I bet you think that someone on Section 8 simply gets their rent paid for them – do you think that? That’s what I thought. Ha!
From what I understand, this works slightly differently in each municipality, but let me tell you of my recent experience Lima, Ohio. If you have read my article from a few weeks back entitled Why Real Estate Investing May Not Be a Good Business in 10 Years, then you know that I recently approved a rental application of someone who receives housing assistance (I’ve since signed a lease with this tenant).
As I told you in the previous article this woman works full-time and earns $1,300/month. She had been living in, for lack of a better word, a dump, but had recently qualified for assistance which enabled her to apply for a unit that she deems more conducive to raising her daughter in – my unit.
When she called and told me she is qualified for housing assistance in the amount of up to $635, I assumed that they would pay her entire rent up to that amount. It sort of made sense to me because if you add her income of $1,300/month to this subsidy you end up with an amount which is roughly 3 x the rent. My rental guidelines stipulate gross income of at least 3 x rent so I erroneously made an assumption that this is how the government structures this program…
The 20 Best Books for Aspiring Real Estate Investors!
Here at BiggerPockets, we believe that self-education is one of the most critical parts of long-term success, in business and in life, of course. This list, compiled by the real estate experts at BiggerPockets, contains 20 of the best books to help you jumpstart your real estate career.
Not Even Close
In actuality, the requirement as part of this program is that the tenant spend 30% of their gross income toward their housing, which means that somebody grossing $1,300/month is held responsible for $390/month of rent. Now, I suppose that if someone does not work at all and has no income then the subsidy covers their entire rent – I am not sure how that would work. But, if that were the case, then it “almost” seems disadvantageous to work, especially if you are only going to earn $1,300/month gross. Thoughts?
On The Other Hand
I guess that if you do work, then you could go out and find the most posh apartment in Lima at $1,200/month rental, pay $390 based on your income of $1,300 and expect the subsidy to cover the rest – right? Not quite…
The housing authority in my town has designated the maximum valuation for a 2-bedroom rental unit and they will not subsidize rent over and above this number. So – if the maximum qualified rent is $615, then any rent over and above that is 100% on the tenant.
So, it’s not like being subsidized opens the door to undeservingly posh life style; on a unit that the government deems to be “reasonable”. And yet, if someone qualifies into the program but their income is such that the first $390/month of rent is on them, then the two choices they have are:
- Rent an apartment for $390
- Rent an apartment for more, which is nicer and in a nicer area; still pay $390 and be subsidized on the rest
There is Another Option
Of course there is an other option – get a higher paying job, a second job, or work overtime. Let’s talk about that:
Let us say that this person chooses to work overtime and earns an extra $300/month, which at the Ohio minimum wage would require an extra 20 hours per week, or more. The break-down in this case would be as follows:
Tenant (30% of Gross Income): $480
Housing Subsidy: $135
As you can see, working 60 hours per week would result in this person’s housing costs going up from $390 to $480. I ask you – is it worth it? I ask you – does the system introduce a disincentive to productivity?
But, you may say, now that this person makes more money they can afford a more expensive apartment… Not so, since the housing authority determines the limits as to how much rent is “subsidisable”, and anything over and above that becomes tenant’s responsibility. Can they really afford that?
Under the current system, people are encouraged to work less not more because they are penalized for making extra income, while at the same time they are not able to work enough hours to make so much more money that they won’t care about the subsidy. I concur that if someone making $1,300/month had viable option to double their income, they likely would because the quality of life afforded to them by $2,600 would be so much higher. But, let’s face it, people earning minimum wage are not likely to have either the education or entrepreneurialism to allow for this. And thus, they remain in the system and earn just enough…
We have some problems here, ladies and gentlemen.