Everything You Need to Know About Section 8 Affordable Housing
July 5, 2023
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A Guide To Section 8 Housing
If you invest in real estate or manage properties, you might be familiar with some of the affordable housing programs available to tenants. Federal affordable housing programs in the U.S. aim to provide decent, safe, and sanitary housing in the private market to low-income families, the elderly, and people with disabilities.
Section 8 is the largest and most in-demand housing program in the U.S. It helps over 9.3 million Americans afford housing in the private market. But due to limited funding, cost of living inflation, and few available properties, there is not enough affordable housing to serve the millions of low-income families who qualify. In fact, more than 2.8 million families remain on Section 8 wait lists, some waiting up to eight years to receive aid.
Landlords can play a role in the affordable housing crises by participating in the Section 8 program. In this article, we’ll overview everything you need to know about the Section 8 program: How it works, its risks and benefits, property management tips, and more.
Overview of Section 8 Affordable Housing
First things first: What is Section 8?
Section 8 has a long history. The term “Section 8” refers to section 8 of Housing Act of 1937, which initially authorized federally funded rental housing assistance on behalf of low-income households. This act was later amended and subsequently named the Housing and Community Development Act of 1974, which governs the Section 8 program today under the oversight of the U.S. Department of Housing and Urban Development (HUD). Section 8 is officially known as the Housing Choice Voucher (HCV) Program.
Here’s how the program works: The HUD provides a set amount of funds to about 2,400 state and local public housing agencies (PHAs) across the country each year. Those PHAs then distribute the funds to eligible applicants as housing vouchers, which can be used at privately-owned properties. Vouchers cover about 70% of the rent for the unit, and the family covers the remaining 30%.
There are two primary components of the Section 8 program: The voucher- or tenant-based assistance program and the project-based voucher program.
Voucher-Based Assistance Program
The “tenant-based” or “voucher-based” program is most often what people are referring to when they mention Section 8 or the HCV program. In this program, vouchers are assigned and tied to individual tenants or families, who are responsible for finding suitable housing of their choice where the owner agrees to accept the voucher. Because the voucher is tied to the renter rather than the property, families can carry their vouchers with them when they move.
The HUD has a helpful fact sheet with more information about the voucher-based component of HCV.
Project-Based Voucher (PBV) Program
The second component is the project-based voucher program, or PBV program. This program uses the same funds, eligibility criteria, and vouchers as the tenant-based program, only the vouchers are tied to specific properties rather than families. Upon receiving acceptance to the Section 8 program, families can choose to rent a unit with a Section 8 voucher connected to it through the PBV program. You can read more about the PBV program here.
What About Public Housing?
It’s important to note that public housing is different from both types of Section 8 housing. The main difference is that public housing units are owned and operated by the government rather than by private landlords.
Who is Eligible for Section 8?
Due to the high volume of applicants and unrelenting demand for vouchers, the Section 8 requirements for eligibility can be quite strict. To qualify for the program, families must meet four requirements:
- Family definition
- Eviction history
Section 8 applicants must meet the HUD’s definition of a family. A family can be a single person and doesn’t necessarily need to include children. Families whose head or co-head is an elderly or disabled person are also eligible, as are families who have been displaced by government actions or disasters.
Typically, a family must be classified as either extremely low-income or very low-income to qualify for Section 8. An extremely low-income family has an adjusted gross income (AGI) less than 30% of the median income for the area, while a very low-income family has an AGI less than 50%. In special circumstances, families who make less than 80% of the median income are eligible as well. These categories vary by county – you can view the exact income limits based on county and household size here.
Income limits vary based on household size because larger families will need more income to meet the same basic living standards as a single person. For instance, a single extremely low-income tenant may need to make less than $21,000 a year to qualify, while a family of four in the same income bracket could only need to make less than $30,000 to qualify.
Every member in a Section 8 family must either be a U.S. citizen or have eligible immigration status. Mixed families (with some members who are citizens/eligible immigrants and some who are not) can receive prorated assistance based on the number of members who qualify.
Applicants to the Section 8 program must not have been previously evicted from public housing or the Section 8 program for drug-related criminal activity. If they have, that family is ineligible for Section 8 until at least three years have passed.
Fair Market Rents (FMRs)
Fair market rents (FMRs) are another piece of the Section 8 puzzle. FMRs are statistics used by the HUD to determine rent rates for various federal assistance programs. They are used as a baseline for determining the overall rent prices for Section 8 properties.
How are FMRs calculated? According to the HUD, FMRs are essentially an estimate of the amount of money that would cover rent and utilities for 40% of the rentals in an area. It’s approximately the 40th percentile of the median rent. However, the true calculation the HUD uses is a bit more complex, factoring in inflation, rent forecasts, the number of bedrooms, the previous year’s FMR, and the state minimum FMR.
The HUD publishes Section 8 voucher amounts by zip code each year so that landlords and tenants can get a general idea of how much vouchers will cover by area. It’s also important to note that FMRs are only baselines for Section 8 rents—PHAs also consider the landlord’s asking rate and negotiate with the landlord to determine a final rate.
Becoming a Section 8 Landlord
Becoming a Section 8 landlord does require some up-front investment, including navigating paperwork and undergoing a thorough property inspection. However, the program also offers benefits to landlords. In this section, we’ll cover everything you need to know about accepting Section 8 vouchers as a landlord.
It’s important to note up front that becoming a Section 8 landlord is not always a choice. In many states (including New York, California, and others), fair housing laws prohibit discrimination based on ‘source of income.’ It is illegal in these states to deny an applicant solely because of their status as a Section 8 tenant. This doesn’t mean you must accept every Section 8 applicant you receive – you can and should, of course, screen Section 8 tenants the same way you screen all your tenants and deny any who fail to meet your criteria (except income, as they’ll receive a voucher to cover 70% of the rent). But if a Section 8 tenant meets all your typical criteria, you are required to accept them in these states.
Pros and Cons
There are both advantages and risks to accepting Section 8 tenants. Here are a few:
- 70% of rental payments are guaranteed to be on time each month.
- There will always be high demand for Section 8 properties, leading to low vacancy rates.
- PHAs will often market and advertise your properties for free.
- You’ll have a competitive angle against neighboring landlords.
- The HUD and PHAs offer generous rent increases each year.
- Section 8 has longer average tenancies and long-term stability.
- Renters are incentivized to take care of your property or risk losing their vouchers.
- You can help reduce the affordable housing crisis in the U.S.
- There will be bureaucracy and red tape to navigate.
- Initial payments will likely be delayed by one to two months.
- You’ll generally have less control than you normally would during the leasing process.
- Rents are based on FMRs, which could be less than market rates.
- You may have difficulty collecting a security deposit.
- You’ll have to undergo yearly PHA property inspections.
- High-value investors will likely find Section 8 less profitable.
Marketing Section 8 Rentals
If you’ve decided to participate in the Section 8 program, the first step is to market your rentals as Section 8 friendly. Start with your local public housing agency to get more information about the program and to find out if they have a Section 8 landlord list. You can also list your properties on AffordableHousing.com or other traditional listing sites like Zillow and Apartments.com. Another key marketing strategy is making personal connections with local agencies and organizations: Try reaching out to local affordable housing case workers, the social services office, local government authorities, local businesses, or post flyers on community boards.
Screening Section 8 Tenants
When you receive an applicant with a Section 8 voucher, you should first conduct a thorough tenant screening. In fact, you must screen Section 8 tenants exactly the same as you would any other tenant – run the same credit, criminal, and eviction checks and use the same standards (the only exception is for income, as the PHA will cover 70% of their rent). You should not impose any extra standards, checks, or tests on an applicant just because they are in the Section 8 program. Doing so is a sure way to land yourself a fair housing lawsuit, heavy fines, and damage to your reputation. However, if you do plan on accepting Section 8 tenants (or if your state prohibits ‘source of income’ discrimination), it’s a good idea to design exhaustive screening practices to apply to all your applicants and only choose the most qualified applicants to rent your properties.
Process of Accepting Section 8 Vouchers
After screening an applicant or family, the next step to becoming a Section 8 landlord is to onboard the tenant. This process is done through the local PHA. Here are the general steps:
- Contact your local PHA to learn more about the program and local procedures.
- Submit a Request for Tenancy Approval (RFRA) Form to apply to become a Section 8 landlord for a particular voucher family.
- Schedule a PHA Property Inspection, which is an initial review of all your property’s major systems and services (e.g., HVAC system, electricity, ventilation, plumbing, etc.). You may need to schedule a second inspection if repairs are needed.
- Negotiate the Rent Price with the PHA based on the area’s FMR, your asking rate, and the property’s condition or features.
- Sign a Housing Assistance Payments (HAP) Contract, the agreement that finalizes the Section 8 voucher amount and establishes the relationship between you and the PHA. It states that you agree to maintain the property and keep the rent reasonable in exchange for which the PHA will send you around 70% of the rent rate each month.
- Sign a lease with the Section 8 tenant or family as you would with any other tenant, except in this case, the Section 8 lessee agrees to pay around 30% of the rent.
- Start Receiving Voucher Payments once the tenant moves in. Note that there may be one to two months’ delay for the first payment.
Responsibilities and Annual Inspections
As a Section 8 landlord, your main responsibility is to ensure your property meets HUD Housing Quality Standards (HQS). These are specific criteria set by the HUD in 13 different areas, including sanitation, space and security, illumination, infrastructure, air quality, and others. The PHA will evaluate your property for these standards once a year during an annual PHA inspection. You’re also responsible for keeping the rent for Section 8 properties “reasonable,” or otherwise consistent with market rates in the area.
Evicting Section 8 Tenants
Just like any other tenancy, it’s possible that a Section 8 tenancy won’t work out. You can evict a Section 8 tenant for not paying rent, damaging your property, or engaging in illegal activity—and for the most part, the process is the same as any typical eviction. However, there are a few differences. For instance, you must notify the PHA of your intent to evict a Section 8 tenant and provide the tenant at least ten calendar days to discuss termination before filing the lawsuit. You can find more information about terminating a Section 8 tenancy in Chapter 8 of the HUD’s Housing Choice Voucher Program Guidebook, but be sure to call your local PHA for more information about evictions.
Accepting Section 8 tenants is a deliberate and strategic move for some landlords, but for those in many states it is an inevitability. It’s best to be knowledgeable about the program before you receive an applicant with a voucher—not only to be prepared to work with the Section 8 program, but also to better understand how affordable housing fits into the local real estate landscape in your region.