Affordable Housing Tech & Data Series, Part 2
Market rents have rebounded but subsidized housing rents are lagging; why this matters for tenants, landlords, policy
By Riddhima Mishra, Nitya Raviprakash, & Sara Nadel
Learning Collider recently collaborated with our partner AffordableHousing.com to learn about the unusually high level of housing instability their users reported in our survey conducted in late 2021.
AffordableHousing.com, formerly GoSection8.com, specializes in supporting recipients of Section 8 Housing Choice Vouchers (HCVs). Roughly two-thirds of the platform’s tenant users are voucher holders. A majority of the landlord users accept HCVs.
In February 2022, Learning Collider and AffordableHousing.com surveyed landlord users to learn more about how increasing rent prices might affect their willingness to rent units to voucher holders. We presented findings at a regular White House roundtable on housing. Among our key points was demonstrating that private-market rents are increasing far above approved voucher rents, leaving voucher holders facing heightened housing instability throughout 2022.
How Section 8 HCVs Work
HCVs are managed by local Public Housing Authorities (PHAs). Exact processes and rules vary by state and by PHA but, generally, voucher holders find their own housing that meets PHA approval — on pricing, safety, and other specs.
At the federal level, HUD regularly updates its Fair Market Rents (FMR) database, breaking down the “cost to rent a moderately priced dwelling unit in the local housing market.” PHAs use this data to determine what they will pay for a unit: typically between 90% to 110% FMRs. Voucher holders pay 30–40% of their income on rent, with the government paying the rest directly to the landlord.
FMRs, and thus PHA payment standards, frequently lag behind actual market rates. It’s long been assumed that this price lag hasn’t mattered. The assumption is that landlords readily participate in the Section 8 program because a portion of the rent is guaranteed.
Voucher holders may lease an approved unit at a price slightly above the PHA’s payment standard; they can pay the price difference out of pocket. However, it’s more common that landlords accept the PHA payment standard (lower than actual market rates) in order to accommodate the voucher holder. They’ll trade-off less money in exchange for reliable government payments.
Landlords HCV participation will likely decline in 2022
The February 2022 survey found that the difference between PHA-approved rents and typical market rents in comparable units increased more than two-fold since early 2020. Landlords would have to take a much steeper rent cut to accommodate voucher holders in the 2022 lease-up cycle than they did two years ago.
Nationally, the typical rent differential was $225 at the start of the coronavirus pandemic. Throughout 2020, rents stayed flat or declined, but they began increasing dramatically in 2021. Meanwhile, HCV rental-price guidelines rose much more slowly.
In the figure below, we compared actual market rents in Q1 2022 against approved voucher rents set the prior year, when leases were initiated. When rents came up for renewal in 2021 in Miami-Dade county, a typical Section 8 landlord was accepting $740 less than market rent to accommodate voucher holders. A year later, that landlord would have to accept a whopping $1400 below actual market rent.
To understand how big a problem this is for existing HCV tenants, we surveyed 2,100 landlords who list their units on the AffordableHousing.com website. The goal was to understand whether to expect a drop in landlord engagement as market-rental prices increased:
To what extent can we rely on the landlord preference for government payments to keep low-income families housed?
The survey presented hypothetical rental applications and asked landlords to state whether they would choose a voucher-holding applicant over a market-rent applicant with different risk levels and rental-price differentials. The survey presented a range of price differentials between $100/month and $500/month to understand how Section 8 participation may change as the differences between voucher rents and market prices widens.
A full 35% of responding landlords will accept a $100/month decrease in rent to accommodate a voucher holder, even if the alternative is a low-risk tenant with a good credit score and positive rent-payment history. By contrast, only 13% of responding landlords would accept that voucher holder over the same tenant if it required dropping the rent by $500/month. Similar trends are shown for market-rate tenants with riskier profiles.
At a linear supply curve, any increase in market rent by $100/month over the HCV-approved rent will decrease landlord participation by about 5 percentage points. The $250/month national increase in market rent could decrease landlord involvement by 12.5 percentage points.
Although policymakers generally know when rents are rising quickly, they don’t have reliable information to predict how landlords might react. With the type of real-time analysis Learning Collider was able to provide in partnership with AffordableHousing.com, policymakers at HUD and elsewhere were alerted to this problem, and are now able to address it.
Learning Collider is accelerating equity and economic mobility through social science research and scalable, tech innovations in the areas of Education, Workforce, and Housing. Follow us here on Medium where we share research and data insights and amplify the voices of our team & partners.
