PAYING THE RENT:

An evaluation of the Section 8 Existing
Housing Program in New York City

A CHPC Research Report

October, 1997

Chapter III: The Housing

The adequacy of any housing assistance program is ultimately dependent on the quality of the housing it provides to its targeted group of beneficiaries. Its adequacy can be measured not only in terms of the physical condition and amenities of the housing but also by the level of rents that must be paid by tenants and by the quality of the neighborhood environment residents can expect. The program's effectiveness at promoting broader social goals, such as the stimulation of new housing production, the preservation of existing housing, its contribution to community redevelopment efforts, and its furtherance of fair housing goals are also considerations.

The Section 8 Existing Housing program has been attacked and promoted on all of these grounds. Two of the most persistent criticisms are that it does not provide adequate housing to residents, either because the housing isn't available or because the subsidies are too low, and that it doesn't stimulate additions to the housing supply. Promoters of the program often tout its potential to promote racial and economic integration. An objective review of the program's operation in New York City during the past twenty years, however, suggests that its shortcomings are not as serious as its detractors fear or its successes as dramatic as its most ardent supporters would hope.

Housing Quality and Rents

Since the private market can provide housing of virtually any quality for which there exists effective demand, the quality provided through the Section 8 Existing Housing program is ultimately a function of the subsidized rent levels available through it. From the inception of the program, skeptics have voiced concern that the rent levels permitted would not be sufficient for tenants to secure apartments of adequate quality. It is no surprise, then, that the rent-setting process has been one of the most hotly contested issues of the program.

In the Section 8 certificate program, families may rent apartments at prices up to the Fair Market Rent level. [1] The FMR is determined annually by HUD through a variety of surveys, including a direct dialing telephone survey of recent movers within each PHA's market area. [2] Originally, it was set at the median (50th percentile) of rents for apartments of various sizes. In an effort

Source: Department of Housing & Urban Development

to diminish the cost of the program to the federal government, the FMR was reduced to the 45th percentile in 1987 and to the 40th percentile in 1996. Despite the reductions in its statutory base, the FMR for a two-bedroom apartment in New York City, now $817 per month, has increased at a 6.3 percent annual rate since 1976. This rate of increase exceeds that for the median apartment rent in the city as well as the legally permissible rate of rent stabilization increases over the same period.

The major innovation of the Section 8 voucher program was to permit participants to lease apartments at rents above the payment standard [3] providing they were willing to pay the difference out of their own incomes. If they pay less than the payment standard, they receive a reduction in their out-of-pocket contribution equal to the difference. There are no limitations on the percentage of voucher families who may pay rents in excess of the payment standard. This provision was promoted as a means of giving participants a greater latitude in housing and neighborhood choice, but some saw it as a deliberate erosion of the 30 percent of income standard for tenant out-of-pocket contributions.

Source: New York City Housing Authority

As of 1996 rents paid by all households in NYCHA's Section 8 program were substantially below the FMR maximums. The amount by which the FMRs exceeded the rent actually paid ranged from a high of $291 per month for tenants in four-bedroom apartments to $192 for those in two-bedroom apartments. Those rent figures are for the Section 8 population as a whole, however, and exaggerate the generosity of the FMR. Over two-thirds of Section 8 tenants live in rent-stabilized or controlled buildings or in housing where the rents are set by some other regulatory process. The rents may have borne a much closer resemblance to the FMR when the apartments were initially rented but fell below as FMR increases outpaced the increases permitted by state or local regulatory authorities.

Some insight into the rents paid by new Section 8 households can be derived from tabulations made by the Department of City Planning (DCP) and from Housing Authority and HPD records. According to DCP's tabulations, new Section 8 certificate renters paid an average of $181.50 per room per month between October 1994 and September 1995, which works out to an average of about $817 for a four and one-half room, two bedroom apartment. This rent is almost precisely the FMR for a unit of that size. The average rent of new Section 8 voucher renters was $148.72 per room, or about $669 per month for a two bedroom apartment. The 1995 voucher rents were skewed downward because over 90 percent of voucher renters that year were movers--homeless families. In the previous year, the rents paid by certificate and voucher holders were nearly identical.

It is usually assumed that in place certificate and voucher users pay lower rents than those who move into new apartments because the city's rent regulations keep the rents of continuously inhabited apartments low. A sample of rents paid by in place and mover Section 8 certificate users for 1995 shows that to be no longer true, if it ever was. For instance in the Bronx

Source: CHPC & NYC Department of City Planning

in place certificate users paid an average of $191 per room per month, compared to $177 per room for movers. In Queens, the figures were $190 and $184, respectively. For voucher users, the gap was even wider. This inversion of the conventional pattern is probably related to changes that have occurred in the tenant pool served by the program. The vast majority of Section 8 participants who use their certificates or vouchers to "move" are now homeless families; they are less likely to be accepted into desirable buildings and cannot afford, under the voucher program, to pay more than 30 percent of their incomes for rent. The 40 percent of income rent burden preference, meanwhile, probably skews the Section 8 pool toward low-income, working families who pay relatively high rents and who tend to use the subsidies to lower their rent burden in place.

Since federal regulations require the issuing PHA to inspect each apartment a Section 8 tenant wishes to rent before a lease is signed, and to inspect them at least annually thereafter, all apartments in the program by definition meet federal Housing Quality Standards. Concern has sometimes been expressed that PHA's, in an effort to raise success rates, can be lax in applying the HQS. It is difficult to compare the relative effectiveness of housing programs if that argument is accepted, however, since public agencies could have analogous incentives for laxity in enforcing maintenance standards in other forms of assisted housing as well. [4]

According to the 1994 HUD New York City sample cited in Chapter I, about 22 percent of the unsuccessful participants reported that no landlords they approached agreed to an inspection (it is likely that many of those landlords knew that the unit did not meet HQS). Only 1 percent reported that all the apartments they looked at failed to pass inspection, but over 20 percent complained that no inspection had been performed. It is possible, however, that many respondents confused the outcome of those inspections. About one-third of the apartments inspected by in-place users required repairs before they were approved, and most landlords were willing to make them. In general, the results are roughly consistent with the incidence of substandard housing in New York City.

The Section 8 FMR rent levels in New York City are ultimately a delicate policy matter. Rent limits set too high could reduce the incentive for certificate and voucher holders to search thoroughly, causing the program to be more expensive than it needs to be. If they are set too low, holders could be forced to concentrate in marginal housing in poverty impacted neighborhoods. Moreover, there is an equity constraint: the program should not subsidize beneficiaries to such an extent that they are able to inhabit better housing than those whose incomes make them ineligible for the program. At a 30 percent rent/income ratio, the current FMR for a two bedroom apartment is equivalent to the rent affordable to an unsubsidized family of four earning 75 to 80 percent of the area median income. Program rents much higher would put ineligible, moderate-income households at a disadvantage in the marketplace, undermining the incentives for economic self-sufficiency and potentially causing resentment among the unassisted population.

Apartment Sizes and Housing Types

The average size of apartment rented through the Section 8 program has gradually increased along with the size of the typical participating family. From 1985 through 1995 the average size of families renting apartments through NYCHA's Section 8 program increased from 2.07 members to 2.79 members. During this time the total number of leased apartments that contained two or more bedrooms increased from 42.5 percent to 54.6 percent. Apartments containing two or more bedrooms accounted for almost three-quarters of all additional units leased in the past two years. [5]

The growing size of families assisted through the program and the increasing size of the apartments they inhabit [6] is primarily a function of federal income targets and preference criteria. Homeless families in the city's shelter system usually consist of a mother and one or two children, and average about 2.9 members. Other very low-income families with extremely high rent burdens also tend to be comprised of single women with children. Elderly households, which typically have only one or two members, are not a preference category.

Close to 90 percent of NYCHA Section 8 tenants live in private, unassisted housing and over 60 percent live in buildings covered by the city's rent stabilization or rent control laws. Federal law prohibits the use of tenant-based vouchers in public and most other types of federally assisted housing, but neither federal nor state law prohibits their use in housing that is assisted through state or local programs or that is subject to local rent controls. The vast majority of HPD's Section 8 tenants are also covered by rent stabilization, as most of the city's housing rehabilitation programs impose that control.

Many studies of tenant-based rent subsidies over the years have hypothesized or confirmed the existence of a Section 8 "submarket," a particular group of landlords or developments that accept participating tenants while most other property owners do not. [7] In New York City this submarket was supposedly comprised of sophisticated owners of state- or city-assisted housing, such as Mitchell-Lama projects, or of large scale owners of low-income housing who could develop an expertise in dealing with the program's regulations.

If a distinct Section 8 submarket ever existed in New York City, recent experience suggests that it is becoming far less restrictive. Although the total number of landlords renting to Section 8 tenants and the number of new landlords entering the program had been building slowly but steadily through 1988, landlord participation has expanded dramatically since. Between 1983 and 1988 the total number of landlords participating in the program increased by 1,121. Since 1988, the number has increased by 13,719 and now exceeds 25,000.

The dramatic increase in the number of city landlords participating in the program is reflected in an equally dramatic change in the type of housing rented by Section 8 tenants. Between 1985 and 1995 the proportion of NYCHA's Section 8 tenants who lived in one- to five-family houses rose from only 9 percent to 25 percent. Since 1993 nearly half of the increase in NYCHA's Section 8 rentals have been in one- to five-family houses.

There are probably several related reasons for this dramatic change in Section 8 participant access to housing. The EARP/Section 8 program provides significant financial incentives to all owners, but they may be particularly meaningful to small property owners. Most apartments in buildings under six units are not rent regulated, so rents in small buildings can approach the FMR. [8] Moreover, most of those rent payments are guaranteed by NYCHA or HPD, thus mitigating the collection problems that commonly plague small owners in low-income areas. The increased outreach to landlords associated with the EARP program, as well as the direct placement efforts of Department of Homeless Services and non-profit Tier II shelter personnel, have also played an important part.

Escalating market rents during the past decade may also have contributed to higher rent burdens among working, low-income families already living in small buildings or two- and three-family houses. Therefore, more such families may be qualifying for Section 8 under the 50 percent of income preference and using the subsidies in place. The change in the housing types accessible to Section 8 renters, at any rate, does not appear to be related to a change in the types of neighborhoods movers with certificates or vouchers find accessible.

Residence Patterns of Section 8 Renters

The concentration of poor and minority households into segregated ghettos has been one of the most pernicious byproducts of project-based federal housing programs. Social scientists have gathered a mounting body of evidence that undue concentrations of poor families into isolated, homogeneous communities reduces their opportunities for social mobility and intensifies social problems. [9] Efforts to disperse public and other subsidized housing have met with intense political resistance and minimal success. Consequently, fair housing activists and poverty researchers have long supported tenant-based housing assistance as a means of dispersing poor and minority households into the broader population without creating focal points for opposition.

Unfortunately, there has been little evidence to date that the Section 8 Existing Housing program has contributed much to the deconcentration of inner-city poverty. Most studies have found that there is little movement of low-income, minority Section 8 renters from the neighborhoods in which they previously lived. [10] Racial discrimination, inadequate fair market rents, and a well-defined Section 8 submarket, as well as renters' attachments to their existing neighborhoods, have been cited as reasons.

Historically, the residence pattern of Section 8 renters in New York City has conformed to the experience elsewhere. Through 1985, black Section 8 tenants in the city were actually more concentrated into a handful of neighborhoods than were black low-income families generally. Nearly 65 percent of black Section 8 tenants were located in just ten of the city's 59 community board districts. Hispanic Section 8 tenants were even more concentrated in ten community boards, although those neighborhoods were somewhat less poverty impacted.

Despite the dramatic change in the number and type of buildings in which Section 8 renters can be found, there has been virtually no dispersion of tenants into new neighborhoods associated with it. Although attachment to neighborhoods and ethnicity appears to play a part in militating against dispersion, the evidence strongly suggests that FMR levels do not facilitate the migration of poor Section 8 households out of poor neighborhoods.

In the Bronx, for example, 2,359 families used Section 8 certificates or vouchers to move to new apartments between October of 1993 and September of 1995. [11] About 75 percent of these movers were homeless families relocated from Tier II shelters through the EARP/Section 8 program. About 32 percent of the movers located into Community Boards 5 through 7, compared to 56 percent of all Section 8 movers in the Bronx from

Source: CHPC & Department of City Planning

1976 through 1985. However, the proportion locating in Community Boards 1 through 4 rose from 18 percent between 1976 and 1985 to 54 percent between 1994 and 1995. Those communities are among the poorest in the city, and the increase is probably attributable both to the low rents and the substantial housing rehabilitation activity sponsored by the city in recent years.

Only 14 percent of the movers settled in Community Boards 8 through 12, which are predominantly middle-income, low-density areas of the Bronx. Through 1985 nearly 45 percent of Bronx Section 8 movers had found apartments within those community boards. The proportion fell even within mostly black and Hispanic middle-income sections, such as Community Boards 9 and 12, indicating that rent levels, rather than racial or ethnic bias, were the principal barrier.

A similar pattern is evident in Queens, although the residence pattern of Section 8 movers is somewhat blurred by the borough's rapidly transforming ethnic mix. In Community Board 11, however, a primarily white, Asian and affluent section of the borough, only two Section 8 movers rented apartments between October 1993 and September 1995. During the same period only nine Section 8 movers found apartments in Community Board 13, which encompasses a number of predominantly black, middle-income neighborhoods. These patterns again indicate that the FMR level is not sufficient for allowing certificate and voucher holders to obtain housing in

Source: CHPC & Department of City Planning

those neighborhoods (which is not to suggest that racial or class bias would not be a barrier if FMR levels were higher).

To the degree that Section 8 is ineffective in deconcentrating inner-city poverty, its usefulness as a housing preservation tool may be enhanced. The inability of tenants to pay the rents required to maintain apartments in good repair is the fundamental cause of low-income housing disinvestment and abandonment. If tenant-based rent subsidies allow a substantial share of residents in low-income neighborhoods to pay economic rents, the financial condition of the private low-income housing stock may be enhanced.

Unfortunately, up to date information on the location of Section 8 tenants in New York City is unavailable on a community board or census tract basis. The Housing Authority, however, has provided a count of all NYCHA Section 8 tenants by zip code. In zip code 10033, in Central Harlem, there were 1,010 NYCHA Section 8 renters, representing about 7 percent of all households residing in private rental housing within the tract. More than 40 percent of residents living in census tracts comprising the zip code have incomes that place them below the poverty line, and as of 1990, the average rent/income burden was approximately 45 percent. In tracts such as this, Section 8 rent subsidies may provide an important support for the cash flow of housing operators and hence help to stave off disinvestment and abandonment.

Even larger percentages of renters receive NYCHA Section 8 certificates in certain zip codes in Brooklyn and the Bronx. In zip code 10453 in the Bronx, for example, 2,561 renters or 13 percent of all renters receive rent subsidies from the Housing Authority. In Brooklyn zip code 11235, 2,081 renters, or approximately 10 percent of the total, receive them. The stabilizing effect of these rent subsidies is in addition to that contributed by HPD's Section 8 program, which is more explicitly preservation oriented. As previously mentioned, HPD-issued certificates and vouchers are often used to cushion the rent increases for low-income tenants resulting from publicly subsidized rehabilitation of private buildings. These rehabilitations are widely considered to be a crucial ingredient of the city's neighborhood preservation effort.

Even in low-income communities of the city, however, it is rare for more than a small percentage of tenants in private housing to be assisted with Section 8 certificates or vouchers. There are approximately 650,000 families in the city eligible for Section 8 assistance, but less than 100,000 receive rent subsidies. While Section 8 could be an important factor in stabilizing the private housing stock in high-poverty neighborhoods, it is clear that its full potential has been far from realized.

Tenant Mobility and Moving To Opportunity

Resident mobility out of inner-city neighborhoods has never been an explicit goal of the Section 8 program. Federal regulations governing the program are geared toward preventing public housing authorities from "steering" Section 8 tenants to particular location choices. Other terms of the program, however, may reinforce the tendency of Section 8 renters, like other renters, to remain in neighborhoods with which they are already familiar. The program, for example, does not provide payments for brokers' fees, security deposits, or moving expenses, so long-distance moves, particularly to suburban locations where rents are high and other fees may be common, are inhibited.

Until 1992 Section 8 rent certificates were valid only within the jurisdiction of the issuing PHA or within contiguous metropolitan statistical areas. Since their introduction in 1983, however, Section 8 vouchers were portable anywhere within the United States. Consequently, what little intra- or inter-state mobility occurred was mostly among holders of vouchers. In 1993 certificates were also made nationally portable.

Through 1992 only about .5 percent of Section 8 certificates and vouchers issued by NYCHA were used by the recipients to move outside the boundaries of New York City. Given the constraints of the certificate program and their proximity to the city, it is not surprising that over three-quarters of out-of-city Section 8 movers relocated in New Jersey, Connecticut or other parts of New York State. Since the portability rules were liberalized, however, there has been a somewhat startling increase in the number of certificate and voucher holders who use them to make long-distance moves. In the past several years, the number using NYCHA-issued certificates or vouchers in Florida has increased from 23 to 116 and in North Carolina from 4 to 65. There have been no thorough studies of long-distance Section 8 movers conducted by HUD or independent social scientists, but an informal analysis done by NYCHA indicates that there have been no dramatic changes in the employment status or incomes of those who used its certificates or vouchers to make long-distance moves.

During the late 1980s research on participants in Chicago's Gautreaux program, conducted by James E. Rosenbaum of Northeastern University, rekindled interest in the potential mobility benefits of tenant-based rent subsidies. The Gautreaux program was initiated as part of the resolution of a fair housing suit against the Chicago Housing Authority and involves a coordinated effort to relocate minority public housing residents to predominantly white sections of Chicago and its surrounding suburbs. Families relocated are provided with Section 8 rent subsidies and are given intensive mobility counseling and assistance through several fair housing organizations in the Chicago area. Rosenbaum found a significant decrease in welfare dependency among a sample of relocated families as well as improved educational achievement among their children.

Rosenbaum's intriguing findings prompted Congress to establish the Moving to Opportunity (MTO) demonstration program in 1992. Emphasizing poverty deconcentration rather than racial desegregation, the MTO program received an appropriation of $20 million in Section 8 rental assistance for 1992 and $50 million for 1993. Additional funds were provided for non-profit organizations who would provide intensive mobility counseling to participating families. Eligibility was limited to very low-income families with children under 18 residing in public or Section 8 project-based housing in neighborhoods where at least 40 percent of households were poor; the families were required to relocate in neighborhoods where no more than 10 percent of families were poor. Sixteen of the 21 eligible large cities applied for MTO funding, and New York City was one of the five to be selected.

New York's MTO program was administered by NYCHA with the Northern Manhattan Improvement Corporation as the non-profit providing mobility counseling and relocation services. NYCHA targeted 33 housing projects containing 14,850 potentially eligible households for initial participation in the program, and outreach efforts began in August 1994. By the end of 1996, 1,489 families had applied for the program. Of those, 361 families were issued certificates or vouchers; 224 were randomly assigned to an "Experimental Group" and 137 to a "Comparison" or control group. [12] The Experimental Group produced 64 rentals (a 29 percent success rate) and the Comparison group 26 rentals (19 percent).

The relatively high quality of public and assisted housing in the city may have contributed to the lack of interest in the program. NYCHA also reports that many families hesitated because federal regulations prohibited the agency from giving participants priority for public housing units if they were uncomfortable in their new communities and sought to return. Consistent with the experience in other cities, fear of crime was a major impetus for those who enrolled; 48 percent of NYCHA's applicants reported being crime victims in the prior six months, compared to 6 percent of all public housing residents.

The MTO program provoked vehement racial and class antagonisms in one participating city, Baltimore. Perhaps because of its proximity to the Capitol and location within the district of an influential member of the Housing subcommittee, Congress terminated the program in 1996.

To Last Chapter

Chapter 1: The Program | Chapter 2: The Tenants | Chapter 3: The Housing | Epilogue

Disclaimer: The New York City Rent Guidelines Board has converted this CHPC report to an electronic format and posted it on its web site. We do so to inform the public and the housing community, and further the debate on rent-subsidized housing. The Rent Guidelines Board did not participate in this study and does not necessarily agree with the findings of this report. The report is solely a production of the Citizen's Housing and Planning Council.

Found this page through a search engine? Click Here to see all of Housing NYC: Rents Markets & Trends

Notes:

1. Rents are permitted to exceed the FMR if the tenant is willing to pay the excess. The law limits the percentage to which exception can apply to 10 percent of a PHA's incremental units.

2. The market area for which New York City's FMR is calculated includes the city as well as Rockland, and Putnam counties, which probably has the effect of raising the level over what it would be if only the five boroughs were included.

3. PHA's are authorized to establish their own payment standards, which may not be less than 80 percent of the FMR. NYCHA maintained the payment standard at the same level as the FMR until 1993; it has subsequently been set somewhat below the FMR.

4. HUD regulations allow PHAs to discontinue payments to landlords for noncompliance with quality standards and permit the family to move to a unit that meets them. In addition, Section 8 units in New York City are covered by the state and city housing maintenance code and tenants can avail themselves of the enforcement mechanisms associated with it.

5. PHAs had limited flexibility to adjust or to accommodate a changing size mix. For certificate allocations, federal funding was provided in dollar amounts with limitations on the range of units a PHA may assist with it. Voucher allocations did not have such limits and so were more flexible. Beginning in 1993 HUD began providing certificate allocations, as well as voucher allocations, in dollar terms only.

6. Section 8 certificates are issued for an apartment of a size appropriate to the particular family. PHAs are permitted to set their own occupancy standards, but they must be consistent with the Space and Security standards of the HQS. Those criteria require that the dwelling unit contain at least one bedroom or living/sleeping room for each two persons. Persons of opposite sex, other than husband and wife or very young children, are not required to share the same bedroom. A family may rent an apartment larger than what is stated on the certificate if the rent is no higher than the FMR for an apartment of appropriate size.

7. This submarket was reinforced by a federal requirement known as the "take-one, take-all rule." This regulation prohibited property owners from refusing to rent to a Section 8 applicant without good cause, if they had previously leased to other holders of certificates or vouchers. This was believed to inhibit many landlords from leasing apartments to any Section 8 tenants for fear that they would experience legal problems if they screened out any future Section 8 applicants and because they could lose the ability to manage their tenant mix. The take-one, take-all rule was suspended in 1996 and would be repealed permanently under federal housing legislation pending at the time of this writing.

8. The FMRs, along with their annual inflation adjustments, thus perform a rent-regulating function in this housing stock.

9. Early formulations of the concentration theory can be found in the works of E. Franklin Frazier and Kenneth Clark. The most influential contemporary articulation of the poverty concentration theory was made by William Julius Wilson in The Truly Disadvantaged. Important empirical work supporting the theory has been done by Jonathan Crane and Susan E. Mayer, among others. The most comprehensive contemporary study of the deleterious effects of racial segregation has been written by James Massey and Nancy E. Denton.

10. The most notable exception is the Gautreaux program, which was implemented as part of a settlement of a racial discrimination suit against the city of Chicago. The effects of this program, which utilizes Section 8 subsidies to relocate public housing tenants into racially and economically diverse communities, has been studied extensively by James E. Rosenbaum.

11. Data used in the following analysis were compiled by CHPC from census track tabulations supplied by the Department of City Planning, and include both certificates and vouchers issued by NYCHA and HPD. The data are for federal fiscal years, however, and so are not directly comparable to other figures presented throughout this report.

12. In keeping with the demonstration purpose of the program, MTO applicants who have been certified as eligible are randomly assigned to one of three groups: (1) An Experimental Group, where members must use their Section 8 certificates or vouchers to move to a low-poverty census tract; (2) A Comparison Group, free to use certificates or vouchers to move to any neighborhood; (3) A Stationary Group, where Section 8 assistance is not available and moving is not required.

.