Problem Identification:
Although HABC has made some efforts to improve its process for setting program rents, it still appears that excessively high rents are being paid for marginal units in concentrated areas, which encourages landlords to accept Section 8 tenants in lieu of unassisted tenants. This results in increasing concentrations of Section 8 families in impacted neighborhoods.Historically, HABC’s use of low payment standards for the program has made it difficult for families to move to areas with lower concentrations of Section 8 families. Recently, HABC increased the payment standard for Baltimore City to 110 percent of the HUD-published Fair Market Rents (FMR) ‘ the maximum a public housing authority can allow. HUD exception rents amounting to 115 ‘ 120 percent of the FMR have been approved for a few high rent areas. The challenge to HABC is to let landlords in areas of lower concentration know about the availability of higher rents, while curbing the rents paid for marginal units in concentrated areas.

Recommended Actions:
Revise the process for setting Section 8 program rents to more accurately reflect the condition of the rental units and to encourage program acceptance in non-impacted areas. Implementation requires:

– Reviewing rental market data and current payment standards, and re-setting payment standards in defined market areas at 90 percent, 100 percent, or 110 percent of FMR as appropriate;

– Expanding rental database to include rent data available from city records;

– Adjusting approved rent levels upward or downward to reflect the condition of the rental unit. Provide incentives for landlords to upgrade units; and

– Using higher rents to encourage program acceptance in non-impacted areas.

Organizational, Service Improvement

Function/Operational Area:
HABC/Section 8

Estimated Annual Impact:
While the immediate financial impact cannot be estimated, implementation should make program rents more reflective of unassisted market rents. Additionally, property concentration would be discouraged, while property de-concentration and unit improvements would be encouraged.

Estimated Implementation Costs:

Projected Implementation:
1 year

Next Steps:
Assign responsibility for review of rents and payment standards, to be completed during the first quarter of FY2001. Implement 90 percent/100 percent/110 percent (or exception) payment standards for defined sub-market areas. Collect data and request HUD approval of additional exception fair market rent (FMR) areas, including the use of HUD’s new authority to approve exception FMRs above 120 percent in defined sub-markets.

Rents paid for units leased under the Section 8 program are subject to several limitations. First, the housing authority is required to ensure that rents for assisted units are no higher than rents paid for comparable unassisted units in the market area. The authority does this by:

– Comparing requested rents against a current data base of market rents, by sub-market area, which provides sufficient information about the location, size, age, condition, utilities, services, and amenities to determine that the units are comparable; or

– Verifying that requested rents are the same as those charged for identical units on the same premises.

Even if the requested rent is determined to be reasonable, it may not be affordable to a particular participant family. Program regulations also require that a family’s monthly payment for rent and utilities not exceed 40 percent of their adjusted monthly income. At rents at or below the authority’s payment standard, the family pays 30 percent of its adjusted monthly income. Although voucher program regulations allow families to lease units that rent for more than the payment standard, they are required to pay any additional cost themselves. Therefore, the additional costs cannot exceed 10 percent of their adjusted income. This is a fairly narrow margin for families with extremely low incomes (at or below 30 percent of the area median — the same families HUD is requiring to constitute at least 75 percent of the authorities’ new admissions).

The challenge to the authority is to evaluate market conditions and set its payment standards at appropriate levels. HABC is required to set its payment standards between 90 percent and 110 percent of HUD’s published Fair Market Rent limit. HUD may approve some higher (or lower) percentage based on the authority’s demonstration that higher standards are required in order to, among other things, promote mobility. HABC has the option to set different payment standards for different areas, although it currently sets the payment standard at 110 percent for all areas not covered by HUD exception rents. In concentrated areas, the payment standard should be kept low to discourage landlords from requesting inflated rents. In mobility areas, the payment standard should be as high as possible so that families with vouchers can afford to lease units.