically smaller than other households but may require housing with
features not commonly available in the general rental stock. Families
with children may be larger than other families, and thus require
larger units, and may also experience changes in labor market incomes.
The purpose of the model is to explain monthly HAPs using an estimating
equation that is based on a variety of household, housing,
neighborhood, and policy factors. HAPs range from close to zero to the
thousands of dollars, with variations in each cross section and over
time. In the model, HAPs are explained by the general level of market
rents, tenant incomes, a measure of neighborhood quality, time period,
and a measure of PHA payment standard policy. We also included in our
model a series of explanatory dummy variables for household size,
duration in program, termination and moves, and metropolitan areas. All
dollar amounts (e.g., HAP, market rents, adjusted income) are expressed
in 2004:Q4 terms using the price index for Personal Consumption
Expenditures from the Bureau of Economic Analysis.
Because gross rents are important in defining the level of HAPs, we
control for the general level of market rents in order to examine the
effects of other variables. We use the FMR for this purpose because it
provides considerable variation within cross sections and across
time.[Footnote 49] The level of income is also important in determining
the level of HAPs, and we used adjusted income as reported in the file.
This choice is potentially problematic, as the level of HAPs may
influence income by encouraging program participants to seek work or
not. However, this problem is somewhat mitigated by the fact that
adjusted income is a predetermined rather than an actual amount.
Specifically, the adjusted income reported in the file is the PHA's
projection of a household's income in the upcoming year based on income
information from the previous year, taking into account expected
changes in hours, wages, and labor force status. Finally, the file did
not include information concerning household characteristics, such as
occupation, education, and experience, that would help explain
variations in assistance payments at the individual household level.
The policy variable of interest relates to the way PHAs set payment
standards (relative to the FMR). We define a ratio variable to measure
this policy by calculating the average payment standard and average FMR
by year and bedroom size for each PHA and then calculate the ratio (1 =
100) of the year-specific, PHA-specific payment standard to the FMR.
Missing payment standard information were set equal to the FMR for a
value of 100.[Footnote 50] (To limit the effects of outliers, we
excluded from the analysis those households with payment standard
ratios of less than 75 and more than 120.) The baseline specification
uses the year-specific, PHA-specific payment standard to FMR ratio as a
continuous variable (also truncated at 75 and 120).
Neighborhood quality is measured in two ways, both of them based on the
household's census tract. Our base specifications use HUD-designated
QCTs, which are in less desirable neighborhoods than other tracts. Thus
rents and HAPs should be lower in those neighborhoods, given that the
market rent variable distinguishes higher-rent markets from lower-rent
markets.
Because the same households are in the data set for many years, up to
as many as six times, the error terms are not likely to be independent
from each other to the extent that unobserved characteristics may make
the error terms for each household correlated with each other. However,
to the extent that this presents a problem with the confidence
intervals around a coefficient estimate (rather than a point) estimate,
we believe that this is mitigated to a large extent by the large sample
sizes used in the estimation. Table 11 shows the mean values of the
variables included in our statistical model for the whole period from
1999 through 2004.
Table 11: Average Values of Voucher Household Groups from 1999 through
2004:
Variable: Monthly HAP;
Household group: Single female-headed with children: 552.871;
Household group: Nonelderly disabled: 430.302;
Household group: Elderly: 400.898;
Household group: All others: 497.301.
Variable: Qualified census tract;
Household group: Single female-headed with children: 0.270;
Household group: Nonelderly disabled: 0.248;
Household group: Elderly: 0.219;
Household group: All others: 0.268.
Variable: Local market rent;
Household group: Single female-headed with children: 857.948;
Household group: Nonelderly disabled: 700.366;
Household group: Elderly: 690.228;
Household group: All others: 822.026.
Variable: Adjusted income;
Household group: Single female-headed with children: 9980.614;
Household group: Nonelderly disabled: 9360.595;
Household group: Elderly: 9690.530;
Household group: All others: 10819.378.
Variable: Payment standard ratio;
Household group: Single female-headed with children: 99.109;
Household group: Nonelderly disabled: 99.385;
Household group: Elderly: 99.168;
Household group: All others: 99.324.
Duration dummy variables: Variable: 1 year;
Household group: Single female-headed with children: 0.218;
Household group: Nonelderly disabled: 0.190;
Household group: Elderly: 0.122;
Household group: All others: 0.258.
Duration dummy variables: Variable: 2 years;
Household group: Single female-headed with children: 0.191;
Household group: Nonelderly disabled: 0.167;
Household group: Elderly: 0.116;
Household group: All others: 0.189.
Duration dummy variables: Variable: 3 years;
Household group: Single female-headed with children: 0.144;
Household group: Nonelderly disabled: 0.135;
Household group: Elderly: 0.106;
Household group: All others: 0.128.
Duration dummy variables: Variable: 4 years;
Household group: Single female-headed with children: 0.103;
Household group: Nonelderly disabled: 0.102;
Household group: Elderly: 0.086;
Household group: All others: 0.083.
Duration dummy variables: Variable: 5 years;
Household group: Single female-headed with children: 0.073;
Household group: Nonelderly disabled: 0.076;
Household group: Elderly: 0.070;
Household group: All others: 0.058.
Duration dummy variables: Variable: 6 years;
Household group: Single female-headed with children: 0.056;
Household group: Nonelderly disabled: 0.059;
Household group: Elderly: 0.062;
Household group: All others: 0.047.
Duration dummy variables: Variable: 7 years;
Household group: Single female-headed with children: 0.043;
Household group: Nonelderly disabled: 0.046;
Household group: Elderly: 0.052;
Household group: All others: 0.039.
Duration dummy variables: Variable: 8 years;
Household group: Single female-headed with children: 0.033;
Household group: Nonelderly disabled: 0.038;
Household group: Elderly: 0.044;
Household group: All others: 0.031.
Duration dummy variables: Variable: 9 years;
Household group: Single female-headed with children: 0.028;
Household group: Nonelderly disabled: 0.031;
Household group: Elderly: 0.040;
Household group: All others: 0.026.
Duration dummy variables: Variable: 10 years;
Household group: Single female-headed with children: 0.023;
Household group: Nonelderly disabled: 0.027;
Household group: Elderly: 0.038;
Household group: All others: 0.023.
Duration dummy variables: Variable: 11 years;
Household group: Single female-headed with children: 0.019;
Household group: Nonelderly disabled: 0.022;
Household group: Elderly: 0.034;
Household group: All others: 0.020.
Duration dummy variables: Variable: 12 or more years;
Household group: Single female-headed with children: 0.015;
Household group: Nonelderly disabled: 0.019;
Household group: Elderly: 0.032;
Household group: All others: 0.017.
Participation status dummy variables: Mover household;
Household group: Single female-headed with children: 0.059;
Household group: Nonelderly disabled: 0.058;
Household group: Elderly: 0.033;
Household group: All others: 0.045.
Participation status dummy variables: Household assistance terminated;
Household group: Single female-headed with children: 0.097;
Household group: Nonelderly disabled: 0.076;
Household group: Elderly: 0.075;
Household group: All others: 0.115.
Household size dummy variables: 1 person;
Household group: Single female-headed with children: N/A;
Household group: Nonelderly disabled: 0.558;
Household group: Elderly: 0.751;
Household group: All others: 0.415.
Household size dummy variables: 2 persons;
Household group: Single female-headed with children: 0.299;
Household group: Nonelderly disabled: 0.209;
Household group: Elderly: 0.187;
Household group: All others: 0.068.
Household size dummy variables: 3 persons;
Household group: Single female-headed with children: 0.336;
Household group: Nonelderly disabled: 0.113;
Household group: Elderly: 0.036;
Household group: All others: 0.111.
Household size dummy variables: 4 persons;
Household group: Single female-headed with children: 0.218;
Household group: Nonelderly disabled: 0.065;
Household group: Elderly: 0.015;
Household group: All others: 0.149.
Household size dummy variables: 5 or more persons;
Household group: Single female-headed with children: 0.095;
Household group: Nonelderly disabled: 0.032;
Household group: Elderly: 0.007;
Household group: All others: 0.123.
Year and quarter dummy variables: 1999:2;
Household group: Single female-headed with children: 0.031;
Household group: Nonelderly disabled: 0.029;
Household group: Elderly: 0.034;
Household group: All others: 0.031.
Year and quarter dummy variables: 1999:3;
Household group: Single female-headed with children: 0.042;
Household group: Nonelderly disabled: 0.035;
Household group: Elderly: 0.038;
Household group: All others: 0.039.
Year and quarter dummy variables: 1999:4;
Household group: Single female-headed with children: 0.040;
Household group: Nonelderly disabled: 0.033;
Household group: Elderly: 0.035;
Household group: All others: 0.037.
Year and quarter dummy variables: 2000:1;
Household group: Single female-headed with children: 0.026;
Household group: Nonelderly disabled: 0.025;
Household group: Elderly: 0.030;
Household group: All others: 0.025.
Year and quarter dummy variables: 2000:2;
Household group: Single female-headed with children: 0.034;
Household group: Nonelderly disabled: 0.033;
Household group: Elderly: 0.040;
Household group: All others: 0.033.
Year and quarter dummy variables: 2000:3;
Household group: Single female-headed with children: 0.046;
Household group: Nonelderly disabled: 0.042;
Household group: Elderly: 0.044;
Household group: All others: 0.042.
Year and quarter dummy variables: 2000:4;
Household group: Single female-headed with children: 0.057;
Household group: Nonelderly disabled: 0.048;
Household group: Elderly: 0.047;
Household group: All others: 0.053.
Year and quarter dummy variables: 2001:1;
Household group: Single female-headed with children: 0.041;
Household group: Nonelderly disabled: 0.038;
Household group: Elderly: 0.042;
Household group: All others: 0.041.
Year and quarter dummy variables: 2001:2;
Household group: Single female-headed with children: 0.041;
Household group: Nonelderly disabled: 0.038;
Household group: Elderly: 0.042;
Household group: All others: 0.040.
Year and quarter dummy variables: 2001:3;
Household group: Single female-headed with children: 0.030;
Household group: Nonelderly disabled: 0.031;
Household group: Elderly: 0.031;
Household group: All others: 0.028.
Year and quarter dummy variables: 2001:4;
Household group: Single female-headed with children: 0.038;
Household group: Nonelderly disabled: 0.037;
Household group: Elderly: 0.033;
Household group: All others: 0.036.
Year and quarter dummy variables: 2002:1;
Household group: Single female-headed with children: 0.020;
Household group: Nonelderly disabled: 0.021;
Household group: Elderly: 0.021;
Household group: All others: 0.021.
Year and quarter dummy variables: 2002:2;
Household group: Single female-headed with children: 0.037;
Household group: Nonelderly disabled: 0.042;
Household group: Elderly: 0.043;
Household group: All others: 0.039.
Year and quarter dummy variables: 2002:3;
Household group: Single female-headed with children: 0.044;
Household group: Nonelderly disabled: 0.047;
Household group: Elderly: 0.045;
Household group: All others: 0.045.
Year and quarter dummy variables: 2002:4;
Household group: Single female-headed with children: 0.061;
Household group: Nonelderly disabled: 0.058;
Household group: Elderly: 0.052;
Household group: All others: 0.060.
Year and quarter dummy variables: 2003:1;
Household group: Single female-headed with children: 0.029;
Household group: Nonelderly disabled: 0.034;
Household group: Elderly: 0.034;
Household group: All others: 0.031.
Year and quarter dummy variables: 2003:2;
Household group: Single female-headed with children: 0.044;
Household group: Nonelderly disabled: 0.051;
Household group: Elderly: 0.051;
Household group: All others: 0.049.
Year and quarter dummy variables: 2003:3;
Household group: Single female-headed with children: 0.058;
Household group: Nonelderly disabled: 0.061;
Household group: Elderly: 0.056;
Household group: All others: 0.060.
Year and quarter dummy variables: 2003:4;
Household group: Single female-headed with children: 0.069;
Household group: Nonelderly disabled: 0.065;
Household group: Elderly: 0.059;
Household group: All others: 0.071.
Year and quarter dummy variables: 2004:1;
Household group: Single female-headed with children: 0.029;
Household group: Nonelderly disabled: 0.034;
Household group: Elderly: 0.033;
Household group: All others: 0.030.
Year and quarter dummy variables: 2004:2;
Household group: Single female-headed with children: 0.043;
Household group: Nonelderly disabled: 0.051;
Household group: Elderly: 0.051;
Household group: All others: 0.046.
Year and quarter dummy variables: 2004:3;
Household group: Single female-headed with children: 0.055;
Household group: Nonelderly disabled: 0.061;
Household group: Elderly: 0.056;
Household group: All others: 0.059.
Year and quarter dummy variables: 2004:4;
Household group: Single female-headed with children: 0.066;
Household group: Nonelderly disabled: 0.067;
Household group: Elderly: 0.059;
Household group: All others: 0.068.
Source: GAO analysis of data from PIC.
[End of table]
[See PDF for Image]
Source: GAO analysis of data from PIC.
[End of table]
In general, the results are consistent with our general expectations.
For example,
* HAPs increase with market rent levels and decrease with adjusted
incomes.
* Households in less desirable neighborhoods, as measured by the QCT
variable, are about $20 to $30 per month less ($240 to $360 annually),
depending on the group.
* Smaller households receive smaller HAPs, and those in the program
longer receive smaller HAPs.
* Those that ultimately leave the program receive smaller HAPs, in some
cases because incomes may have increased to the point that the
households are no longer eligible.
* Households that move to a new unit tend to receive higher HAPs.
* HAPs increase as the payment standard increases relative to the FMR.
The time period dummy variables used in our model suggest that, at
least for households that are neither elderly nor disabled, HAPs were
approximately $40 to $50 per month ($480 to $600 annually) higher in
2004 than in 1999, even after controlling for changes in market rent
levels and payment standards.
To present the results in terms of trends, we focused on those
variables for which the average values changed significantly over the
time period. Table 13 presents averages of selected variables--HAP,
market rents, adjusted income, and payment standard ratio--for the
largest group (single female-headed households with children).
Table 13: Averages for Selected Variables, 1998-2004:
Variable: Monthly HAP;
Year: 1999: $487.0;
Year: 2000: $492.5;
Year: 2001: $509.7;
Year: 2002: $558.7;
Year: 2003: $612.9;
Year: 2004: $615.8.
Variable: Market rents;
Year: 1999: $803.4;
Year: 2000: $805.0;
Year: 2001: $824.4;
Year: 2002: $880.1;
Year: 2003: $907.1;
Year: 2004: $896.9.
Variable: Adjusted income;
Year: 1999: $9,619;
Year: 2000: $10,064;
Year: 2001: $10,136;
Year: 2002: $10,002;
Year: 2003: $9,970;
Year: 2004: $10,031.
Variable: Payment standard ratio;
Year: 1999: 96.1;
Year: 2000: 94.3;
Year: 2001: 95.9;
Year: 2002: 100.4;
Year: 2003: 102.5;
Year: 2004: 103.1.
Source: GAO analysis of data from PIC.
[End of table]
[End of section]
Appendix VI: Trends in Rents and Household Payments for the Voucher and
Project-Based Programs:
The rental subsidy per household of both Section 8 programs is the
difference between a household's payment and the lesser of either the
payment standard or the unit's gross rent. Trends in rents and
household payments, therefore, drive changes in the rental subsidy per
household. For the voucher program, average rents grew by 35 percent
from 1998 through 2004 (fig. 12). The average annual increase in
voucher rents was 5 percent during this period, ranging from a low of 3
percent in 2004 to 8 percent in 2002. Average project-based rents grew
by 12 percent over this period, an average annual rate of 2 percent.
Rents in the voucher program grew almost three times faster than those
in the project-based program (35 percent versus 12 percent) over this
period. A major reason for this difference is that voucher rents are
determined by the private market, while project-based rents are
adjusted annually using a HUD-determined operating cost factor.
Figure 12: Average Annual Rents for the Voucher and Project-Based
Programs, 1998-2004:
[See PDF for image]
[End of figure]
Annual increases in household payments did not keep pace with the
increases in voucher rents. Specifically, the average household payment
by voucher households rose by 24 percent over this period and grew at
an average annual rate of 4 percent (fig. 13). The disparity in the
rates of increase between rents and household payments accelerated the
growth in the average per household subsidy for vouchers. In contrast,
the annual rate of increase in the average project-based rent was
similar to that of household payments. As a result, growth in the
average per household subsidy kept pace with rents and household
payments in the project-based program.
Figure 13: Average Annual Household Payment for the Voucher and Project-
Based Programs, 1998-2004:
[See PDF for image]
[End of figure]
Annual Increases in Voucher Rents and Fair Market Rents Were Similar:
Although the average voucher rent grew dramatically from 1998 through
2004, our analysis found that this increase was consistent with the
growth in the average fair market rent. Fair market rents, which HUD
sets for each locality, reflect the cost of modest, standard-quality
housing.[Footnote 51] We created a fair market rent index, weighted by
the proportion of voucher households in each locality, and compared it
to the average rent for vouchers, which was similarly weighted, in
order to assess the change in the average rent for vouchers over time.
From 1999 through 2004 (the only years for which complete data on fair
market rents and voucher holders were available), the average rent in
the voucher program grew by 27 percent, while the average fair market
rent grew by 23 percent (fig. 14). Starting in 2003, the average
voucher rent increased at a faster rate than the average fair market
rent--5 percent versus 4 percent, respectively, in 2003, and 3 percent
versus 1 percent, respectively, in 2004--thus narrowing the gap between
them.
Figure 14: Average Voucher Rents and Fair Market Rents, 1999-2004:
[See PDF for image]
Note: Data on the fair market rent associated with the individual
household were not available for 1998.
[End of figure]
A major reason for the trend in the growth in the average voucher rent
was PHAs' authority to set their payment standard above the applicable
fair market rent. As previously noted, each PHA sets a local payment
standard up to 110 percent of the fair market rent for their area. The
average payment standard as a percentage of the fair market rent has
steadily increased, from about 96 percent in 1999 to 103 percent in
2004. Accordingly, the average voucher rent as a percentage of the fair
market rent also increased, from about 94 percent in 1999 to 97 percent
in 2004.
[End of section]
Appendix VII: Comments from the Department of Housing and Urban
Development:
U.S. Department Of Housing And Urban Development Washington, DC 20410-
3000:
Office Of The Chief Financial Officer:
April 10:
David G. Wood, Director:
Financial Markets and Community Investment Team:
Government Accountability Office:
441 G Street, NW, Room 2440B Washington, DC 20548:
Dear Director Wood,
I want to thank you for the opportunity to provide comments on the
draft GAO report, "Rental Housing Assistance: Policy Decisions and
Market Factors Explain Changes in the Costs of the Section 8 Programs".
The cost of the Section 8 programs is a very high priority for the
Department and the Congress. We are pleased that you cite recent HUD
and Congressional efforts to control costs on page 1 of your letter to
Chairman Ney; however, we would further recommend a specific reference
to the Department's very significant legislative proposal in this area,
the "State and Local Housing Flexibility Act." We also believe that a
reference to this legislation is appropriate in the bottom paragraph
discussion on page 36 that references how Congress and HUD are
responding to cost issues in the Section 8 program. In addition, we
suggest the following comments to improve the clarity of the report:
Page 4, Results in Brief. We suggest a rewrite of this section. As
currently written, the reader could be led to believe that the full
increase in authorized vouchers-from about 1.60 million in 1998 to 2.09
million in 2004-was due to "tenant protection" vouchers, i.e., vouchers
issued to households in project-based units for which contracts were
not renewed to allow the households to continue receiving rental
assistance. Table 1 on page 13 makes it clear that among the total
490,944 new vouchers, there were actually 276,981 incremental vouchers
and only 205,853 tenant protection vouchers (information on voucher
type was not available for 8,110 vouchers).
* Page 7: The statement, "To be eligible for assistance, households
must have very low incomes-less than or equal to 50 percent of area
median income (AMI) as determined by HUD" is incorrect. It should read
". households must have low incomes-less than or equal to 80 percent of
area median income.
Page 12: The text should note that the Welfare to Work Vouchers were
issued as a one-time demonstration program.
* Page 14: The report cites that "During 2001, new budget authority
grew by 22 percent, the largest single-year increase during this
period". This increase is somewhat explained by footnote 2 on page 15,
but probably deserves to be explained in the text itself.
* Page 14: "1989" appears to be a typo for "1998".
* Page 26, First paragraph: The report currently omits mention of the
single most important reason that the lower cost per unit in project-
based programs does not imply greater cost effectiveness. The report
should be revised to reflect the fact that tenant-based units, on
average, have more bedrooms and serve larger households.
Again, we appreciate this opportunity to comment on the draft report
and are available for any further discussions that might be warranted.
Sincerely,
Signed by:
James M. Martin:
Acting Deputy Chief:
[End of section]
Appendix VIII: GAO Contact and Staff Acknowledgments:
GAO Contact:
David G. Wood, (202) 512-8678 or WoodD@gao.gov:
Acknowledgments:
In addition to the contact named above, Steve Westley, Assistant
Director; Stephen Brown; Emily Chalmers; Mark Egger; Daniel Garcia-
Diaz; John T. McGrail; Marc W. Molino; Rose Schuville; and William
Sparling made key contributions to this report.
(250243):
FOOTNOTES
[1] Unless otherwise noted, all years cited in this report are federal
fiscal years, which run from October 1 through September 30, and all
dollars are nominal.
[2] Budget authority is enacted by law and gives federal agencies the
legal authority to incur obligations. Outlays (i.e., payments that
liquidate obligations), minus budget receipts, contribute to federal
budget deficits or surpluses.
[3] We excluded the Section 8 Moderate Rehabilitation program from our
analysis of units and outlays because, while it is a project-based
program, it is administered differently and evolved independently from
the other project-based programs. The program accounts for a small and
declining portion of the overall project-based program (about 34,000
units as of 2004). We could not exclude the program from our analysis
of budget authority because HUD's budget office was not able to break
out budget authority by individual program. Information on the Moderate
Rehabilitation program is included in appendix II.
[4] Our analysis covers the period from 1999 through 2004 because data
on certain variables used in our statistical model were not available
for 1998.
[5] The payment standard is based on the HUD-determined fair market
rent for the locality. HUD sets fair market rents generally equal to
the 40th percentile of the market rents (including utilities) paid by
recent movers for standard-quality units. PHAs may set local payment
standards at 90 to 110 percent of the fair market rent for their area
and, with HUD's approval, above 110 percent of the fair market rent.
[6] See 42 U.S.C. 1437n (b)(1).
[7] Under current HUD policies, as expiring contracts are renewed, HUD
generally sets rents for project-based Section 8 units based on market
rents for comparable units. These rents are adjusted annually using a
HUD-determined operating cost factor.
[8] Amendments fund existing project-based Section 8 contracts that
have depleted their budget authority before the end of the contract
term. HUD does not amend voucher contracts.
[9] Prior to this account, funds for Section 8 were appropriated in the
Annual Contributions for Assisted Housing account. Beginning in 2005,
Congress directed the agency to create two new Section 8 budget
accounts--a tenant-based account and a project-based account. New
budget authority is appropriated into these two accounts.
[10] U.S. Department of Housing and Urban Development, Office of Policy
Development and Research, Affordable Housing Needs: A Report to
Congress on the Significant Need for Housing (Washington, D.C.:
December 2005).
[11] HUD awarded approximately 50,000 additional vouchers to PHAs
through the Welfare-to-Work program demonstration in 1999. While HUD
continued to renew the vouchers issued in 1999, no new welfare-to-work
vouchers have been awarded since that time. HUD began phasing out the
demonstration program in March 2004.
[12] We adjusted the percent growth in new budget authority from 2000
to 2001 to include the $4.2 billion advance appropriation in 2000.
Without the adjustment, new budget authority increased by 94 percent.
[13] To calculate these percentages, we divided total budget authority
for Section 8 by the total gross discretionary budget authority for the
entire agency.
[14] We used the gross domestic product (GDP) price index to adjust for
inflation and 2004 as the reference year.
[15] U.S. House of Representatives, Committee on Appropriations,
Committee Report on the Departments of Veterans Affairs and Housing and
Urban Development, and Independent Agencies Appropriations Bill, 2005,
Rpt. 108-674 (Washington, D.C.: 2005).
[16] For some contracts, insufficient budget authority was appropriated
to cover the costs of rental assistance before the contract expired. As
a result, Congress appropriated additional budget authority to fund
contract amendments.
[17] Despite these increases, budget authority for rental assistance
programs was still lower from 1998 through 2004 than from 1977 through
1981, when Congress appropriated around $30 billion annually (in
nominal dollars).
[18] A rescission is legislation enacted by Congress that cancels
budgetary authority that has already been provided before that
authority would otherwise lapse.
[19] After adjusting for inflation, total outlays for Section 8
increased from $16.8 billion in 1998 to $22.4 billion in 2004, an
increase of 33 percent.
[20] To calculate these percentages, we divided outlays for both the
voucher and project-based programs by total gross discretionary outlays
for the entire agency.
[21] We analyzed data from HUD's Program Accounting System, which
contained payment information for project-based Section 8 contracts,
and HUD Central Accounting and Program System, which contained payment
information for both a limited number of project-based Section 8
contracts and all voucher contracts. The estimated total outlays for
the Section 8 programs cited in this report are also based on data from
these systems.
[22] Outlays for 2004 in inflation-adjusted dollars differ from those
in nominal dollars because any payment made in the first three quarters
of 2004 has been adjusted to reflect inflation occurring prior to the
last quarter.
[23] We estimated this amount by multiplying the number of new vouchers
authorized from 1998 through 2004 (490,944) by the percentage of
authorized vouchers in use in 2004 (98.5 percent). We then multiplied
the result by the average per household subsidy in 2004 ($6,262).
[24] Since HUD did not maintain separate outlay data for tenant
protection vouchers for the entire period of our analysis, we could not
estimate the impact of this shift on total Section 8 outlays.
[25] The data for this analysis were based on extracts taken in each
December from 1998 through 2004. For each year, the data contained
household and rent information that were updated throughout the
calendar year. We multiplied all figures by 12 to annualize them. These
per household costs exclude administrative fees.
[26] After adjusting for inflation, the average rental subsidy per
voucher household rose from $5,031 to $6,313, an increase of 25 percent
over this period. The average for 2004 ($6,313) in inflation-adjusted
dollars differs from the average in nominal dollars ($6,262) because
subsidies from the first three quarters of 2004 have been adjusted to
reflect inflation occurring prior to the last quarter.
[27] We estimated this amount by subtracting the increase in voucher
outlays due to (1) the change in the number of assisted households
($3,028 million) and (2) the change in administrative costs ($368
million) from the total increase in outlays ($6,966 million).
[28] After adjusting for inflation, the average subsidy per project-
based household fell from $6,038 to $5,990, a decrease of 1 percent.
[29] We estimated this amount by subtracting the increase in project-
based outlays due to (1) the change in the number of assisted units ($-
367 million) and (2) the change in administrative costs ($170 million)
from the total increase in outlays ($419 million).
[30] In a 2002 report, we estimated the costs of vouchers relative to
housing programs that were actively developing low-income housing at
the time. Since Section 8's project-based program no longer developed
new housing, it was not part of the scope of our report. Nonetheless,
we estimated that the average 30-year federal cost of the production
programs was from 16 percent to 43 percent more than the costs for
vouchers. See GAO, Federal Housing Assistance: Comparing the
Characteristics and Costs of Housing Programs, GAO-02-76 (Washington,
D.C.: Jan. 31, 2002). Other studies have also found that vouchers cost
less than other housing programs. For a listing of these studies, see
HUD, Targeting Rental Production Subsidies--Literature Review
(Washington, D.C.: December 2003).
[31] Public and Indian Housing Notice 2005-9.
[32] See 42 U.S.C. § 1437f(o)(10) and 24 C.F.R. 982.507(b).
[33] See S. 771 and H.R. 1999.
[34] The legislation would require HUD to establish a final funding
formula through a negotiated rulemaking process no later than 24 months
after enactment.
[35] If the reduced rents affected a property's financial viability,
HUD could restructure the mortgage and reduce the monthly mortgage
payment so that the adjusted rents cover project expenses, including
mortgage payments.
[36] U.S. Department of Housing and Urban Development, Performance and
Accountability Report for Fiscal Year 2005 (Washington, D.C.: Nov. 15,
2005).
[37] See appendix V for a detailed discussion of our model. All
estimates from the model are expressed in 2004 dollars.
[38] Our analysis covers the period from 1999 through 2004 because data
on certain variables used in our statistical model were not available
for 1998.
[39] FMRs are generally equal to the 40th percentile of the market
rents (including utilities) paid by recent movers for standard-quality
units. For those markets where the FMR is equal to the 50th percentile,
we adjusted these FMRs to the 40th percentile level. Our 2005 report
(GAO-05-342) found that the FMRs for fiscal year 2000 were generally
accurate when compared with 2000 census data. Specifically, the report
found that 88 percent of the 2000 FMRs (weighted by population) that
HUD estimated in 1999 were within 10 percent of the census figure.
About 7 percent (weighted by population) were lower than census rents
by at least 10 percent, and about 6 percent were greater by at least 10
percent.
[40] Even though we had data showing the actual amount HUD paid in
rental subsidy for each household, we estimated the amounts in order to
compare consistent values. Each estimated value contained an error term
that captured the effects of omitted variables unavailable for the
modeling process. By comparing two estimated values, we removed the
influence of the omitted variables from our comparison. Appendix V
provides additional information about our model.
[41] As a result of the weighting procedures used in our statistical
model and the differences in time periods, the growth in our baseline
estimate of the average subsidy per voucher household varies somewhat
from those cited earlier in this report.
[42] We calculated this amount by dividing the difference between the
two estimates in 2004 ($6,478-$5,800 = $678) by the growth in the
baseline estimate from 1999 through 2004 ($6,478-$5,225 = $1,253).
[43] We calculated this amount by dividing the difference between the
two estimates in 2004 ($6,478 - $6,169 = $309) by the growth in the
baseline estimate from 1999 through 2004 ($6,478 - $5,225 = $1,253).
[44] We calculated this amount by dividing the difference between the
two estimates in 2004 ($6,478 - $6,279 = $199) by the growth in the
baseline estimate from 1999 through 2004 ($6,478 - $5,225 = $1,253).
[45] We ran statistical models using different variables to measure
neighborhood quality. In the model cited above, we used a single
measure of neighborhood quality indicating whether the associated
census tract was designated by HUD as a qualified census tract, meaning
that at least 50 percent of households had incomes that were less than
60 percent of the AMI or there was a poverty rate of at least 25
percent. In a second model, we used a number of census variables
describing the socioeconomic and housing conditions of the associated
census tracts. Both models yielded similar results.
[46] We did not have access to individual addresses or other
identifying information.
[47] QCTs are census tracts in which at least 50 percent of households
have incomes at or below 60 percent of the area median income or which
have a poverty rate of at least 25 percent.
[48] Elderly households are those with a head of household or spouse
who is 62 years or older. Disabled households are those with a head of
household or spouse who is disabled but not elderly.
[49] We use the bedroom-specific FMR and do not use a further bedroom
size control. While for most housing market areas, the FMR is
calculated to represent the 40th percentile rent, for some areas in
some years, the FMR is calculated to represent the 50th percentile
rent. For those areas and years, HUD provided an estimate of the 40th
percentile FMR as well, and we use that measure for this purpose.
[50] Missing information on payment standards was applicable mainly to
households that received assistance under the certificate program, a
predecessor to the current voucher program (see app. III), because
payment standards were not used to compute HAP under the older program.
[51] More specifically, fair market rents are generally equal to the
40th percentile of the market rents (including utilities) paid by
recent movers for standard-quality units. However, in 39 localities,
the fair market rents are equal to the 50th percentile. In March 2005,
we reported on the accuracy of HUD's fair market rents. See GAO, Rental
Housing: HUD Can Improve Its Process for Estimating Fair Market Rents,
GAO-05-342 (Washington, D.C.: Mar. 31, 2005).
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