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Social services > 26. Housing Choice Vouchers Rent Reform

By improving data collection and analysis efforts under the Moving to Work demonstration program, the Department of Housing and Urban Development would provide Congress with information to determine which rent reform option should be implemented program-wide and thereby potentially reduce program funding by millions of dollars or extend housing assistance to additional low-income households or some combination of these outcomes.

Why This Area Is Important

The Department of Housing and Urban Development’s (HUD) Housing Choice Voucher (voucher) program is the largest among HUD’s rental housing assistance programs. Under the program, HUD pays subsidies to landlords to help eligible households rent units (apartments or houses) on the private market. Annually, from fiscal years 2003 through 2010, the voucher program helped provide affordable rental housing to approximately 2 million households.

To be eligible for voucher assistance, in general, households must have very low incomes—not exceeding 50 percent of the area median income, as determined by HUD.[1] Under the voucher program, an assisted household pays 30 percent of its monthly adjusted income in rent; the remainder of the rent is paid through a HUD-subsidized “voucher,” which generally is equal to the difference between (1) the lesser of the unit’s gross rent (generally, rent plus utilities) or a local “payment standard” and (2) the household’s payment. The payment standard is set between 90 and 110 percent of the HUD-determined fair market rent for the locality, which generally equals the 40th percentile of market rents (including utilities) renters who recently moved paid for standard-quality units.

In 2011, approximately 2,400 state and local housing agencies administered the voucher program on HUD’s behalf. Housing agencies are responsible for inspecting units, ensuring that rents are reasonable, determining households’ eligibility, calculating and periodically redetermining households’ incomes and rental payments, and making subsidy payments to landlords. In addition, housing agencies perform basic program functions, such as establishing and maintaining a waiting list, processing tenant moves, conducting landlord and tenant outreach, and reporting to HUD. HUD disburses appropriated funds to housing agencies for subsidy payments to landlords and administrative expenses.

Some housing agencies that administer vouchers can participate in HUD’s Moving to Work (MTW) demonstration program.[2] The MTW program has three statutory purposes: to reduce costs and achieve greater cost-effectiveness in federal housing expenditures, to give families with children incentives to obtain employment and become self-sufficient, and to increase housing choices for low-income families. The program gives participating housing agencies the flexibility to design and test innovative strategies for providing and administering housing assistance in their communities. Rent reform (that is, changes in the way households’ payments toward rent are calculated) is one of the strategies housing agencies can implement under the MTW program. Currently, 39 housing agencies are authorized to participate in MTW.



[1]Under the Quality Housing and Work Responsibility Act of 1998 (P.L. 105-276), at least 75 percent of new voucher program participants must have extremely low incomes—not exceeding 30 percent of the area median income. See 42 U.S.C. 1437n (b)(1).

[2]Congress authorized the Moving to Work demonstration program in the Omnibus Consolidated Rescissions and Appropriations Act of 1996. Pub. L. No. 104-134, 110 Stat. 1321, 1321-281 (1996).

What GAO Found

In March 2012, using 2010 HUD data, GAO found that rent reform could yield substantial reductions in program funding from between approximately $11 million to $1.8 billion, or allow housing agencies to serve from approximately 1,400 to 287,000 additional households, if Congress were to maintain program funding levels (see table below). To develop these estimates, GAO primarily considered reforms certain housing agencies have already implemented under the MTW program, including requiring households to pay (1) higher minimum rents, (2) 35 percent of their adjusted income in rent, (3) 30 percent of their gross income in rent, or (4) a percentage of the applicable fair market rent.[1] The estimates demonstrate the potential magnitude of reductions in program funding or additional households that would be served if these variations of MTW agencies’ rent reforms were expanded to all housing agencies that administer vouchers.

Estimated Annual Effect of Selected Rent Reform Options on Program Funding or Number of Additional Voucher-Assisted Households Served

Reform option

Estimated annual reduction in program fundinga

OR

Estimated additional households served

Increase minimum rents tob

 

 

 

$50

$11 million

 

1,400

$75

$67 million

 

8,600

$100

$124 million

 

16,000

$150

$318 million

 

43,000

$200

$602 million

 

85,000

$250

$1.1 billion

 

167,000

$300

$1.8 billion

 

287,000

Require households to payc

 

 

 

35 percent of adjusted income in rent

$1.1 billion

 

164,000

30 percent of gross income in rent

$513 million

 

76,000

35 percent of the fair market rentd

$927 million

 

136,000

Source: GAO analysis of Department of Housing and Urban Development data.

aThese estimates illustrate the relative effects of the options if fully implemented in 1 year. Actual implementation of such options likely would be done gradually, and not all of the funding reductions or additional households served would be realized in the first year.

bGAO assumed that all households paid the greater of the minimum rent or 30 percent of adjusted income. GAO’s minimum rent calculations did not take into account any payment households received for utility assistance.

cFor the adjusted and gross income options, GAO did not impose a minimum rent requirement.

dFor this option, GAO evaluated the effect of requiring households to pay 12, 15, 20, 30, and 35 percent of the fair market rent and no minimum rent. Only the 35 percent option resulted in reductions in program funding or additional households served on an annual basis—all other percentages resulted in funding increases and fewer households served.

In addition to estimating the reductions in program funding that could result from each of these rent reform options, GAO considered each option in terms of its effect on assisted households and other program objectives, including (1) changes in the rent paid by assisted households, (2) household attrition rates, (3) HUD’s goals of encouraging households to move to the neighborhoods of their choice (mobility) and discouraging households from choosing communities that have higher levels of poverty (deconcentration), (4) incentives to seek work, (5) program administration, and (6) housing agency and industry support. While each of these options has advantages over the current rent structure in that they could reduce program funding or create administrative efficiencies, each also involves trade-offs. Specifically, under each rent reform option, some households would have to pay more in rent than they currently pay (see table below).

Estimated Number and Percentage of Voucher-Assisted Households for Which Rents Would Increase and the Average Monthly Increase, by Rent Reform Option

 

Number of households experiencing an increase in their monthly paymenta

Percentage of households experiencing an increase in their monthly payment

Mean change
in monthly payment of affected households

Minimum rent

 

 

 

$50

36,000

2

$31

$75

207,000

11

$27

$100

256,000

13

$45

$150

358,000

19

$75

$200

698,000

36

$71

$250

1,012,000

52

$92

$300

1,225,000

63

$122

Household rent formula

 

 

 

35% of adjusted income

1,751,000

92

$50

30% of gross income

1,662,000

86

$27

35% of fair market rentb

1,172,000

61

$155

Source: GAO analysis of Department of Housing and Urban Development data.

aTo estimate the effect of each rent reform option on the number of households affected and their monthly payments, GAO analyzed household characteristics and rent data as of December 2010.

bUnder this option, approximately 755,000 households would experience an average decrease of $139 in their monthly payments.

In addition, these rent reform options may have other implications for assisted households and other program objectives:

  • Household attrition: Under each rent reform option GAO evaluated, a small number of households might lose their subsidies—that is, their subsidy payments would be reduced to zero because their new, higher rental payments would fully cover the gross rent. For example, under the option where households pay 35 percent of their adjusted income in rent, we estimated that approximately 1.8 percent of households would lose their subsidies.[2] Further, other affected households might leave the program because they would have to pay more in rent and would no longer choose to participate in the program.
  • HUD’s deconcentration and mobility efforts: Rent structures that decrease the amount of subsidy households receive may discourage HUD’s deconcentration efforts, as well as household mobility. With smaller subsidies, households (especially those with lower incomes) may not have the means to move from neighborhoods of concentrated poverty to those with a diversity of people and opportunities, which may have higher rents.
  • Work incentives: Rent structures that do not take into account household income may do more to encourage assisted households to find and retain employment. Under the current rent structure, households generally pay 30 percent of their income toward rent and those with no reported income generally do not pay rent—HUD’s subsidy covers the gross rent. Consequently, some have argued that these households have a disincentive to seek employment or increase their earnings because for every additional $100 they earn on a monthly basis, they will pay $30 more in rent.
  • Program administration: Moving toward a rent structure either based on fair market rents or gross income would introduce significant administrative efficiencies into the program and could allow housing agencies to further reduce improper payments from administrator (housing agency) error or tenants’ underreporting of income. As GAO found in February 2005, the complexity of the current income and rent determination policies was of major concern to HUD and program administrator errors in calculating rents significantly contributed to the level of improper payments at that time.[3]
  • Housing agency and industry support: Nearly all of the housing agencies GAO contacted said that they supported some type of rent reform—among the most popular options were increasing minimum rents and increasing tenant rental payments to 35 percent of adjusted income. Despite this, some housing advocates have voiced concern about rent reform. For example, one advocate suggested that rent reform would put HUD-assisted households at risk of having significant rent burdens.

Program data and other information that could be used to assess the actual effects of these trade-offs were not available. Consequently, GAO’s March 2012 analysis was limited to estimating reductions in program funds and additional households served if certain rent reform options were implemented.

As a demonstration program, MTW is intended to identify actual reductions in program funding and effects on assisted households and other program goals resulting from rent reform efforts similar to those GAO examined in March 2012. However, in April 2012, GAO found that HUD lacked the data and performance indicators needed to assess the impact of activities implemented under the MTW program, including rent reform. The GPRA (Government Performance and Results Act) Modernization Act (GPRAMA) and federal internal control standards require that agencies establish performance indicators for program activities in order to demonstrate program results.[4] Further, GAO found that the shortage of performance data and indicators had hindered HUD’s ability to comprehensively evaluate the MTW program, including systematically identifying lessons learned. As GAO reported, one of the goals of the MTW program is to identify successful approaches that can be applied to housing agencies nationwide.



[1]A rent structure based on gross income would eliminate the deductions and exclusions to income that households currently may claim. Laws and HUD regulations provide 44 different income exclusions and deductions: (1) HUD regulations cite 20 income sources to be excluded when determining households’ eligibility for assistance and calculating tenant rents. See 24 C.F.R. § 5.609. (2) Under various statutes, 19 other income sources qualify as exclusions. (3) In addition, program administrators (housing agencies) must apply 5 income deductions, which reduce the amount of income that can be considered in calculating tenant rents. See 24 C.F.R. § 5.611. Once program administrators have collected information from households on income and applicable exclusions and deductions, HUD policy requires that they independently verify this information (“third-party” verification). After verifying households’ income information, program administrators must compute the amounts the households will pay in rent. See 24 C.F.R. § 5.628.

[2]In addition, under all other rent reform scenarios, less than 0.5 percent of households would lose their subsidies.

[3]Improper rental assistance payments include subsidy over- and underpayments resulting from program administrator errors (that is, a housing agency’s failure to properly apply income exclusions and deductions and correctly determine income, rent, and subsidy levels). HUD has taken steps to reduce improper payments in the voucher program. According to HUD reports, the department has reduced gross improper payments by almost 60 percent, from $1.1 billion in fiscal year 2000 to $440 million in fiscal year 2009.

[4]Pub. L. No. 111-352, 124 Stat. 3866 (2011) and GAO, Standards for Internal Control in the Federal Government, GAO/AIMD‑00‑21.3.1 (Washington, D.C.: November 1999).

Actions Needed

In April 2012, GAO made several recommendations to HUD, including the following three actions, to improve its analysis of the implications of activities implemented under the MTW program:

  • develop and implement a plan for quantitatively assessing the effectiveness of similar activities and the program as a whole, including the identification of standard performance data, as needed;
  • establish performance indicators for the MTW program as a whole; and
  • create a process to systematically identify lessons learned to enhance the department’s ability to identify MTW practices that could be applied more broadly.

With standard data and performance indicators, HUD would be well equipped to assess the actual effects of rent reform and the implications of extending it to all housing agencies that participate in the voucher program. Such analysis would provide Congress with information to determine which rent reform option should be implemented program-wide and thereby potentially reduce program funding by millions of dollars or extend housing assistance to additional low-income households or some combination of these outcomes.

How GAO Conducted Its Work

The information contained in this analysis is based on findings from the products in the related GAO products section. For its April 2012 report, GAO reviewed MTW housing agencies’ annual reports and compared HUD’s guidance for MTW housing agencies on the type of performance information they should report with the GPRAMA. GAO also reviewed evaluations of the MTW program and summarized the challenges that HUD and others have faced in conducting such evaluations, and assessed HUD’s efforts to identify lessons learned from the MTW program. Finally, GAO interviewed HUD officials, officials from a sample of seven MTW housing agencies, research organizations, affordable housing advocates, and organizations that advocate on behalf of residents of federally subsidized housing.

For its March 2012 report, GAO analyzed program data that HUD prepared using information derived from multiple HUD systems to determine how much housing agencies’ expenditures changed and the factors that have affected costs in the voucher program from 2003 to 2011. To identify additional steps that could be taken to limit cost growth in the voucher program and more effectively provide decent, safe, and affordable housing, GAO identified and reviewed relevant legislation, draft legislation, and studies. Using data from HUD’s Public and Indian Housing Information System on household characteristics, income, and rents, GAO evaluated the cost and policy implications of three types of programmatic reform options for the voucher program: increasing minimum rents, changing the percentage of income tenants pay toward rent, and requiring tenants to pay a percentage of fair market rent. In identifying and assessing these programmatic reform options, GAO considered variations of reforms certain MTW housing agencies have implemented, and reviewed proposals included in draft legislation and in HUD, Congressional Budget Office, and housing industry group reports. Finally, GAO interviewed HUD officials and consulted with an academic and officials from various housing groups. GAO also contacted or visited 93 local housing agencies selected generally based on the number of vouchers administered.

Table 20 in appendix IV lists the federal programs or activities GAO identified in this submission.

Agency Comments & GAO Contact

In its response to GAO’s April 2012 report, HUD

  • Agreed that quantitatively assessing the effectiveness of similar activities was an important step but noted the difficulties associated with assessing the effectiveness of the MTW program as a whole.
  •  Disagreed with GAO’s recommendation that the department develop performance indicators for the MTW program. The department said that developing program-wide performance measures could be difficult and might be contrary to the nature of the demonstration.In March 2014, HUD further clarified that the department is working with MTW housing agencies to develop programwide indicators based on standard metrics.
  • Agreed that it should proactively identify lessons learned.

Since GAO’s April 2012 report, HUD has revised the reporting requirements for MTW housing agencies. The Office of Management and Budget approved these requirements in May 2013. The new requirements state that MTW agencies are to report standard metrics and report outcome information on the effects of MTW policy changes on residents. HUD also developed a standard format to allow aggregation and analysis of data across agencies for similar activities. HUD noted that one purpose of the revised reporting requirements was to identify promising practices learned through the MTW demonstration. In addition, HUD required the four new housing agencies that were admitted into the MTW program since April 2012 to implement and study rent reform activities through partnerships with local universities and a research organization. However, until more complete information on the MTW program’s effectiveness is available and HUD implements a plan to assess program outcomes and lessons learned, it will be difficult for Congress to know whether extending rent reform or other activities to all housing agencies that administer vouchers would be beneficial.

In its response to GAO’s March 2012 report, HUD did not comment on the rent reform options discussed but stated that the report provided an accurate assessment of the program and its current outcomes.

GAO provided a draft of this report section to HUD for review and comment and HUD provided written comments. In its comments, HUD said that in December 2011 the Office of Policy Development and Research issued a request for proposal for a rent demonstration. As GAO reported in March 2012, according to the request, the demonstration will test alternatives to the current rent structure using a random assignment experimental model and most likely would be undertaken at select MTW housing agencies because these agencies already have the authority to request waivers of voucher program laws and regulations. In its comments HUD also noted that it had published an evaluation of the MTW program in 2010.[1] However, this evaluation found that the effects of many MTW activities could not be conclusively identified because of the variety of and differences in the activities and metrics that MTW housing agencies were implementing. GAO’s April 2012 report made a similar finding noting that program design and a lack of standard performance data and indicators have hindered program evaluation efforts.

For additional information about this area, contact Daniel Garcia-Diaz at (202) 512-8678 or garciadiazd@gao.gov.



[1]HUD, Office of Public and Indian Housing and Office of Policy Development and Research, Moving to Work: Interim Policy Applications and the Future of the Demonstration, a report to Congress (Washington, D.C.: 2010).

Related Products

Moving to Work Demonstration:

Opportunities Exist to Improve Information and Monitoring
GAO-12-490:
Published: Apr 19, 2012. Publicly Released: May 21, 2012.

Housing Choice Vouchers:

Options Exist to Increase Program Efficiencies
GAO-12-300:
Published: Mar 19, 2012. Publicly Released: Apr 18, 2012.

HUD Rental Assistance:

Progress and Challenges in Measuring and Reducing Improper Rent Subsidies
GAO-05-224:
Published: Feb 18, 2005. Publicly Released: Mar 21, 2005.

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