Important Section 8 Terms
Are you interested in reliable rental income, guaranteed on-time payments, and long-term stability? If so, you may benefit by participating in the Section 8 affordable housing program. As the largest federally subsidized housing program in the U.S., Section 8 has many benefits to offer both participating landlords and the tenants who use its supportive services.
In this article, we’ll review a few of the key terms you’ll need to know as you research Section 8 requirements and next steps.
Section 8 Housing
The term ‘Section 8 housing’ refers to housing occupied by tenants in the Section 8 federal subsidized housing program. Also called the Housing Choice Voucher Program, this program aims to make housing in the private sector available to very low-income families, the elderly, and people with disabilities in the U.S. who cannot afford to rent housing at market rates. A family must apply to the program to receive a housing voucher, which they can use to pay a portion of their housing costs (rent and utilities). However, it’s the family’s responsibility to find a landlord willing to participate in the program.
Landlords do not get tax deductions or tax credits for participating in the Section 8 program, but there are tax benefits available (separate from the Section 8 program) for building low-income housing where a specific percentage of units are set aside for low-income families.
Housing and Community Development Act of 1974
The Housing and Community Development Act of 1974 was a federal law that established the initial foundation and parameters for the Section 8 housing program. It awarded grant money to the Department of Housing and Urban Development (HUD), some of which is dedicated to the Section 8 program.
Department of Housing and Urban Development (HUD)
The HUD is the federal agency responsible for supervising the Section 8 program and distributing funds to the local housing agencies which carry it out. It is also the agency generally responsible for fair housing guidelines. As a landlord in the program, you’ll communicate more frequently with the local agencies (PHAs) responsible for administering the program in your region, but the rent subsidies and program regulations ultimately originate from the HUD.
Public Housing Agency (PHA)
Public housing agencies are local government agencies that help meet local housing needs and administer the Section 8 program within their jurisdiction. PHAs receive a designated amount of money from the HUD each year to disburse via housing vouchers to low-income families, the elderly, and people with disabilities who qualify for Section 8.
Housing Choice Voucher (HCV)
A housing choice voucher is the subsidy a tenant receives from the HUD for their housing. The money guaranteed by the voucher is sent by the local PHA directly to your bank account as a participating landlord.
Housing Choice Voucher Income Limits
These are limits on how much total income a tenant must make monthly to qualify for the Section 8 housing voucher program. The income limits are adjusted each year and vary depending on the number of people in the family, but a tenant can generally qualify for the program if they fall in the ‘extremely low income’ bracket (they make less than 30% of the local median income) or the ‘very low income’ bracket (they make less than 50% of the local median income). Most vouchers must be given to those in the ‘extremely low’ category.
Total Tenant Payment (TTP)
The Total Tenant Payment, or TTP, is the portion of the monthly rent that the tenant is responsible for paying. TTP is based on the tenant’s anticipated annual gross income or AGI (30% of AGI is often used for TTP), their monthly adjusted income/monthly gross income, and any welfare rent or other eligible deductions (e.g., for dependents, disabilities, or medical deductions). TTP represents the minimum rent the tenant pays based on the family’s income and the landlord’s tenant rent price.
Project-Based Voucher Program (PBV)
Section 8 actually has two components: the Voucher-Based Housing Program and the Project-Based Voucher Program. So far we’ve been talking about the former—in the voucher-based component, individual tenants or families are granted vouchers which they can carry with them when they move to different rental properties. The Project-Based Voucher Program, or PBV, is a separate component that is unit-based rather than tenant-based. Project-based vouchers are assigned to specific rental units, and tenants only receive the rent subsidy in this program if they live in a particular unit designated as part of the project based assistance/ PBV program. Both Section 8 components (tenant based and project based voucher assistance) use the same HUD funds and the same vouchers; they only differ as to what those vouchers are assigned to (tenants vs. properties).
Source of Income Discrimination
Source of income discrimination refers to any kind of discriminatory practices based on the source of a tenant’s income, including government subsidies and housing vouchers. This type of housing discrimination is not named in the federal Fair Housing Act, which protects tenants from discrimination based on race, color, nationality, religion, sex, familial status, and disability. However, many individual states include ‘source of income’ as a protected class in their state fair housing acts, meaning that denying a tenant solely because of their enrollment in Section 8 is illegal in those states for property owners.
Monthly Adjusted Gross Income
Monthly adjusted gross income (AGI) refers to a person’s total or gross income per month (wages, dividends, capital gains, business income, and other income) minus any adjustments (educator expenses, student loan interest, alimony payments, etc.). Note that modified adjusted gross income (MAGI) refers to your AGI minus those deductions and exempt income. You can calculate adjusted gross income or your modified adjusted gross income yourself by taking your gross income minus adjustments, but you can also use an online calculator.
Your monthly AGI represents the amount of income you have available for monthly expenses/savings, and it is used generally to calculate your taxable income, ultimate income tax liability, and in the case of Section 8, the Total Tenant Payment (TTP). A voucher family is typically required to pay 30% of its monthly adjusted gross income (AGI) toward rent and utilities.
Subsidized Rent
This is a general term used to refer to any rent that is fully or partially funded by the government, including tenant based voucher subsidies, PBV assistance, and other types of government rent subsidy.
Fair Market Rent
Fair market rent (FMR) is a value calculated by the HUD each year for a specific region. It is used to set rental rates in various government assistance programs, and it is based on the region’s approximate median annual income as well as various property characteristics, such as size, number of bedrooms, and location. The fair market rent Section 8 uses is also known as ‘small area market rent,’ which is a locally based gross rent estimate for specific ZIP codes. These rates tend to be slightly lower than median rental prices in the area, as they are based on the 40th percentile. As a Section 8 landlord, you will work with a PHA representative to determine a price for your rental based on the fair market rental rate of the area. The HUD raises fair market rents generously each year, sometimes even leading to Section 8 properties having above-market rates (2023 saw an average increase of 10% in fair market rates across the country).
Housing Assistance Payments Contract (HAP Contract)
HAP contracts are agreements between a public housing agency and a landlord participating in the Section 8 program. After the property is inspected, the landlord signs this contract, which states that the PHA will send them the agreed-upon rent subsidy each month so long as the landlord maintains the property’s sanitation and keeps the rent reasonable.
Public Housing
The term ‘public housing’ refers to a different kind of housing than Section 8 housing. While Section 8 housing is privately owned and managed by independent landlords, public housing is government-owned and operated. The HUD manages both programs, but tenants participating in public housing programs must live in specific properties and do not have their choice of any rental whose landlord agrees to participate in the program.
Decent, Safe, and Sanitary Housing
Section 8 housing must meet all three of these criteria—decent, safe, and sanitary—in order to qualify to house Section 8 tenants. Your local PHA will conduct yearly inspections to ensure that your Section 8 units are up to code.
Waitlist/Lottery Systems
In many cities, PHAs are overwhelmed with tenant applications for Section 8 housing. There are often not enough vouchers to serve all the families who apply, so waitlist and lottery systems are used to manage and notify tenants when a voucher becomes available. In some areas with especially high demand, PHAs have closed their waitlists and are not accepting new applications.
Conclusion
Understanding the terms and language involved in the Section 8 program is the first step to getting started. By researching these terms in more depth, you will be able to transition smoothly into the program and begin accepting your own Section 8 tenants.
