HUD Rental Assistance on an Unsustainable Path—What Can Be Done to Save It?

A "Race to the Top" proposal for HUD to help off-set the difficulties of delivering affordable housing in high-priced, high-mobility metros.

May 7, 2014, 6:00 AM PDT

By Shane Phillips @shanedphillips

Coit Tower

It costs HUD three times more to subsidize very low income residents' rent in San Francisco than it does in other, less expensive cities. / Emily Stanchfield

If you had $20 billion to spend on housing security for low income families, how would you use it? You'd probably want to get a lot of bang for your buck, subsidizing as much housing as you possibly could. You'd also probably be concerned with quality of place, wanting to subsidize housing in regions where residents are economically mobile and have the best shot of escaping poverty. The federal government already has such a program, as it turns out, but it doesn't seem to be particularly attentive to either of these metrics. If it were, it could make a big difference in encouraging development and restraining housing prices where it's needed most.

Every year the U.S. Department of Housing and Urban Development (HUD) spends about $19 billion on tenant-based rental assistance—more commonly known as Section 8—which subsidizes the rent for program participants, regardless of where they live. Demand for rental assistance vouchers is massive, wait lists are typically several years long (at least), and many cities simply aren't accepting any new applications due to federal cuts. Another $9 billion is spent on project-based rental assistance, which also subsidizes rent, but is tied to specific housing units and administered through contracts with property owners.

Tenant-based rental assistance, which I'll focus on in this post, is primarily reserved for households earning less than 50 percent of area median income (AMI). The residents are required to pay 30 percent of gross household income toward rent, and HUD, working through local public housing agencies, picks up the rest of the tab. This isn't a blank check: vouchers only cover units with rents at or below the HUD-determined "Fair Market Rent" (FMR). If recipients choose a more expensive unit, they pay the full difference between the FMR and the asking price. It's within this Fair Market Rent system that HUD has some leeway to reduce waste and exert a little influence.

Fair Market Rents, being determined by the local housing market, vary widely. FMR for a 2-bedroom unit is $887 in Dallas, TX, $629 in Danville, IL, and $1,795 in San Francisco, CA. That means you can get about twice as much housing per HUD dollar in Dallas than in San Francisco, and about three times more in Danville and numerous other cities (and probably considerably more square feet, too). Put another way, it means you can house two or three times more people in the cheaper parts of the country than in the more expensive areas, for the same amount of money. There are obvious financial benefits to living in places like San Francisco or Boston. But is it worth housing drastically fewer needy families?



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HUD Fair Market Rents in select cities.

If high-priced metro rents were just some inviolable law of nature, our current system of "pay the cost, no matter how high" might be an acceptable outcome. Lower-income people aren't particularly mobile, so it's probably not realistic to ask them to move from Los Angeles (2BR FMR: $1,421) to Minneapolis ($920) if they want help affording a place to live. But sky-high rents aren't a natural law; they're a product of the interplay between supply and demand. High-cost cities tend to espouse policies that limit supply by placing restrictions on height and density, turning over valuable urban space to parking and highways, and reserving vast swaths of cities for single-family-only development. But they don't have to. Relaxing these land-use controls means more affordable homes, and more affordable homes mean more efficient tenant-based rental assistance. It also means more people being able to live in the parts of the country with the highest economic mobility.

So how can HUD leverage its money more efficiently without completely abandoning the residents of high-cost, high-mobility metros like New York and Washington D.C.? One idea would be to adopt a Race to the Top-style program to encourage cities to adopt more growth-friendly policies. Race to the Top, despite it's one-time, relatively small $4 billion price tag, encouraged drastic statewide education reforms throughout the country. A similar program to promote growth and price stabilization where it's needed most could produce massive savings in the long run, not just for HUD but for renters and homeowners at all income levels. Affordable housing is an issue that affects everyone, not just the very-low-income.

Because HUD rental assistance money is all disbursed through local public housing agencies, the cities that house these PHAs could be incentivized to meet development targets relative to population growth—say, for example, one new housing unit for every two new residents. Several billion dollars could be set aside annually that would be allotted by "merit," measured by how closely cities match up housing production to population growth. The goal wouldn't be to mandate how cities achieved these goals, merely that they did, somehow. 

Certain accommodations could be made based on the unique characteristics of various cities. It might be reasonable to limit annual housing production goals to no more than 4 percent, for example, even if population grew at a higher rate. Goals might also be downsized in already-very-dense cities where space is limited and construction is inherently more expensive. The goal is to encourage more growth-friendly policies in general, not necessarily to simply punish growth-resistant cities—even a two-percent annual increase in housing would be a huge improvement in places like San Francisco.

As high-cost, anti-development cities like San Francisco dig themselves deeper and deeper into a hole, we have to ask what can be done to stanch the bleeding. What can we do, right now, to help fix the problem before aid to these cities becomes entirely unaffordable and ineffective? I'm far from certain that my idea is the best solution, but it seems clear to me that our current course is unsustainable. I invite readers to provide their own ideas, criticisms, or suggestions that might improve the above proposal.

Shane Phillips

Shane Phillips is a student at the University of Southern California working on a Masters program in Public Administration and Urban Planning.

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