Housing Basics

How knowledgeable are you about affordable housing’s many programs and players? Quadel’s Housing Basics will introduce you to the fundamentals of subsidized housing.

Subsidized Housing

Subsidized Housing in the United States Federal housing policy in the United States has its roots in the Great Depression of the 1930s, when the country faced an urbanizing population and an economic crisis that produced mass unemployment and crippled the private housing sector. Policy makers in the New Deal period responded in several ways to address these problems: To help stabilize the housing sector and stimulate private construction, they created the Federal Housing Administration (FHA) and authorized it to insure private mortgages. FHA programs have continued to the present day, benefiting millions of American households by making homeownership simpler and more feasible.

To help meet the housing needs of the poor, who could not attain homeownership, they created a framework for public housing. Under the Housing Act of 1937, public housing is largely federally funded but is built and managed by local housing authorities, within certain federal guidelines. Legislation enacted after World War II expanded both of these programs and declared that the goal of federal housing policy was to create “a decent home and a suitable living environment for every American family.”

The 1960s saw new approaches to solving housing problems-including housing for the elderly, rent supplements, subsidized private housing production, subsidized home ownership, and housing allowances.

A form of the housing allowance idea grew in popularity in the early 1970s. Congress created the Section 8 housing program in 1974-including elements that allowed local authorities to subsidize housing rehabilitation, initiate new construction, and subsidize rents in existing private-market housing. A housing voucher, issued to an eligible low-income family, allows the family to search for and lease housing in the private rental market. Under the Section 8 Program-now known as the housing choice voucher program – the family pays 30% of its income toward the privately set rent, while the housing agency pays the difference, up to a certain “fair market rent” level, set by HUD.

The voucher program has continued to win broad support from policy makers who see it as an efficient, effective alternative to public housing. In 2001 the bipartisan Millennial Housing Commission called it the “linchpin” of federal housing policy. Today it serves about 1.7 million households in communities around the country and is a vital means of addressing the housing needs of low-income people.

Housing Programs

Public Housing Program
HUD’s low-rent public housing program provides decent and safe rental housing for approximately 1.3 million low-income, elderly, and disabled households. The program is managed by more than 3,300 local public housing agencies (PHAs) across the country. The PHA enters into a contractual relationship with HUD and is responsible for the planning, financing, construction, management and maintenance of the properties. Many PHAs also administer programs designed to improve the social and economic status of its residents. Interested families must apply by contacting the local PHA, which usually places the family on a waiting list. The PHA determines who is eligible for the program, based on family income, family status (elderly, disabled, or family), and immigration status. The PHA determines the rent for the eligible family based on its anticipated gross annual income, less any deductions.

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Housing Choice Voucher Program
Like the public housing program, the housing choice voucher program is also administered by local public housing agencies (PHAs). It is the federal government’s largest housing assistance program, with about 1.7 million low-income, elderly, and disabled families currently receiving assistance. The PHA determines who is eligible for the program, based on a family’s income, family status (elderly, disabled, or family), and immigration status. The PHA issues eligible families a housing voucher, and the family searches for housing in the private-rental market. The unit must meet the program’s housing quality standards, the rent must be reasonable, and the landlord must agree to participate in the program. The family and the landlord enter into a lease agreement, while the landlord and the PHA sign a housing assistance payments contract. The PHA pays the housing subsidy to the participating landlord on behalf of the eligible family. The housing choice voucher program gives the family the opportunity to choose where it wants to live, since the assistance is tied to the family.

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HUD-Subsidized Multifamily Housing Program
HUD subsidizes a wide range of multifamily housing programs, where the units and buildings are developed, owned, and operated by private property owners and management companies. Units are generally targeted to lower-income, disabled, and elderly households. There are three broad categories of HUD-subsidized multifamily housing programs. Within each category, there are multiple programs, each with a unique set of program requirements. Some multifamily properties are assisted under more than one program. The three categories are:

  • HUD Mortgage Insurance Programs. These programs include the Section 221(d) (3) Below Market Interest Rate (BMIR), Section 236, and the Section 231 programs. The federal government indirectly supports the development of multifamily housing by providing mortgage insurance and reduced mortgage interest rates, which results in lower operating costs and subsequently reduced rents.
  • Non-Insured Programs – Direct Loans and Grants. These programs include the Section 202 and Section 811 programs. HUD provides low-interest direct loans or grants to develop housing for the elderly and persons with disabilities.
  • Project-Based Rental Subsidies. These programs include the Rental Assistance Payment (RAP), Rental Supplement, the Section 8 Housing Assistance Payments (HAP), Project Assistance Contract (PAC), and Project Rental Assistance Contract (PRAC) programs. HUD pays housing subsidies to private owners on behalf of tenants to keep the amount that tenants pay for rent affordable. Unlike the housing choice voucher program, the subsidy or assistance is tied to the property and not the family.

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Low Income Housing Tax Credit Program
The tax credit program was established in 1986. It is designed to promote construction and rehabilitation of affordable housing by providing tax incentives for owners to maximize occupancy in their buildings by low-income tenants. Unlike most other federal housing programs, the tax credit program is not implemented by HUD but by the IRS through state housing finance agencies. In this program, the federal government does not provide financing for the property or pay rent on behalf of families. Instead, the IRS allocates tax credits to the states, which in turn allocate the credits to owners of eligible rental properties. Owners commit to reserving a certain percentage of units for low-income families and charging a restricted rent. A tax credit is a dollar for dollar reduction in the federal income tax liability of the owner, thereby reducing the amount of federal income tax the owner must pay. Owners must comply with the established IRS regulations regarding applicant, resident, and unit eligibility or risk losing the credits.

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