What will happen with Section 8?

Question

Curious as to what everybody thinks will happen with section 8? Personally I would probably pivot to a non-profit funded program like the salvation army or community service league like we have here in Kansas City as I have one with the Salvation army now which works out well. I have heard different things like it not being federally funded and being left to the states. I have also heard it may remain federally funded but people will only be given two years on the program, which I do tend to agree with that decision. I have already seen Kansas City Missouri come out and say they are no longer honoring the rates advertised on HUD's website which they used to, but instead off rental comps on affordablehousing.com. However, half of my current portfolio is section 8 tenants that have been in the property for years (as I bought most of them via seller finance). What is everybody's opinion?

Greg M. · Answer

Based on what is in the One Beautiful Bill working its way through Congress:

The federal government would get out of the S8 business and instead provide state-administered block grants, allowing states to set their own eligibility rules and benefit levels.

The budget for these block grants would be slashed by around 40% from current levels.

Able-bodied adults without disabilities would be limited to two years of assistance.

If this passes as is, I'd expect local governments to guarantee a smaller portion of the rent as they try to spread their money out over more people. Poor old people would probably fall under the 2 year rule, so expect them to vacate units.

If you're in places that have harsh rental controls, this may be good as units will voluntarily  free up and you'll be able to be set to market rent without any relocation/non-renewal costs.

The biggest unknown is how the block grants will be provided. What criteria do they use? I can see this administration punishing states like CA & NY. Places outside the main cities are cheap and I could see this factored into the grants.

Expensive areas may see reduced demand while cheaper areas see more demand.

Johnathan Trimble · Answer

I agree with you AJ, I could see it going down just as you described, what I am personally concerned about are the many people on it in property and that have been for years. I am curious if they will be given a date in which that shuts off or what the case will be. Regardless I think it is about to likely further a homelessness issue here and create A LOT of turnover and properties coming up for rent, which in turn could certainly reduce rents in inner city. Just glad I have mine at a lower interest rate on seller finance..

AJ Exner · Answer

Hey Johnathan,

Your guess is as good as mine. If I had to put money on it, the current administration has made it a focus to get more and more into the hands of the individual states and this seems like a big enough space that it would make sense to do the same.

Of course, if the administration treats this like they did issues like Abortion and immigration reform, then I would see a wide-variance by state to determine budget, limitations, and amounts.

Given what I know about the leadership up in KC (based just south in Springfield) it would be hard to imagine a complete 'drying up' per se of Section 8, or Section 8 adjacent, funding to help alleviate the housing crisis in the area. I could see potential 'limits' to the terms of a single section 8 tenant where they are only allowed to be on S8 for a set amount of time and would then be required to make a change. But as for a complete redaction of that in KC, it would be hard to imagine.

Of course, I could be completely wrong, so we'll have to see

Andre Taylor · Answer

I would be very surprise if they dramatic cut the section 8 program. I feel like there are a hand full of politicians that benefit from those programs as real estate investors. I also look at the fact the government do not want to get into the housing game so they have to provide some incentive to provide susidize housing. I can see they want to make rules where people don't abuse the system which I am all in favor for. All in all I think the Administration will try to push this through but I think it will be meant with a lot of resistance.

Johnathan Trimble · Answer

That sounds horrible Wesley, may MO not adopt anything remotely similar....

Wesley W. · Answer

Well, here in the Socialist Republic of New York, they are expanding the program.  They have recently passed legislation that will go into effect in March.  It's called the Housing Access Voucher Program.  This has a familiar ring to it, right?  This basically expands the program to include convicted felons, people with zero income, and illegal aliens, all of whom are ineligible for HUD Section 8.

In NY, all property owners are prohibited from declining any application due to source of income (i.e. we must accept Section 8 and the cornicopia of other subsidized programs available).

Good stuff.

AJ Exner · Answer

And as 'silly' as it sounds, I think there are a lot of investors that have the ears of state/local legislators that would keep anything drastic from happening. The turnover is a legitimate concern and one that could stall things a bit.

Fortunately if anything happens at the national level that pawns it off on state level, Missouri just finished their session so you should have at least one more year before we would really have to worry about anything.

Dan Na · Answer

It's uncertain as of right now. However, I've met many residential wholesalers who are trying to buy Section 8's and add them to their portfolios.

What will happen with Section 8?

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