By, THELAW.TV
Winners and losers of government rental assistance
The federal government helps low-income families in need of
housing by way of a program named Section 8, which issues rental vouchers for
qualifying recipients. The vouchers can be used to pay rent on any property
that accepts Section 8 renters.
Many factors determine what a monthly stipend rate will be,
but household income and headcount are the primary factors.
In
general, to qualify for Section 8, the family's income may not exceed 50
percent of the median income for the county or metropolitan area in which the
family chooses to live. Public housing agencies, or PHAs, collect information
on income, assets and family composition.
Like
many well-meaning programs, Section 8 comes with unintended consequences. Here
are the winners and losers of the Section 8 program.
Winners
Winners: Real estate investors
It's understood that landlords
want tenants who pay at-market rent on time and in full each month. And finding
renters who won't destroy property is icing on the cake.
Section 8 is serving up such
renters to real estate investors.
Backed with generous government
housing vouchers, Section 8 renters are cash cows for their landlords.
And Section 8's ample waiting list
means that recipients who aren't playing by the rules and doing the bare
minimum required for maintaining property can be replaced by other recipients
who will comply.
"If property is destroyed, the
landlord can go to Section 8 and report that tenants are breaching the contract,"
says Brian Korte, P.A., Partner at The Law Offices of Korte
&Wortman, a foreclosure defense law firm in West Palm Beach, Fla.
Section 8 will come in for
remediation, and tenants would have a set time to comply, and if they didn't,
Section 8 could put another renter in. Real estate investors have much more recourse
with Section 8 renters than they would with regular renters, where they'd have market
their properties on their own.
"Why is every house being gobbled
up and rented out by investors with ridiculous rents? Because they can hand
them to the Section 8 tenants," says Korte.
Winners: Section 8 renters
The design of Section 8 is to
provide extremely low-income families with decent, safe and sanitary housing in
the private market.
But a handful of Section 8 renters
are getting all that and then some.
Cash investors are buying up
luxury bank-owned properties and flipping them into Section 8 rentals for the
guaranteed, at- or above-market rent checks issued by the government.
It's a boon to Section 8 renters
who find themselves with amenities many working, middle-class Americans can't
afford, such as granite countertops, pools and community racquetball courts and
fitness centers.
What's more for Section 8 renters
with a housing stipend, there are no lifetime limits on the benefits.
"As long as you qualify, you
qualify," says Korte.
There are annual checks on
recipients to ensure they still meet eligibility requirements as set forth by
the program, and recipients are required to report changes such as a child
moving out or an increase in income. Rental reimbursements would decline if
headcount declines or income increases.
Losers
Losers: Regular renters
According to Korte, Section 8
rentals play a role in driving up prices in the rental market. Section 8 vouchers
are not below market value. They pay market rates, and sometimes offer even
more than rental asking prices. This puts upward pressure on rents.
"If you look at a two-bedroom,
two-bath Section 8 rental reimbursement, it's about $1,700 in Palm Beach County,"
says Korte. "That's more than the advertised price for some luxury apartment
complexes in the area."
Regular renters who pay out of
pocket for their place are getting priced out of the rental market, and Section
8 works to their disadvantage.
"The program's desire to be at the
equal playing field of all rentals creates a self-fulfilling prophecy of what
rent is," says Korte. "It's going to continuously move up."
Losers: Section 8 applicants on a waiting list
Section
8 has a finite budget. According to the 2013
proposed budget published by the U.S. Department
of Housing and Urban Development, or HUD, $19.1 billion is slated for
tenant-based rental assistance.
"This is not an entitlement program
with an unlimited budget," says Korte. "Once the money runs out, it's out."
Also included in HUD's proposed budget
is a clause that families currently receiving rental assistance will see no
reduction in payments.
The program could get more "bang for
the buck" and help more people by paying lower rental reimbursements.
Losers:
Neighbors of Section 8
tenants
Section 8 rentals have a direct impact
on their surrounding communities.
"You're seeing destruction of the
underlying neighborhood because you've got rental communities in areas where
they shouldn't be," says Korte.
In general, the average homeowner
has an emotional and financial stake in their home. But the typical investor
who buys and rents out homes in bulk doesn't care as deeply about the
properties.
The incentive for Section 8
landlords isn't to keep the home in mint condition, but to simply extract as
much cash out of a house as possible.
"It's destroying property values,"
says Korte. "Owners of Section 8 housing rentals are doing the minimal amount
of maintenance required."
Homeowners who see their property
values decline due in part to Section 8 housing rentals are helpless for the
most part. It is illegal to discriminate against Section 8. Neighborhoods can
avoid government-subsidized rentals in their community by banning all rentals.
Losers:
First-time homebuyers
"Section 8 has created its own
industry for acquiring foreclosed homes just to rent out to Section 8 tenants,"
says Korte. "Investors can get way above-market rents from them."
The program creates market
conditions that draw in cash investors in droves, much to the detriment of
typical first-time homebuyers.
Because there are no contingencies
at closing, cash buyers have the upper hand when it comes to snatching up short
sales or bank-owned properties. Non-cash buyers have to go through the rigmarole
of financing, and even with a higher bid, their offers are often rejected in
favor of the cash deal.
"We're seeing buyers get
frustrated," says Korte. "The bank-owned home is now owned by an investor who
will rent it to those same people who were bidding on the house."
Korte says that if Section 8 had
more cost controls in terms of rental vouchers, the program could have more
people in need receiving benefits, and perhaps cash investors would be less
incentivized to snatch up distressed properties, creating room in the real
estate market for everyday buyers who require financing.
