Rental Housing:

Use of Smaller Market Areas to Set Rent Subsidy Levels Has Drawbacks

RCED-94-112: Published: Jun 24, 1994. Publicly Released: Jun 24, 1994.

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Pursuant to a legislative requirement, GAO reviewed Department of Housing and Urban Development (HUD) section 8 housing subsidies, focusing on the effects of basing rental subsidy payments on smaller market areas.

GAO found that: (1) establishing fair market rents on the basis of smaller market areas would more closely reflect rents within those areas and increase housing choices for assisted households; (2) the cost of collecting the additional data needed to accurately determine and update fair market rents could range up to $750 million annually; (3) individual household costs could increase and fewer households will be served by the Section 8 program unless HUD increases the program's total funding; (4) HUD costs could increase if assisted households move from market areas where the fair market rents are the most advantageous; (5) the decrease in fair market rents could restrict assisted households' housing choices; (6) using smaller market areas to set fair market rents may have little effect on households' access to employment or educational opportunities because public transportation is available in many areas; (7) there is insufficient evidence to estimate whether setting fair market rent levels on smaller markets would have an inflationary effect on marketwide rental rates; and (8) the presence of a housing subsidy does not increase rents for the market as a whole.

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