Sequestration and Section 8 Housing

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Sequestration: the ten years of automatic, across-the-board budget cuts that started March 1. It’s here and it’s effects are being felt.

The federal Section 8 housing assistance program has had five consecutive years of inadequate and declining program funding. Things are about to get worse.

A March 8, 2013 letter from the US Department of Housing and Urban Development on the HUD.gov website states:

“As you are likely aware, due to the inability of Congress to pass legislation on balanced deficit reduction to avoid sequestration, the President was required by law to issue a sequestration order on March 1, 2013, canceling approximately $85 billion in budgetary resources across the Federal government for the remainder of the Federal fiscal year.

Based on our analysis, funding for the Section 8 Project-Based Rental Assistance program would be $8.9 billion. This represents a five percent reduction to the annualized funding level for HUDs Section 8 Program in the Federal fiscal year 2013.”

Public housing agencies were advised that they will have their Section 8 Administrative funds pro-rated at 68.5 per cent of what they are due for their work. Those in the the affordable housing field and those who live in federally-assisted housing are being warned by HUD to prepare accordingly.

What are some of the impacts to Section 8 tenants and property owners?

  1. Sequestration will reduce the amount of affordable rental housing made available by the federal government.
  2. Some underprivileged low-income occupants will be forced out of their homes.
  3. Landlords with marginal Section 8 properties will move into negative cash-flow.
  4. Property managers will lose income through reduced rents and landlord cutbacks.
  5. Lower lease rates could decrease property values.

Reductions on the table include:

  • tenants paying more toward their rent
  • landlords receiving less rent
  • dropping families from the Section 8 program

Public Housing Agencies have been authorized to take steps to address budget shortfalls including:

  1. holding back new vouchers
  2. increasing payment standards
  3. increasing minimum rents meaning paying out to fewer units
  4. moving those who live in larger units into smaller units
  5. not re-issuing vouchers that are turned in
  6. no longer issuing vouchers to families that have applied to waiting lists

Some housing agencies are already in the process of canceling vouchers recently issued to low income families and taking away vouchers from households that had not already found housing during the period allowed.

When testifying before the Senate Committee on Appropriations, HUD Secretary Shaun Donovan stated that these cuts would

“cause significant damage to our nation’s housing market at a time when it’s helping to lead our economic recovery.

More specifically, sequestration would mean about 125,000 individuals and families, more than half of whom are elderly or disabled, losing assistance provided through the Housing Choice voucher program, and becoming at risk of homelessness.

Sequestration would also result in more than 100,000 homeless and formerly homeless people, the majority of whom are families, disabled adults or veterans, being removed from their current house or emergency shelter programs, putting them at substantial risk of returning to the streets.”

Perhaps this change will help to clean up a program that was already struggling under the weight of its own inefficiencies.

Do you know how your local housing authority plans to deal with sequestration? Will you keep your Section 8 housing in light of this new information? Can you afford to keep your property Section 8 if they cut your rent by ten percent or even more?

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About Author

Karen Rittenhouse has been investing in real estate full time since January 2005. In that time, she has purchased hundreds of single family properties, opened a full-service real estate company, a property management company, a coaching/training business, and written three books on real estate.

53 Comments

    • karen rittenhouse

      Robert –
      As we should all recognize, what the government gives, the government can certainly take away. Guess they’ve decided to stop blatantly printing money!

      Thanks for the comment!

  1. I wrote an article on this yesterday. The Dallas Housing Authority (DHA) sent letters out this weekend reflecting a 10% haircut, across the board. After some backlash, the DHA sent an email to some of us stating they were scrambling to not force us to make a choice. THe letter we received gave us 10 days to decide to evict, or accept the reduction.

    • karen rittenhouse

      Tim:
      Yours is probably not the only city giving this option. Every city seems to be scrambling to come up with how they’re going to handle this. Their income has stopped, for sure. How they rearrange their disbursements is up to each city.

      Daunting.

      Sorry for your loss….

      • I just want to say I am loosing my housing and I and my son have the street to look forward to. I have worked since I was 14 years old and paid taxes. My heart is bad so I will most likely not make the winter, so you will be rid of one homeless person soon. My son is in college with no place to live. I am not a welfare baby. I hope that everyone will be ok with all the additional families on the streets now. Lets see how the goverment will deal with all the homeless now. Lets see bankers are eating and living in warm homes, I helped pay for with the money I earned working, If we were allowed to see the real budget, the truth would be known, If you have a suggestion I would love it.

        • Diana:
          You’re exactly the reason these programs were set up – to help people in dire situations until they can get back on their feet.

          I’m sure there will continue to be programs in your area to help you through this time.

          Please keep us posted on your progress.

  2. “Sequestration: the ten years of automatic, across-the-board budget cuts that started March 1.”

    Well, to be accurate, it’s a reduction in the rate of growth, not an actual cut. The government is still printing $85 billion/month in continuous quantitative easing, while the total amount of sequestration this year is less than $85 billion total. In one month, they will have printed the same amount of money as this year’s entire “cut”.

    Are Section 8 cuts happening? Apparently so, but let’s be fair and recognize it’s by choice. If you have chosen to shoot for “guaranteed government vouchers”, then you need to accept the risk that goes along with it. Perhaps its time to get out of Section 8? That is certainly the choice to evaluate.

    It may appear that Section 8 is a piece of the Washington Monument effect that will be slammed first when any cut in government spending is threatened. Do you want to continue taking this risk?

    • karen rittenhouse

      Actually, it is a cut.

      According to CNN (who is never inaccurate…), sequestration is “a series of automatic, across-the-board cuts to government agencies, totaling $1.2 trillion over 10 years. The cuts would be split 50-50 between defense and domestic discretionary spending.”

      So they’re cutting, and printing.

      Hard to keep up.

      • It is in no way what so ever a cut no matter what CNN says. The Federal budget continues to rise, it’s simply not rising as fast as they wanted it to. Rather than growing at 5% a year, it’s only growing at 3% now. This isn’t a cut at all. As Greg said, the Feds are printing as much money each month as the sequestration impacts over a whole year.

        • Alan:
          With all the money being printed, the Federal Government may not feel much of a cut, but local government funding is being cut and local governments are feeling every bit of the pinch – which means we all will, eventually.

          Thanks for adding to the discussion.

  3. Karen-

    It looks like section 8 landlords have a lot to think about. Some landlords that rely heavily on this program for tenants are going to be in trouble. Thanks for this informative article.

    Sharon

  4. I guess everybody is going to need to tighten their belts.

    Seriously isn’t section 8 welfare for landlords?

  5. I think they should make the section 8 program exempt from these cuts. There are a lot of disabled, vets and elderly people on this program. I don’t think it’s humane to throw these people out in the streets. There are many suffering from terminal or chronic illnesses. Some don’t have families either so that’s not an option for them. Another solution would be to change the rules and eliminate welfare people from section 8 and only have it for disabled, vets, and elderly. Welfare people are capable of working and a lot of them abuse the program.

    • Jamie:
      Great point. It is up to the cities to determine how they distribute the funds they receive from the federal government. I hope they think like you do and keep the indigent in homes. It’s time to make those who are capable of working give something back to the communities that give so much to them.

      Thanks for taking the time to comment.

    • The problem with making the humane argument is that technically you can throw that wet paper towel at ANY program and make it stick by saying it’s not humane to cut anything. It’s not humane to cut food stamps, veterans benefits, Department of Defense job programs, welfare, WIC, foreign aid, Dept of Education, AMTRAK, US Post office, unemployment insurance, etc. All of these programs and agencies employ and/or benefit one group of people or another, so anytime you cut any of them someone loses out. Simply put, using the humane argument exempts all cuts to all areas funded or subsidized by the Govt. So basically what you’re saying is we need to cut “something” then turning right around and saying we can’t cut “anything!” Catch-22. Anyone who disagrees with my analysis, please put forward a list of programs you would cut, and include a list of which people will be affected so we can hold them up to scrutiny of the humane argument.

      I’ll give one example of how impossible that will be. This morning there was an article in the newspaper about cutting the Dept of Defense Abram tank program. The military says it doesn’t need any more tanks, but Congress insists on continuing to fund the program. The reason given is that over 13,000 people are employed in these jobs, and the machine lines are “to valuable to cut off.” So we continue to make tanks to sit in a parking lot somewhere so 13,000 voters won’t throw their Congressmen out of office. Heh, see the irony?

      To sum up with a productive point, I suggest that fellow land lords (I am one) take note of the new situation and adjust their strategy accordingly. I choose not to participate in Section 8 housing. The rules and regs are way too constrictive for me to want to mess with. This “haircut” is just the icing on the cake of reasons not to participate in it.

      • Erik:

        Agreed! We cannot and are not saying cuts are not appropriate. The article is to point out to landlords that cuts have been made and, as you pointed out, they need to prepare accordingly.

        Thanks for adding to the discussion.

  6. Thanks Karen for the insightful information. That is why I like reading these Bigger Pockets blogs. I may adjust my underwriting and lending standards for section 8 landlords.

    Lee

    • I have many landlord customers who are exclusively section 8 one fellow with about 90 properties. I can tell in in Philadelphia a vast majority of these houses would be abandoned if they could not get payment through section 8.

      This particular landlord moved all his rentals to section 8 as he was tired of chasing low income tenants. The location of all his properties are in an area where no decent retail renters could be acquired. This is why I call section 8 welfare for landlords, as they would not be landlords without the government check each month.

      Section 8 allow no management company staff, only a half witted handyman is needed.
      Retail landlords need management companies, maintenance, and good customer service etc.

      Don’t get me wrong, not a meanie here. How about we exempt the elderly, disabled and the Vet from the effects of cost cutting in the section 8 program.

      Everybody else getting a voucher has to kick in a part of the rent, I would suggest the best way to effectively cut rental payment would be for the tenant to have a responsibility to keep the rental in good order. Having the tenant not act like a wreaking crew, would lower the cost of ownership to the landlord.

    • Ooooh, another hit to the landlords that I hadn’t considered. A change in the lending standards because of decreased rents and qualified tenants.

      Landlords beware!

      Thanks for this insight, Lee.

  7. Good, I am glad to see the cuts. While I have a few sec8 houses, I am working to get off that program. It costs me far more than it helps. Fully renovated properties, yet i still expect $200-$500 in repairs every inspection. Rent increases are a PITA and I really hate waiting up to 4 weeks for rent approval on new tenants. I can do far better without sec8 and i think society would do far better as well. They go for a 10% cut here in Denver and the eviction notice will be in the mail. I’ll be sure to let the tenants know it was sec8 who pushed the issue. Sounds cruel, but their rents are lower than market rents, I have nothing but issues with the sec8 office and I’m amazed how a $16/mo rent payment is so difficult for a sec8 tenant to make. /endrant

    Karen thanks for the post, it should make folks aware that sec8 can become a very weak link if we rely on them to much.

    Jason

    • My father-in-law owns 30 rental properties. He used to do Section 8, but the wear and tear was ridiculous and he got out long ago. When I got my own rentals, I steered clear of Section 8.

      Is it welfare for landlords? Well, would you call food stamps Welfare-For-Walmart? I don’t think so. But I don’t know how much I can cry over a “cut” that is tantamount to a 2% reduction in total spending, which surprisingly increases every year.

      • Hi Greg:

        Yes, the cut is small when you’re talking government spending, but huge to many landlords and tenants who are effected.

        Thanks for all your contributions to the discussion.

    • Jason:
      I, too, think Section 8 is a hard way to fill properties. At one time our frustration with both the tenants and the government hit a level where we converted all of them back out of Section 8.

      We now have a number of Section 8 properties again, but they are very low end. We’ve done that because, as many have pointed out, it’s almost impossible to get payments from these tenants. Without government funding, we may sell these properties, who knows? Section 8 is not easy, can truly be a landlords worst nightmare and, besides those with true needs, feeds a segment of the population who was raised to feel entitled.

      Changes are coming, that’s for sure. I think some of these changes will be for the better.

      Thanks for your comment.

  8. Chris Clothier

    Hi Karen –

    Nice and informative article. I was wondering where this piece of information came from :

    “The federal Section 8 housing assistance program has had five consecutive years of inadequate and declining program funding. Things are about to get worse.”

    I have mixed feelings about the program. I know that there are benefits for those that are receiving the assistance and if there is need for the housing, then landlords will certainly offer their homes for the program, but can we really say the funding has been inadequate? I have no data on it for my market, but I think a fair statement from me is that the local section 8 program is hard to navigate. Some may love it, others do not, but in my opinion it is not worth the hassle. Maybe if the programs were run more efficiently, then we would find that the programs have been over funded for the past 5 years but a lack of oversight and management was the real problem?

    Either way, change is coming for those landlords who have made section 8 housing a staple in their portfolios. Like what is happening in Dallas, many are going to see an instant reduction in income. This exact thing happened in August of 2009 in Memphis. Very little warning, just an instant reduction in income and you could choose to accept it or drop from the program. I am not certain, but I do believe that rents were adjusted back up over time. We’ll see what happens here.

    Thanks again for taking the time to write on this topic. – Chris

    • Hi Chris:
      City agencies have been complaining for years about federal funding not being adequate to cover their costs for the Section 8 program. Now with notification that funding will decrease even further, they will wind up with even great deficiency.

      I agree with you that the system is most inefficient. Anytime money is being thrown around, money is being wasted. Now that money is tight, hopefully excesses will be stopped and those who truly need the system will still be provided for.

      Thanks for writing.

      • “Maybe if the programs were run more efficiently…”

        It’s a government program. It will never be run efficiently. There is no incentive to be efficient. Landlords are driven to be efficient when it means the difference between profit and loss. But government programs are driven by the difference between getting elected or not.

  9. Before these commentators jump on the “see, I told you its not worth it” bandwagon, remember: Properties that are leased section usually (in my case always) have HIGH percentage of cashflow. They are usually in neighborhoods where the purchase price and fix value is 45-50k, and this is in places like Baltimore, MD or Richmond VA, earning an income of 900-1000/mo. So, a 10% decrease is money out of your pocket, it would take a 50% or complete withdrawal to really make the business plan more risky.

    • Lisa,

      you make a valid point. The problem lies in the program itself. Government subsidies tend to raise prices in a market. Rents in Baltimore should be much lower based on the price and availability of housing.

      Another example would be tuition rates at Universities.

      Jason

  10. I haven’t thought about how sequestration would affect public housing, so thanks for bringing this issue to the table. Of course we would have all preferred Congress to come to an agreement, but what’s done is done. It seems the only fair way to divide up the cuts is to do them across the board. Can we really pick and choose who deserves to be affected by these cuts?

  11. I see many of you are only looking at this one-sided. So you really believe section 8 voucher holders is the grand winner. Okay, look at your state’s dept of housing and community affair’s website. Take a good look at the owners or investors who received millions and millions of dollars to construct apartments to accept vouchers. By the way, your city receive millions as well. Nobody is saying anything about those who receive homebuyer’s grants that do not have to be repaid, interest rate reductions, MCC credits, etc. All of this comes from the same pot of money under HUD. So on the same token as one was asking why he couldn’t understand how someone cant make a $16 payment. Are you curious as to why a family making $60,000 and more receive $5,000 to $30,000 to purchase a home? I agree not all deserve section 8 but don’t just talk about one program, talk about them all. Don’t talk about one group of people, talk about them all. Bottom line, this is going to hurt everyone. So what do think is going to happen now? Killings, Robberies, and just Crime itself is going up. Who wants our elderly, vets, disabled, and children being a victim of this sequestration ordeal? NOBODY. Please people wake up and get for real!

    • Margaret Thatcher just died, this is a great time to read or listen to some of her speeches concerning socialism, and the destruction of the free market the UK had once flourished under.

      Can anyone make the statement that America is not in decline?

      Open ended socialism is welfare to all who receive public money, the only way any of these grants, bailouts, payoffs can happen is to take the money from the productive and place it in the hands of the non productive. There was

      History (which is never taught in our public school system) shows over and over that socialism promotes poverty.

      No matter what your best emotionally directed intentions might be to the poor, the source of these public funds will at some time in the future be exhausted and the end problems you describe will be increased a hundred fold.

      Let’s just review what socialism and the large governments in promotes has done for Greece, Spain, England, Portugal, Argentina, Mexico, Hungary, Mozambique, etc..

      Now what was that famous definition of insanity given by Einstein? If you don’t know look it up.

      Let me leave you with a quote from the Edinburgh review page 103 of Political Economy- Laws and jurisprudence:
      No arbitrary regulation, no act for the Legislature, can possibly add one single farthing to the capital or the industry of the country; it can only give it a faulty and unnatural direction.

  12. Karen,

    I’ve been watching this program and government growth since I started in Real Estate in 1974 the same time Section 8 did with the Community Development Act. Born into relative poverty of a family that believed in self-reliance and hard work, I am a strong supporter of Home Ownership and sometimes do way more work than it is worth to help people who actually ARE working hard, being responsible, and for whatever reason have a very difficult making that 1st big step work getting off the dole. Many of those are still clients after 20-30 years and it is a big achievement for them. (rewarding to watch as well)

    Realistically, this is simply a small tug on the leash. (If I can say that, it seems to me gov spending is spinning totally out of control comparatively) As stated earlier here, this is not a cut, it is a very small reduction. I would not be surprised if it helps many of those people kick the bad habit of living off the gov and I celebrate their new freedom when they do! (not talking abt the ones who genuinely need it and are incapable)

    Just like the family budget, when you aren’t making enough money you cut back on spending. (What a concept!) It seems to me the numbers of welfare reform in the 90’ds (Republican Congress & Signed by Bill Clinton) are pretty conclusive. We had a lot more people getting off programs & great job growth.

    However, supporters did not give up and spending has almost doubled every 10 years since then as well as the share of the pie they consume. (I understand almost 20% of the people coming off unemployment are going onto SSDI and a big part of the reason the “participation” rate is shrinking like it is -NOT a good reason for lower unemployment!)

    Currently the US is spending over 40% more than it earns…..now where in reality is that not a recipe for major bankruptcy?

    There is nothing inherently political about balancing your budget (except for those in gov with the agenda’s)

    • Brent:
      You’re absolutely correct, “There is nothing inherently political about balancing your budget.” In fact, a National balanced budget is required by law and this is the first time in US history that we don’t have a budget – balanced or otherwise – as neither party wants to “make waves.”

      I think we all agree we need one and have voted for representatives to make sure we have a budget and that we spend less than we bring in. However….

      This article is just a heads up about some of the oncoming changes. All of us should stay aware so we can be prepared to handle our own finances as changes happen.

      Thanks for taking the time to comment.

  13. I think people here on Housing in New Mexico will be okay too. New Mexico Governor Susana Martinez made a statement a while back that “New Mexico provides a “safety net” because many people here are “poverty” or below “poverty” level”. According to what I’ve heard, housing here won’t be affected. New Mexico was able to absorb the cuts.

  14. I never got into the section 8 deal because I heard too many horror stories from other landlords. Now with the sequester firmly in place and with no movement from congress to do anything about funding levels, I suspect 2014 and beyond to be even worse. Most working middle class people hate this program. They see it as wealth redistribution to people who have not earned it. I think the program should be for the elderly 62 and over, vets and the handicap only. These welfare people need to dropped from the program. Then there would be plenty of money to cover the most vulnerable. Landlords are taking a huge risk staying in a program who’s doom is written on the wall. The vouchers can be stopped without warning and you will be stuck with people who can’t pay anything. I would sell the properties now and get out before you lose everything you have invested.

    • Section 8 is a wealth distribution program, but to landlords who’s properties would be in some cases worthless as rentals.

      • Jeff:
        We got out of Section 8 due to lack of control. Our city did not hold up its end of the bargain, multiple times. When we complained about bad tenants including ongoing repair receipts to justify evictions, the city simply moved the tenants to other housing (I hate it for those landlords) and didn’t pay us for extra days if a tenant moved out mid-month. (They paid us on the first for entire months but, when the tenant didn’t move until the 15th, we didn’t get paid for those 2 weeks no matter how much we complained.)

        It’s my property and I want control. Giving the local government some power did not work out for us, at all.

        Thanks for your comment.

      • Very good point Dennis, this is so true and I have a feeling many landlords are going to find themselves with worthless rentals once more in about a year, once those notices hit their mailbox that their tenants voucher has been cancelled it will be to late. A flood of cheap rental property will go on the market and the prices are going to go down, down, down, some places more than others, some neighborhoods more than others.

  15. After 21 years in the same apt., the last 12 on sec 8, I’m givin 90 days to leave. I’d pay the extra $50 increase in next years rent,or more to make up the for the cuts, but the Brookline MA Housing Authority says “it’s against the rules to pay more than one-third of your income” (I’m disabled from a head injury).
    So under the new policy, someone newer to the program, with a higher income than me, can get my apt. when they kick me out !

  16. I have a section 8 tenant. The FMR for my neighborhood is approximately $1000 which it turns out is uniform with the other houses around my unit. I am just saying $1000 to round it out and make it simple. The housing authority subtracts approximately $200 dollars from the $1000 and its called it a utility allowance. This drops the rent to $200 less then other comparable units in the neighborhood. I complained and the Housing Authority said that the utility allowance is statutory. I think statutory mean HUD take this allowance from all the landlord’s in the United States. What I don’t understand is why a lot of places in the United States some section 8 landlords recieve comprable and even I am reading a bit higher rents then surrounding non section 8 rents if they take this fee from everybody. Or are they lying to me about this fee being subtracted from all section 8 landlord’s, or are they suppose to set the FMR as gross $200 higher. I cant figure it out please post answer and send me an email Thank You

  17. Hi John:
    I have never heard this from the Housing Authority – that they subtract a “utility allowance.” So, I don’t know if this is a uniform policy or not.

    However, they can make any rules/laws they want and change them anytime they want. For this reason, we no longer offer Section 8 as an option on our properties. We want to be in control of what we charge and who we allow in.

    Bottom line – if you want to play with them, they get to make the rules. If you don’t like the rules, don’t play with them.

    Thanks for asking and I hope everything works out well for you!

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