Proposed change in HUD's "Minimum Rent" policy could raise rents for several hundred thousand poor families

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Center on Budget and Policy Priorities
By: Barbara Sard, Will Fischer and Thyria Alvarez-Sanchez
November 28, 2011

Proposed change in HUD's "Minimum Rent" policy could raise rents for several hundred thousand poor families

Leadership of the House Financial Services Committee recently circulated draft legislation that could increase rental costs for several hundred thousand extremely poor families that receive federal housing assistance. Families in every state could face rent increases that could total $300 a year or more.

The change would fall on the poorest housing assistance recipients. Currently, families that receive assistance are generally required to pay 30 percent of their income for rent, but public housing agencies may require families to pay a minimum rent of up to $50 per month if 30 percent of their income is less than that amount. The minimum rent thus affects only the most impoverished recipients, including many who would be at high risk of homelessness in the absence of rental assistance.

The new proposal, included in a revised October 5th draft of the Section 8 Savings Act (SESA), would increase the minimum rent that families can be charged from $50 a month to either $75 a month or 12 percent of the local Fair Market Rent (FMR), whichever is higher. (The FMR is HUD's estimate of the amount needed to cover the rent and utility costs of moderately priced housing units in a given local area.) The increase would affect the most destitute people receiving housing assistance (since those are the people who pay the minimum rent), with the largest rent increases falling on very poor families with children, as a result of the 12-percent-of-FMR component of the proposed minimum rent standard.

An increase in monthly minimum rents from $50 to $75 would raise annual housing costs by $300, a difficult burden for destitute families with little or no income. Moreover, most of the families affected by the new policy would face rents of more than $75 per month, as a result of the proposal's linkage between rent contributions and prevailing rents in the area (i.e., the 12-percent-of-FMR provision). Families in high-cost metropolitan areas and with three or more children would face the highest minimum rents and be at the greatest risk of hardship. Moreover, the rent floor would rise further each year as market rents increase.

At a time of persistent, high unemployment, it is not clear what the rationale is for increasing the rent floor by 50 percent or more; the committee has not provided one. The change would generate some added rent revenues that would lower costs in the housing assistance programs, but as noted, those higher rents would be paid by some of the nation's most vulnerable people. Raising rents on the very poor as a way to cut expenditures and reduce deficits also would contradict the principle, set forth in the report of fiscal commission co-chairs Erskine Bowles and Alan Simpson, that deficit reduction should not make the nation's poorest people still poorer.

The higher minimum rents in SESA would be optional for housing agencies, but most agencies -- 73 percent of those surveyed for a 2010 HUD-sponsored study -- currently set their minimum rents at the maximum level permitted, and the share of housing assistance recipients paying rents at that level has risen sharply in recent years. Moreover, even the minority of agencies that previously have not set minimum rents at the maximum level permitted could face considerable pressure to impose higher rents to make up for funding shortfalls. Congress recently enacted 2012 appropriations legislation that cut public housing funding deeply, and the long-term caps on domestic appropriations adopted as part of the recent Budget Control Act increase the chances that funding for both public housing and vouchers will be tight in future years.

Raising minimum rents could significantly harm some of the poorest recipients of housing assistance. Housing agencies are required to provide hardship exemptions from minimum rents in certain situations, but the 2010 HUD-sponsored study found that these exemptions were very rare. Among agencies that had adopted minimum rents above zero, 82 percent reported granting exemptions to fewer than 1 percent of families subject to the minimum rent, and only 5 percent of agencies said that they had exempted more than 10 percent of families.

HUD has not assessed the level of hardship experienced by families that are required to pay the minimum rent, but it is likely that many families at risk of homelessness or other serious hardship do not receive exemptions. Exemptions are available only to families that apply for them, so if a housing agency does an inadequate job of making families aware of the exemption policy or if households (many of which will include people with mental and physical disabilities or very low education levels) do not manage to apply for them, some families that qualify for a hardship exemption will not receive one. In, addition, some of the most destitute households -- such as the chronically homeless -- may not even qualify for an exemption, which typically requires a showing of a change in circumstances. Moreover, families with temporary hardships who are exempted still must pay the accumulated rent arrears when their situation improves, and they may be evicted if they cannot make the extra payments.

SESA contains important improvements to the Section 8 housing voucher program and other federal rental assistance programs that would ease administrative burdens, make it easier for private owners to participate in the voucher program, establish voucher funding rules that would help local housing agencies use funds more efficiently, and generate more than $700 million in federal savings. SESA's core provisions are needed at a time when budgets are tight and housing needs are high, and Congress should move promptly to enact them.[5] But the House Financial Services Committee should reject the proposed increase in the minimum rent.

Families in Every State Could Face Increased Rents

Families receiving federal rental assistance typically pay 30 percent of their adjusted income toward rent and utility costs. Public housing agencies are permitted to set a "minimum rent" for public housing residents and families participating in the Section 8 Housing Choice voucher (HCV) program that is higher than that 30 percent level. This rent floor, however, may not exceed $50 per month. In the project-based Section 8 program, current law requires HUD to set the minimum rent rather than leaving the decision up to the thousands of private owners that administer the rental assistance attached to the properties. HUD has set the minimum rent for residents of these properties at $25 per month.

In a draft of SESA dated October 5, 2011, Rep. Judy Biggert, Chair of the Subcommittee on Insurance, Housing and Community Opportunity, included a proposed amendment to the minimum rent provision of current law. The proposed change would:

1.Raise the cap on the minimum rent -- i.e., the rent that may be charged regardless of income -- to $75 or 12 percent of the applicable Fair Market Rent, whichever is higher; and

2.Allow HUD to permit private owners to set the minimum rent for assisted residents of their properties at up to the same cap that applies to public housing agencies.

The October 5th SESA draft contains a separate provision that limits the application of the minimum rent increase and a number of other changes in the bill to public housing agencies (PHAs) that receive approval from HUD to implement an agency-designed self-sufficiency program. If this limitation (intended as an incentive for agencies to establish self-sufficiency programs) were enacted as written, the increase in the minimum rent cap would apply to some, but not all, housing agencies and would not apply to the project-based Section 8 program, as those properties largely are not owned by public housing agencies.

Congress could modify or eliminate these limitations, however, as SESA moves forward, and the feature of the bill that does not permit the higher minimum rents in project-based Section 8 may have been inadvertent. Moreover, groups representing private assisted owners are already objecting to that limitation.

We have estimated the impact of the policy change if Congress were to apply the increase in the minimum rent cap to all PHAs and private assisted owners. These are our major findings.

■Some 13 percent of assisted households -- more than 505,000 families -- paid less than $75 per month toward their rent and utility costs in 2010, according to HUD administrative data. All of these families could face a rent increase under the new minimum rent policy.

■The new policy also could affect an additional 173,000 families that paid modestly more than $75 per month for rent and utilities in 2010 but could face higher rents under the FMR-based minimum rent.

■In all, 685,000 families could face a rent increase, or 17 percent of the assisted households for which we had sufficient data to include in the analysis.

■A large share of the affected families -- some 100,000 households -- could have to pay more than $150 per month under the proposed policy. For nearly two-fifths of the potentially affected families, the rent permitted under the new policy would be at least double the maximum their housing agency or owner could require them to pay today.

■In nearly the entire country, the rent floor could exceed $75 for at least some units or vouchers. The higher FMR-based rent floor would affect three-bedroom units in 506 out of 514 metro areas and 3,112 out of 3,228 counties. For two-bedroom units or vouchers, the minimum rent could exceed $75 in 74 percent of metro areas. Appendix 2 shows the applicable minimum rent cap for the highest-cost FMR area in each state.

■About 70 percent of public housing and project-based Section 8 units and 83 percent of vouchers are located or used in areas where the minimum rent could exceed $75 under the FMR-based rent floor.

Most Families Affected Have Children

Seventy percent of the households that could face a rent increase under the proposed policy -- 475,000 families -- have minor children. Research has found that homelessness, crowding, and housing instability have serious harmful effects on children's health and development. Adults in 77,000 of these families worked in 2010 or received unemployment insurance based on recent work but would have to pay more than 30 percent of their income at the newly allowed rent floor. Some 17,000 of these families with children are headed by a person who is elderly or has disabilities.

More than 124,000 of the families with children that would face a rent increase receive modest cash assistance under the Temporary Assistance for Needy Families (TANF) program. In nine states, TANF benefits are sufficiently low that all TANF families with two children or more who do not have other income could have to pay more than 30 percent of their very small incomes for rent under the proposed policy. Moreover, many states are cutting TANF benefit levels and imposing other restrictions on benefits due to budget shortfalls.

Families that face rent increases under the proposed policy would be forced to divert resources from other basic needs, such as food, medicine, or clothing. Some families would be unable to cover the increases and would be displaced from their homes. These families would often be compelled to double up in crowded conditions or live in hotels, shelters, or on the streets. It is likely that a significant number of this group of households were admitted to one of the federal housing programs because they were homeless; the proposed policy could cause a number of these households to rejoin the ranks of the homeless.

Conclusion

The draft Section 8 Savings Act includes a number of well-considered, non-controversial policy changes that would improve the effectiveness of the federal rental assistance programs and reduce administrative burdens without harming vulnerable families. Unfortunately, the inclusion in the latest draft of an increase in the allowable minimum rent does not meet these key tests. Congress should delete the minimum rent proposal as it considers this important bill.

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This page contains a single entry by CFED published on December 6, 2011 6:20 PM.

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