Section 8 Vouchers; Can Oregon Landlords continue to participate?
An overview
Can Landlords achieve an acceptable return renting to section 8 Choice Voucher Tenants? The answer to that question is not clear. There are many variables that need to be considered when renting to Choice Voucher Tenants. Often property owners rent to Choice Voucher Tenants because the market may be weak, and they need the income from renting to tenants with subsidized rents.
History
Low-income subsidized housing is housing that is made available at below-market rates to people with low to moderate incomes through government subsidies. In the United States, subsidized housing is often referred to as “affordable housing” and can include workforce housing. The federal government has been making low-cost housing available since 1936 (first project was Techwood Homes, a white low-income subdivision, in Atlanta, GA). Initially federally subsidized housing was segregated housing (under the separate but equal principles), until the passage of the Fair Housing Act of 1968. Public housing was established to provide low or no cost rental housing for eligible families, the elderly and the disabled.
https://nlihc.org/resource/public-housing-history
Most of the financial support for affordable housing programs comes from the federal government.
These programs include:
Low Income Housing Tax Credits
Tenant-based rental assistance programs
Project-based rental assistance programs
Public housing operating fund and capital fund
Choice Neighborhoods
HOME Investment Partnerships Program (HOME)
Community Development Block Grant (CDBG)
National Housing Trust Fund
Capital Magnet Fund
Rural Housing Service programs
Qualified Opportunity Zone Designations
Aside from the Low-Income Housing Tax Credit program, which is administered by state and local housing finance agencies, and the Opportunity Zone tax expenditure, overseen by the Internal Revenue Service, the rest of these programs are administered by the U.S. Department of Housing and Urban Development (HUD). https://localhousingsolutions.org/fund/federal-programs-for-affordable-housing/
Section 8 Vouchers - Background
In Oregon there are approximately 33,600 HUD Choice Voucher Holders. Public housing Section 8 Choice Vouchers are funded by the U.S. Department of Housing and Urban Development. HUD has delegated the management of the Choice Voucher program (also known as the section 8 Voucher program) and other housing programs to local public housing agencies (PHA). These programs are targeted at very low-income Tenants who need affordable housing. Tenants must meet specific income eligibility requirements as follows. “you must be a US citizens and or belong to a specified category of non-citizens who have eligible immigration status.
In general, the family’s income may not exceed 50% of the median income for the county or metropolitan area in which the family chooses to live. By law, a Public Housing Agency (PHA) must provide 75 percent of its voucher to applicants whose incomes do not exceed 30 percent of the area median income. Median income levels are published by HUD and vary by location.”
The government pays rent vouchers to private Landlords who accept low-income Tenants. These vouchers make up the difference between the rental “market price” and the amount of rent paid by Tenants. Section 8 of the Housing Act of 1937 is the basis of the Choice rental voucher system. (Google AI research)
https://fhco.org/wp-content/uploads/2021/09/Section8FAQ_FHCO_2015.pdf 2024 draft doc ( section 2)
https://www.hud.gov/topics/housing_choice_voucher_program_section_8
Why Landlords may be reluctant to rent to Low-income or Section 8 Voucher Tenants.
Property managers and owners of real estate in Oregon can only turn down a tenant for bad landlord history and the tenant’s inability to pay their portion of the rent. In other words, it should make it easier for Section 8 tenants to find an apartment or a home to live in.
Unfortunately, section 8 tenants carry with them a stigma developed of 40 + years that makes property owners hesitant to rent to Section 8 Tenants. This challenge is detailed below.
Tenants
Low-income Tenants are in a difficult space, they are poor and struggle to pay for food,
health care, and their share of the rent and childcare. Difficulties that may be
experienced include:
Tenants don’t have the money to pay their share of the rent.
A tenant does not qualify for renting an apartment when the income requirements are 3X the monthly rent.
They struggle to make ends meet.
Tenants do not have money for deposits.
Tenants have poor rental history.
Almost all Americans have similar problems but not at the same scale. Because of historic inequities and exclusive zoning, some of this housing is located in close proximity to negative externalities, like power plants/factories, highways, and more crime intensive neighborhoods. Drug dealing, shootings, carjackings and other violent crimes make some of these buildings very dangerous, and due to housing shortages for low-income Tenants they typically have no place else to go.
The waiting lists for subsidized housing can be four to five years long and then Tenants may not get chosen by the lottery for the limited spaces that are available. Given these tensions these Tenants have a very challenging life and may not have the same respect for property that a conventional tenant may have.
Once they are in an apartment unit their challenging life may result in damages in their units that are more than wear and tear.:
Tenant may not respect their rented apartment or home
Tenant’s children or their pets destroy the units.
Example: crayons on the walls and floors,
Example: Dogs destroy doors, flooring and carpeting.
Cleaning does not occur – they don’t have mops, vacuum cleaners, or any cleaning tools.
Example: Pest infestation such as fleas and cockroaches
Clean units wear out, due to extraordinarily heavy wear and tear.
Tenants can be emotionally challenging when it comes to dealing with rent increases, or utility expenses.
Tenant may be angry and have poor emotional control, because they cannot control their lives
Due to these stresses some apartments rented by Choice Voucher tenants may become damaged.
As a result of these potential damages, and the push back from property Owners the Oregon Housing and Community Service agency designed a program to manage property damage refunds. Called “ The Housing Choice Landlord Guarantee Program” it can that can fund no less than $500 up to $5,000 in tenant related damages, unpaid utilities and rent, lease break fees, and property damage that exceeds ordinary wear and tear, as long as there are funds in the program.
Unfortunately, Funds are limited and dependent on the state budget, and are allocated on a first come first served basis. In the 21-23 biennial Budget the funds available were limited to $324,290 in 2022 and $332,524 in 2023 or funding for approximately 132 units at $2,500 per unit. This is not very much money, especially with the significant increases in labor and material costs and creates a disincentive for Landlords to be flexible with Voucher Tenants that have poor rental references. (As an aside the tenants who damage units are supposed to reimburse the agency for these funds, but for low-income Tenants that is very difficult to do.)
https://www.oregon.gov/ohcs/for-providers/Documents/factsheets/FACTSHEET-HCLGP.pdf
Landlords
Landlords face challenges as well. In the past many Oregon rental property owners owned smaller properties (homes and plexes), but a significant number of these were sold in 2021 and 2022 as the demand for homes increased (as home values increased) and Landlords could sell them for a significant value increase given the 3-4% interest rates, thereby reducing the number of rentals available to the market. Additionally, it has been established that smaller landlords are more tenant indulgent and flexible than larger landlords. This has increased the number of evictions as larger Landlords enforced rules that the smaller ones might have been flexible with.
Increased regulation and statewide rent control also created incentives for property owners to sell their properties and trade into other alternative investments. This precipitated a recent housing shortage that to some extent was filled by developers building new housing. To obtain even more units, rents need to increase and as rents increase they tend to make it too expensive for tenants in the Section 8 Choice program
Some of these cost increases are listed below:
a. Insurance increased by 26% year over year as of March 2024
b. Utility prices increased by an estimated 7 -20% depending on the state you are in and your service provider.
c. Property taxes also increased significantly, depending on the county you own property in.
d. Maintenance expenses “at multifamily properties grew 9.3% in the trailing 12-month period that ended in June 2023, according to a new report from Yardi.” Driven by wage and benefit, fuel and inflationary increases.
e. General and administrative expenses have increased as wages and salaries increased 6.3 percent for union workers and 4.1 percent for nonunion workers for the 12-month period ending in March 2024. Benefit costs increased 3.8 percent for union workers and 3.6 percent for nonunion workers for the period ending in March 2024. https://www.bls.gov/news.release/eci.nr0.htm
https://www.multifamilydive.com/news/CMS-loans-apartment-rents-distress-San-Francisco- crime/694125
In other cities and rural areas where a housing shortage still exists Landlords are faced with costs that exceed their income, potentially forcing them into foreclosure. Trenton, NJ for example has had an annual rent control limit of 3% until this year. That is not enough to deal with all of the cost increases, keep a property in good repair and deal with damage caused by Tenants.
The impact of the operating increases are forcing the hands of the property owners and property managers to increase rents when they can, except in states, counties, and cities where there is rent control or overbuilding equates to an oversupply of units, which caps rent increases.
Some cities currently facing over supply due to a latent building boom, include Austin, Denver, Las Vagas, Salt Lake City, Downtown Nashville to name a few.
To manage rental increases some cities and states have put rent control regulations in place. In some states there is rent control maxed at 5% annually. Oregon’s rent control is limited to a high of 10% once a year.
https://en.wikipedia.org/wiki/Subsidized_housing_in_the_United_States
What can a landlord do to keep full units, accept Section 8 Choice tenants and pay the bills and engage with low-income Tenants?
1. Use programs that will ensure a security deposit is available to help cover damage caused by a low-income tenant.
https://www.oregon.gov/ohcs/for-providers/pages/rent-guarantee-program.aspx
https://www.oregon.gov/ohcs/for-providers/Documents/factsheets/FACTSHEET-RGP.pdf
Participating Tenants, must have a total household annual income no greater than 60% of the area’s median income for their size of household, must experience specific barriers to obtaining housing (e.g. have been a ward of the state, poor credit history, criminal history or eviction history), must successfully complete a Tenant Readiness Education course, be residents of Oregon, and may be homeless or unstably housed and at-risk of homelessness.
2. Screen as much as you can to insure as good a quality tenant as you can. Unfortunately, that screens out weaker tenants who need to turn to government programs or camp on the street or in their cars or RV’s. The government builds properties for very low-income Tenants and so do, not for profit organizations.
3. Use tenant readiness programs to help Tenants learn how to budget, pay bills, clean and treat a unit with care.
4. Other options for very weak tenants are outlined below:
Tenant Readiness Education
Participating Tenants successfully complete a Tenant Readiness Education Course that extends over multiple weeks and covers the following topics:
Landlord/Tenant Law
The Application and Screening Process
Understanding a Rental or Lease Agreement
Personal Finance, Budgeting, How Credit Reports are Used
Energy Conservation
Fair Housing Rights and Responsibilities
What Makes a Good Tenant and Communicating with Your Landlord
Barriers to Obtaining Housing
Tips for Moving in and Moving Out
Care and Maintenance of Your Unit and Maintenance Responsibilities
Termination Notices
Recovering your Deposit
5. Have social workers and special educators help weak Tenants manage their living environments.
6. Have property owners agree to budget $100 a month to maintain every unit at a property.
7. There is a new program through Esusu | Esusurent.com that helps tenants build their credit with every rent check they pay. Their programs create a light at the end of a dark bad credit tunnel and helps tenants build a solid credit history and at the same time helps Landlords get paid their rent. Many national low income investors use this service at their properties.
There are no neat answers.
Renting to Section 8 tenants can be challenging, but it can also pay the bills if properties are located in weak locations. Landlords can and should continue working with Section 8 Choice Voucher program tenants, but a custom process must be developed in each city and situation. What it does take is planning. Maintain, Maintain, Maintain the property. Have solid systems for property inspections and screening in place. Work with the appropriate Section 8 housing authority to make sure you can make a return.
If it looks like you are running aground, start negotiating with the PHA for higher rent or contemplate the sale of the property to a local Housing Authority or not for profit organization. Unfortunately, not all properties make money and that becomes even more difficult when you are working within the bounds of a long-term government contract.
If there is not enough cash flow your property will not be successful. As a property owner, you need to stay ahead of the problems with annual budgeting and focus on rent increases and careful and thoughtful tenant screening. Unfortunately, mandated repair funds may not be there when you need them.
Clifford A. Hockley, CPM, CCIM, MBA
Cliff is a Certified Property Manager® (CPM) and a Certified Commercial Investment Member (CCIM). Cliff joined Bluestone and Hockley Real Estate Services 1986 and successfully merged that company with Criteria Properties in 2021.
He has extensive experience representing property owners in the sale and purchase of warehouse, office, and retail properties, as well as mobile home parks and residential properties. Cliff’s clients include financial institutions, government agencies, private investors and nonprofit organizations. He is a Senior Advisor for SVN | Bluestone.
Cliff holds an MBA from Willamette University and a BS in Political Science from Claremont McKenna College. He is a frequent contributor to industry newsletters and served as adjunct professor at Portland State University, where he taught real estate-related topics. Cliff is the author of two books, 21 Fables and Successful Real Estate Investing; Invest Wisely Avoid Costly Mistakes and Make Money, books that helps investors navigate the rough shoals of real estate ownership. He is the managing member of a real estate consulting practice, Cliff Hockley Consulting, LLC., designed to help investors and commercial brokerage owners successfully navigate their businesses. He can be reached at 503-267-1909, Cliffhockley@gmail.com or Cliff.Hockley@SVN.com.