How To House More People at Lower Costs Under the Section 8 New Construction Program

CED-81-54: Published: Mar 6, 1981. Publicly Released: Mar 6, 1981.

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The Section 8 New Construction Program was reviewed including: (1) the nature and magnitude of financial benefits afforded to developers and investors in subsidized housing built under the program; (2) the reasonableness of development and operating costs for this housing; and (3) the possibilities for reducing costs and improving the results of this program.

Substantial financial incentives exist to attract developers and investors to the section 8 program. Projects can be undertaken with a fairly small cash investment in relation to total project development costs. Government-subsidized, below-market interest rates on project mortgages are provided to developers, and developers earn profits by syndicating projects they undertake. Significant tax shelters are provided to owners and investors in new projects through the highly accelerated depreciation allowed for the projects and the way losses can be distributed. Other benefits include profits from construction, management fees, anticipated gains from the future sale or conversion to condominiums, operating profits, cash distributions, and other types of tax savings. GAO found that, for the caliber of housing being built, development costs were generally reasonable. The quality of housing was generally better than the housing in the area in which the projects were built. GAO suggested that the quality of the housing could be lowered somewhat in order to increase cost savings. GAO in no way suggested that section 8 housing be less than decent, safe, and sanitary.

Recommendations for Executive Action

  1. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should direct HUD area offices and delegate agency officials involved in reviewing section 8 development costs to adequately document their cost determinations.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should house the single elderly in efficiency/studio type units instead of one-bedroom units.

    Agency Affected: Department of Housing and Urban Development

  3. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should direct the HUD area offices and delegate agency officials to closely survey the new rental housing construction market and to develop alternate approaches for evaluating section 8 development costs when appropriate comparable projects cannot be identified.

    Agency Affected: Department of Housing and Urban Development

  4. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should enforce the requirement that project owners submit annual certified financial statements and use these statements to evaluate regularly the reasonableness of formula-based annual rent increases given to project owners.

    Agency Affected: Department of Housing and Urban Development

  5. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should develop uniform procedures and train staff to properly and promptly review project financial statements.

    Agency Affected: Department of Housing and Urban Development

  6. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should develop definitive guidelines for section 8 projects, requiring that units be assigned and reassigned to achieve optimimum utilization of all units.

    Agency Affected: Department of Housing and Urban Development

  7. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should direct HUD field offices to monitor the use of section 8 units more closely, especially at the time of initial occupancy, and to invoke appropriate penalties where owners/managers consistently fail to comply with HUD occupancy guidelines.

    Agency Affected: Department of Housing and Urban Development

  8. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should develop an explicit definition of "modest housing" for use under the Section 8 New Construction Program which limits the size of family housing units to dimensions closely approximating those based on HUD's minimum property standards and reduces the types and number of amenities permitted in new section 8 housing.

    Agency Affected: Department of Housing and Urban Development

  9. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of Housing and Urban Development (HUD) should study a variety of methods, including economic incentives and contractual sanctions, to encourage project owners under 5-year assistance contracts to continue in the section 8 program after their present contracts expire.

    Agency Affected: Department of Housing and Urban Development

  10. Status: Closed

    Comments: Please call 202/512-6100 for additional information.

    Recommendation: The Secretary of HUD should take steps to increase incentives for high-quality management and long-term ownership of section 8 new construction projects. One possible way of doing this would be to require developers to make higher equity investments and, in return, allow greater cash distribution during operations. This provision should attract investors who are less motivated to seek shelters from tax losses generated by production and more interested in yearly profits possible from operating section 8 projects and providing housing services.

    Agency Affected: Department of Housing and Urban Development

 

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