582 May 27,1987 VOUCHERS: A WAY TO PROVIDE BETTER HOUSING FOR AMERICAS POOR IN TRODUCTION It has become increasingly evident to lawmakers that Americas low-income housing provams need a drastic overhaul. Most maor cities are blighted by public housing public sector-financed housin typically is 40 percent higher than private costs--m e aning The Reapan Administration has sought to change the direction of federal low-income housing policy by a voucher program designed to help families obtain housing in the private sector at lower cost. This pro am is the cornerstone of the Reagan Adminis t rations problems of low-income Americans. The first of these is rental costs. Since there now exists an adequate national stock of decent housing, the issue for poor families is affordability, not sup ly. The second problem is that the poor find it diffic u lt to move to public housing and other goveriunent-sponsored projects. These supply-based programs prevent famihes from pursuing the best employment, educational, and social opportunities projects that have become neighborhoods o i! hopelessness and decay . And the cost of the same expenditures serve B ewer families housing policy. Housin vouc F ers would provide low-income Americans with the funds to exercise real choice in t% e rental market. Vouchers also would tackle the two main housing new neighborhoo d s P or better jobs or education when they are effectively confined to Affording Market Rents. Both problems are alleviated by vouchers, which provide families with the means to pay market rents and place few limits on their movement or place of residence. Moreover, because of the enormous cost of housing families in newly constructed buildings, vouchers enabling the poor to use the existing rental market make it possible to house more than twice as many families for the same outlays.

Make or Break. Politically, the next two years will robably make or break the voucher u#et, which must reauthorize Section 8 Existing certificates, the precursors to vouchers.

Un er the Section 8 program, in which the housing is built and operated by the private sector, landlo rds must enroll, and the government then pays them the difference between 30 percent of a tenant's income (which he or she must pay to the landlord) and the assessed far market rent" for the unit. Currently there are about 880,000 Section 8 certificates i n the field. Compared with vouchers, these certificates are very attractive to public housing authority (PHA) bureaucrats, because they provide larger administrative fees. In addition Section 8 certificates are lucrative for private landlords. So there is strong support for the program.

Thus, should Con ress in 1989 be faced with the choice of converting 880,000 Section 8 voucher program, which provides more benefits to the poor armly, will survive. This would be a grave loss for America's poor families and taxpayers. The poor stand to lose the advantages of mobility and the opportunity to match their housing desires with their budgets ro ram. In January 1989, the new Administration wi P 1 submit the Fiscal 1990 federal F certificates into vouc fl ers or ab a ndoning a fledgling voucher rogram, it is unlikely that the aware of the advantages o P vouchers at least since the 1982 Report oft h e President's Congressional Footdra 'ng. The Reagan Administration and Con ress have been Commission on Housing. Since th e n, much of the delay in establishing a nationwide voucher program has been caused by congressional footdragging. But the Administration also must share the blame, for it failed to ask Congress for any new vouchers for FY 1986 and FY 1987 in its FY 1986 bu dget.

Because of this, there will be 'ust 125,000 vouchers available for use when the current fiscal year ends on September

36. This relatively small number of participants means that a signtficant political constituen has not yet been created for vouche rs. The program thus certificates and deteriorating public and assisted housing with vouchers. To achieve this the poor only through vouchers, at a level of 100,000 additional vouchers per year is in jeo ardy. To revent this, t x e Reagan Administration m u st press Congress to establis a full-sca P e voucher program and to make a commitment to replace Section 8 1) In the FY 1988 and FY 1989 budgets, new housing units should be made available to 2) The FY 1989 budget should replace expiring Section 8 certifi c ates with vouchers 3) The U.S. Department of Housing and Urban Development (HUD) should move rapidly to deliver the 125,000 available vouchers to the poor 24) Fee disparities which induce'hblic Housing Authorities (PHAs) to issue Section 8 certificates be f ore vouchers, should be eliminated, preferably by reducing the fatter Section 8 fees--a move that Congress so far has prevented 5) Plans should be developed to use vouchers to replace units constructed under Section 8 and other new construction programs a s their financing and contracts expire 6) Deteriorating public housing stock should be replaced with vouchers.

Without such measures, which establish vouchers as the dominant, and ultimately the only, federal housing assistance pro ram, the current hodge o dge of expensive housing programs is likely to continue as a 8 isservice to the poor an B a burden to the taxpayer VOUCHERS AND THE ALTERNATIVES It is now widely accepted that successful welfare reform hinges on the availability of employment and training for welfare recipients. Employment opportunities de end in large part on the ability of those seeking jobs to relocate near available jobs. J .S. history is a testimony to the extraordinary geographical mobility of the American worker. Yet public housing and other construction programs limit the mobility of the poor and thus their access to em loyment and training. The use of housing vouchers is the only current housing strategy t K at can give poor fanulies the flexibility to pursue jobs.

Another advanta e of vouchers is their cost effectiveness, compared to alternative housing programs. E onstruction of housing under federal programs, for example, has been costing 20 to 40 percent more per unit than privately built and operated units. In all, the tYr 19 1, more than twice the cost of housing a family with Section 8 certificates or vouchers.

On an equivalent basis, housing a family through new construction today would cost over 8,000 per year cost, poor families often found themselves in badly located, dis mal projects, far away from available 'obs and education. Federal and local governments, concerned about the concentration o Goor families in the cities, attempted to force low-income housing into middle-class an suburban areas-with no great success and m u ch vocal resistance ayer cost of new housing for a typical low-income family was over $6,000 per yearin I Poorly Serving Poor Families. The trouble is that despite this hi have not been well served. Those who could obtain federally owne f or assisted hous ing Earlier recognition of these problems had already led to the e loration of alternatives..

In 1972, Congress launched the Experimental Housing Allowance "g rogram (EM This across the nation, from the effects on demand for housing and sup ly of f ousing, to the success of families in finding units, using vouchers and the effect o lp including a "sho pers on rent. In fact, Ed aid proved the potential f or success of a nationwide providing housing for less than i alf the cost of new construction programs d e monstration was designed to test all the aspects of a voucher-style pro am in 16 sites incentive" by allowin families to keep the money exhaustive data gathering. In 1974, even while over seven years of conducted, Congress authorized the Section 8 Existin g housing pro am, which provided rent subsidies for families living in certain existin private rentfhousing. By 1981 this program was 3- Buildin on these experiences and on studies revealing that there is an adequate supply of standar fi housing, the Presi d ent's Commission on Houfing in 1982 recommended that Both address the needs of poor fami P ies, those whose household incomes f ai below 50 obtain affor CP able housing housing assistance rely primarily on a voucher program hvo Choices. Since most lawmake r s have recognized that new housing construction is much too costly, Congress and the Administration since 1981 have had only two practical choices for providing housing to the oor: vouchers or the Section 8 Existin program percent of the median in the are a in which they live.

The Section 8 program provides certificates to renters that allow the landlord to obtain a subsidy for housing the certificate holder. Both the voucher rogram and the certificate program sup lement the tenant's direct payment of rent, there y allowing poor families to How Section 8 Works A Section 8 family can rent any apartment within the jurisdiction of its Public Housing Authority PHA) that is available at a rent below what is known as the "Fair Market Rent wthin a market area in t h e most recent two years. This means that poor familiks theoretically can reside in housing units at least as good as those occupied by 45 percent of the area's inhabitants FMR A e FMR is set at the rent paid by at least 45 percent of the families moving I n recent years, the PHA has had the flexibility to write contracts with anylandlord the tenant wishes-so long as the unit's rental is below the FMR. In practice, however, tenants and the PHAs deal mainly with already articipating Section 8 landlords. One r e ason for than the FMR. However, rent of each unit is automatically adjusted each ear to even be fallin The federal subsid to landlords rises according to this rent adjustment. If be brought back into line with market conditions when the units are vacate o r rerented.

But in practice there is always a tendency for such action to la behind rent increases, and The result is that in most markets the annual adjustment effe ctive1 means a paranteed this is that under the Section 8 program P andlords must rent their units initially for no more compensate for inflation--regardless of the state of the rental market, in w g ich rents might these adjuste d rents rise significan Y y above the actual market, HUD can re uire that they further, HUD can be fiercely resisted by well-connected local I andlords and politicians rent increase and more money from Uncle Sam. Not surprisingly, Y andlords hke Section 8 2 A second reason wh PHAs stay with existing landlords is that paperwork and inspection requirements are great r y simplified for officials who deal with an established stable of landlords. How Vouchers Work A poor family usin a housing voucher is not constrained by the Section 8 c onditions that prevent a family a om paying more than 30 percent of its income for rent. With a 1. The ReDort of the President's Commission on Housinq (Washington, D.C U.S. Government Printing Ofice, 1982 p. 18 4voucher, a family could choose to pay more a nd locate in a suburban section of its PHA's market area, near good schools and emplo ment rospects. The vouchers thus provide valuable economic, educational, and soci dS flexibi ity. In contrast to a Section 8 certificate a voucher has universal "portabi lity."

The value of the voucher paid to a family is based on the difference between the Payment Standard (identical to the Section 8 FMR in the first family's income, after the income is adjusted for the number o as high medical costs. The Pa ment Standard can be adjusted years, but cannot exceed the 4 MR. The voucher amount is thus a fixed value for the area--but anywhere in the U.S. w h ere jobs, educational opportunities, or family or require, Ph to use certificates in this way. A PHA participating in t i e voucher pro am family Because the voucher amount is independent of actual rents in a particular location it is simpler to administer than Section 8, with its complex FMR standard and annual rent adjustments for the landlords. Because the voucher calcu l ations are only a fraction of the family's income and the fined local Payment Standard, it is easier for families to move, not just within the city of their PHA's 'urisdiction--or even within a single metropolitan community ties beckon. Project-based prog r ams, such as public housing, do not allow this mobility nor does the Section 8 program Consumer Power For the Poor. While a few PHAs have established some Section 8 arrangements to allow limited mobility in a few metropolitan areas, the arrangements invol v e ve complicated contracting, and current law allows HUD onl to encourage, not on the other hand, is required to accept any voucher holder who wishes to move into t e PHA's jurisdiction. Currently, however, the overwhelming majority of PHAs do not yet par t icipate in the voucher program; nonparticipating PHAs cannot be required to accept vouchers Yl Since the eligible family pays every dollar of the rent above the value of the voucher, the program encourages tenants to bargain with their prospective landlor d s. This gives the poor family consumer power and thus creates a true housin market. Under Section 8, by contrast, tenants do not care what the rent is, because it is tl e federal government who pays any rental costs exceeding 30 percent of family income. W hile the voucher also is designed to enable the family to pay no more than 30 ercent of its income for housing in most areas, the family can pay more if it desires. he family also can accept cheaper but sound housing and keep the difference. This too enco u rages the family to seek out and bargain for the best housinjg buy at the lowest price. Prelimina figures from the current voucher percent--may be able to take advantage of this opportunity to shop around and pay less than 30 percent of their income Cutti n g Housing Costs. Vouchers are also an effective way to reduce the cost of ,housing to the poor. Private sector costs for building and maintaining housing units are as much as 40 ercent lower than public sector costs, because of bureaucratic red tape costs associated wit lg federal programs as well as,cost increases rising from Davis-Bacon wage rates and other construction regulations.

Vouchers are the fastest way to house poor families, since vouchers avoid the three to five year lead time required to plan and build new units. And except for New York City demonstration indicate that a significant percentage of P amilies--as high as 40 2. Schnare, gt ai The Cost o f HUD Multifamilv Housina Proerams (Cambridge, Massachusetts: Urban Systems Research and Engin e ering Inc May 1982 Vol. 1, pp. S-6, S-15 5and a few other locales, which suffer from rental housing shortages because the supply is artificially constricted by rent and development controls, the private market across the U.S has created vast sup lies of i n expensive, standard quality housing. Indeed, the national vacancy level excee B s 6 percent. Thus there is a plentiful supply of housing to be rented with vouchers Criticisms of Vouchers program. Conpess in housing units into and dropping out of new const r uction Families With Many Children. The arguments against t e voucher pro am typi the private market will not provide adequate housing su plies Jn, is is belied r y the actual market surpluses of housing. Another argument is t R at there is a portion of t h e market that are unable or unwi r ling to locate acceptable units to rent, but such failures to find housing cannot be served b the private market. Here critics point to farmlies with vouchers who are usually relatsd to renters' intense desire to remain in their current apartments or neighborhoods.

Admittedly, minority families and those with many children have experienced greater difficulty in finding new units. But this does not mean that an inherent flaw exists in the voucher program, since exactly the se families also are very difficult to serve adequately in other housing programs. Project-based housing programs, for instance, have been pla adjustment in the voucher subsidy to account for special needs.

In fact, HUD is attempting to compensate for tho se difficulties by roviding increased subsidies for larger families so help to hard-to-house families Benefits of Improved Mobility. Some PHAs and tenant advocates argue that a voucher system with no limits on mobility will mean that some PHAs will lose v o uchers as families leave the jurisdiction, leaving fewer vouchers in these jurisdictions for other families housing. Given the nature of the congressional system, where representatives are judged by their ability to secure federal largess for their distri c ts, this is a powerful political with segregation, vandalism, and violence against mnority families. All that is neede ,H"ed is an they can afford larger apartments. H is now also paying PHAs a bonus to provide extra 3. W. John Moore Expiring Subsidies Na t ional Journal August 2,1986, pp. 1887-1888, Mary K. Nenno and Cecil E. Sears, "Rental Housing: Outlook for the Low-Income Journal of HousinG September/October 1985, pp 174-176; Joann Lublin Uncertain Solution: Vouchers for Housing Help Some of the Poor, F ail to Benefit Others,"

The Wall Street Journal, November 19,1986, p. 1 4. Wallace Cambridge, Massachusetts: Abt Associates, Inc., January 1981 Vol. 1, p. 259.

Particination and Benefits of the Urban Section 8 Promam: New Construction and Existing Housinq 6argument, even though from a national standpoint the housing needs of the total population of poor families are being addressed by vouchers. Simp1 put, it is impossible .to Families. But experience indicates that few voucher holders are likely to leave a junsdiction in any one year.

In response to congressional pressure, HUD has allowed PHAs to limit to 15 percent of their allotment the number of vouchers that can be used by families to move to another jurisdiction. PHAs have been lobbying to reduce the percentage even further. But this would undermine the benefits of improved mobility associated with vouchers. Thus HUD should strenuously oppose any decrease in this percentage when it develops final regulations for a comprehensive program rovide mobility without some PHAs losing control over the lives o i? some resident poor HOW CONGRESS AND THE WHITE HOUSE UNDERMINE VOUCHERS The voucher pilot pro ram so far has issued only 20,000 vouchers, almost all in liinited and little or no opportunity to make effec t ive use of interjurisdictional mobility, even within metropolitan areas. This situation is the result of actions by Congress and unwise budget decisions b the Rea an Office of Management and Budget. The situation can be remedied, t ut imme fi iate action is required Congressional Roadblocks Congress has tried to scuttle the voucher program by insistin in 1983 that vouchers be o erated as a demonstration, rather than a full pro am.

The v af ue of vouchers already has t een demonstrated. In fact, vouchers ar e one of tr e most fully demonstrated housing programs in history demonstrations. There t E us has been little opportunity to show the benefits of vouchers By requiring yet another demonstration in the Fiscal 1984 HUD appropriations Congress delayed the s t art of a full program by over a year. The year was the length of time required for HUD to design a "scientific" demonstration to test all the factors Con ess wished tested and then to contract with a research firm that would select PHAs Congress permitted only about 5,000 vouchers to be used for the demonstration, a tiny proportion of all the federally subsidized families.

Congress found yet another wa to delay vouchers in tying another 40,000 vouchers to the Administration's Rental Reha r; ilitation progr am. By this, Congress required that a unit first be rehabilitated by the federal government before a voucher could be issued and used.

This added another 18 months of delay; predictably, almost none of these vouchers have yet been used. The only reason th e number of vouchers in force has reached 20,000.i~ that officials at HUD mana ed to create a second demonstration to "test" vouchers in smaller Mistakes by OMB In search of quick deficit relief, the Office of Management and for t f e demonstration. Only a fter this was done could the demonstration begin. But PHAs, to which they a1 K ocated an extra 4,500 vouchers P%Y of lobbying a ainst the launc B ing of its own housing oli HUD over 0 !h B by voting for some vouchers. The inal Bud et insisted on a Fiscal 1 986 budget that allowed for no new housin support in Fiscal 198 t and 1987, in the form of vouchers or any other ap roach. AlthouA Congress ignored the Administration's zero re uest, this put the Reaganbhite House in the curious position appropriations in c luded new public housing, Indian housing, Section 202 (elderly) housing In fact, Congress sided with 1986 and FY 1987 housing 7Section 8 Existin housing, and moderate rehabilitation units, as well as vouchers tied to vouchers agreed to by Con ess for the t wo years were ess than 90,000, one-quarter of f the Rental Reha ilitation program. It was a hodgepod e in search of a policy. Total them for rehabilitation an CY other designated uses keep the stock under federal subsi d y and to provide incentives Pcf or evelopers. lf is stock economical to a1 f ocate vouchers to replace those units as they go into the private market or Seizing the Initiative: Federal funding for the construction of all the units built under the Section 8 New Construction and other new co n struction programs will end between now and the year 2005, and these units, free of federal debt, will pass out of the subsidized housing stock. Low-income housin advocates already have be ressing Con ess to will be increasin ly expensive to subsidize as i t deteriorates. It would be much more are demolished3 To date, however, the Administration has no plans to replace these units with vouchers HUD currently is awaiting a study of the modernization needs of public housin During the Reagan Administrations te r m of office, almost 8 billion has been aut orized to rehabilitate public housing. It is expected that rehabilitating all public housing just to minimal standards will cost at least another 10 billion, and potentially up to $20 billion Expensive New Constr u ction reconstructing public housing projects of Administration should consider the proposal allow public housing to be integrated into loc Eventually, this would make it possible to units to tenants and tenant management under local control with vouchers, selling allowing PHAs and private market forces to manage the units under normal market incentives If the Administration does not ro ose such a solution for the replacement of low-income RECOMMENDATIONS housing, it will leave the PX iel open to advocates of expensive new construction.

If the voucher program is to continue beyond 1988, new momentum is needed. The advocates of new construction for years have been unable to make a persuasive case. The choice thus should be between Section 8 certificates and v ouchers. In such a choice vouchers should win. It would be unfair to leave poor families with the restricted o tions program of the Section 8 program and to leave taxpayers with the unnecessary costs of an i nf erior on solid footing. The Administration h a s taken the first of these steps y building into its The Reagan Administration and Congress can take a number of ste s to put vouchers federal budget projections the assumption that vouchers will replace the expiring Section 8 certificates. That at least focuses the debate.

Beyond this, the Administration should Press for full allocations of vouchers in its remaining budgets, at a level of at least 100,000 er year. If the currently available vouchers can be put into force, that would bring the vouc K er pr ogram to a respectable 300,000 units, large enough to build up a powerful 5. mid 8constituency and thus discoura e a future Con ess from endin the program. Such a for housing those 300,000 families under the current mix of programs. It would be impossible to house these families entirely with new construction within three to five years but, if attempted, would cost far in excess of 2 billion per year Avoid quick budget fixes by cuts from the voucher program This action by OMB would undemne long-term saving s Work with Congress to plan re lacement of subsidized multifamily units with switch to vouchers would cost B 1.2 billion eac iY year, compare d with more than $1.7 billion vouchers by the year 20

05. In particu f ar, planning should begin to carry out the low-income families can be housed at reduce B cost to the taxpayer. In addition, the recommendation of the Presidents Commission on Housing that public housing be converted to local responsibilit y , and that vouchers be used to enable public housin units to enter the local housing markets with the goal of including an item in the FY 198 4 budget and out-year projections See that HUD pressures Congress to s eed the voucher program, so that more Admi n istration must seek amendments to decouple vouchers from the Rental Rehabilitation program. And a final voucher regulation must be promulgated as soon as possible so that the program will not appear to be transient CONCLUSION The Administration must estab l ish vouchers as the centerpiece of the nations low-income housing policy. By giving oor families the right to choose where they live and market pressures, and better rental housing at lower cost to the taxpayer would follow. The improved flexibility and m obility associated with vouchers would help poor families .to pursue optimum employment and education opportunities.

A full voucher program would be an historic change in Americas low-income housing olicy. It would mean a shift from a policy of subsidizing expensive construction to one.of gelpin families to become owerful consumers in the existmg and adequate rental market the incentive to bargain for top value P or their rent dollar, vouchers would introduce That c Fi ange of direction is P ong overdue.

Prepared for The Heritage Foundation by Kenneth J. Beirne a Washington-based policy researcher 9-