Winners and losers of government rental assistance
The federal government helps low-income families in need of housing by way of a program named Section 8, which issues rental vouchers for qualifying recipients. The vouchers can be used to pay rent on any property that accepts Section 8 renters.
Many factors determine what a monthly stipend rate will be, but household income and headcount are the primary factors.
In general, to qualify for Section 8, the family's income may not exceed 50 percent of the median income for the county or metropolitan area in which the family chooses to live. Public housing agencies, or PHAs, collect information on income, assets and family composition.
Like many well-meaning programs, Section 8 comes with unintended consequences. Here are the winners and losers of the Section 8 program.
Winners: Real estate investors
It’s understood that landlords want tenants who pay at-market rent on time and in full each month. And finding renters who won’t destroy property is icing on the cake.
Section 8 is serving up such renters to real estate investors.
Backed with generous government housing vouchers, Section 8 renters are cash cows for their landlords.
And Section 8’s ample waiting list means that recipients who aren’t playing by the rules and doing the bare minimum required for maintaining property can be replaced by other recipients who will comply.
“If property is destroyed, the landlord can go to Section 8 and report that tenants are breaching the contract,” says Brian Korte, P.A., Partner at The Law Offices of Korte &Wortman, a foreclosure defense law firm in West Palm Beach, Fla.
Section 8 will come in for remediation, and tenants would have a set time to comply, and if they didn’t, Section 8 could put another renter in. Real estate investors have much more recourse with Section 8 renters than they would with regular renters, where they’d have market their properties on their own.
“Why is every house being gobbled up and rented out by investors with ridiculous rents? Because they can hand them to the Section 8 tenants,” says Korte.
Winners: Section 8 renters
The design of Section 8 is to provide extremely low-income families with decent, safe and sanitary housing in the private market.
But a handful of Section 8 renters are getting all that and then some.
Cash investors are buying up luxury bank-owned properties and flipping them into Section 8 rentals for the guaranteed, at- or above-market rent checks issued by the government.
It’s a boon to Section 8 renters who find themselves with amenities many working, middle-class Americans can’t afford, such as granite countertops, pools and community racquetball courts and fitness centers.
What’s more for Section 8 renters with a housing stipend, there are no lifetime limits on the benefits.
“As long as you qualify, you qualify,” says Korte.
There are annual checks on recipients to ensure they still meet eligibility requirements as set forth by the program, and recipients are required to report changes such as a child moving out or an increase in income. Rental reimbursements would decline if headcount declines or income increases.
Losers: Regular renters
According to Korte, Section 8 rentals play a role in driving up prices in the rental market. Section 8 vouchers are not below market value. They pay market rates, and sometimes offer even more than rental asking prices. This puts upward pressure on rents.