A Fix For Section 8

Section 8's current model fails low-income renters and landlords alike. Here's how to fix it.
By Scott Beyer | Jul 13, 2020 |
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By Scott Beyer | Jul 13, 2020 |
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Image Credit: Jim Henderson, Wikimedia Commons

[This article was originally published by the Independent Institute.]

When it comes to government welfare programs, cash assistance is often considered the best model. Pro-market people on the right and center-left view it as a way to reduce government bureaucracy and get money to the actual people who need it. There are questions about this entire approach—and Universal Basic Income is the most contested application of the model—but vouchers for housing, food, transport or medical care are more incremental.

This is the idea behind Section 8. The HUD program sends Housing Choice Vouchers to local Public Housing Agencies (PHA), which give them to families to shop the private rental market. Voucher recipients, which exceed 2.2 million households, are often low-income, elderly or disabled, and the vouchers supplement their income to pay the rent.

The program has long received bipartisan support. It seems like a better alternative than having the government build and manage units, which has created disastrous public housing projects; or subsidizing private developers through tax credit programs, which have been riddled with misappropriation and fraud. Vouchers give people consumer choice (since they’re not being tied to specific projects); prevent ghettoization of the poor; cut out the government middleman; and incentivize landlords to provide good housing.

At least that’s what Section 8 is supposed to do. But it hasn’t always worked that way.

The common complaint is that Section 8 doesn’t let people rent good housing in good neighborhoods, because many landlords don’t accept them. Instead tenants are steered back to remote, crime-ridden areas, or can’t find housing at all. An Urban Institute study found that landlords in one U.S. city rejected voucher-holding applicants at a 78% rate.

There are a couple reasons for this. One is that landlords don’t want the risk of accepting Section 8 tenants. Landlords already have enough trouble finding tenants who don’t trash their place and disrupt neighbors. They might expect this behavior even more from someone using government assistance.

There’s a growing call in cities to outlaw landlords from discriminating against voucher holders. But that would infringe on their property rights and freedom of association, and likely be self-defeating, since landlords might respond by removing their units from the rental market and converting them to condos. A better strategy is liberalizing the market to spur more home production. This would shift the competitive pressure from tenants onto landlords, making them less likely to reject tenants who apply for their housing.

The second reason landlords avoid Section 8 is due to how it’s administered. RealWealth Network, a personal finance website, published an investment guide to educate property owners on the pros and cons of renting units through Section 8. They listed over twice as many cons as pros, many of which concern regulations that exceed what’s found in the private sector. This includes excess paperwork; duplicative inspections; tougher eviction processes; longer leases; and continual oversight from PHAs.

Worst of all is that Section 8 thrives on good old-fashioned price controls. Landlords who rent units must charge Fair Market Rents, which is the gross allowable rent HUD sets based on prices for similar units in the metro area. HUD often low-balls the figure, making Section 8 a forbidding arrangement for landlords to lock themselves into. Writes RealWealth:

“If HUD says that the FMR in your county/community for a 2-bedroom is $900 dollars, you will be asked to keep your rental rates at $900 or less. Therefore, if you are a landlord with a property in a higher-rent neighborhood wanting to receive market value, it may be near impossible to find renters of Section 8.”

Section 8 thus mirrors other government policies – especially those coming from federal level. Even if it seems theoretically sound, it proves inefficient in practice. Landlords spend extra time and money to navigate the policy, often giving up because the economics don’t work. Tenants – unaware of who will and won’t accept vouchers – waste time searching. And taxpayers fund the very administrative complexities that keep it from working.

Section 8 could be reformed with more federalism. Although vouchers are now sent to and distributed by local PHAs, they still come with these above-mentioned stipulations. An alternative is to let PHAs experiment with the money, crafting tenant-landlord protocols as they see fit. But even better would be to skip the PHAs and mail vouchers straight to tenants, calculating them based on recipient income level and local cost-of-living. Tenants could then shop the market, without added regulations put on the landlords they choose. If the tenant dislikes the accommodations, he or she can, when the lease is done, take their voucher money elsewhere.

For better or worse, Section 8 is not going away. But this kind of reform would introduce a free-market dynamic, changing Section 8 from the inefficient, bureaucratic program it is now.

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