Subsidized Housing: Rent Supplement Guidelines
Department of Housing and Urban Development (HUD) programs, particularly public housing and the Section 8 Housing Choice Voucher program, provide a vast majority of most cities' subsidized housing supply. Public housing consists of local public housing agency (PHA) run units set at rents affordable to low-income families, while Section 8 lets families choose housing from participating private-market landlords. Both programs, as well as most other affordable housing initiatives, use "rent supplements," which are government-provided subsidies to achieve below market-rate rents.
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Definition
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Government subsidies used in subsidized-housing schemes effectively use federal money to provide rents at rates affordable to families unable to afford market-rate rent. HUD's two main programs--Section 8 and public housing--both use direct subsidies. With public housing, HUD absorbs the cost of constructing and managing dwellings they rent out for considerably less than they could garner in an uncontrolled free market. Through the Section 8 program, private-market landlords receive market-rate rent for their units, however, a significant chunk of their tenant's rent comes as a direct subsidy from HUD. Other programs, run by cities across America, use similarly functioning subsidies, however, some use indirect subsidies.
Function
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The purpose of subsidized housing is to make housing affordable to an area's neediest residents. What one person considers affordable, though, is not necessarily how another defines the term. Given the inherent subjectivity of the word, housing experts have come to a long-standing agreement on a nationally accepted standard for housing affordability. As the U.S. Census Bureau explains, if a family spends more than 30 percent of their income on the cost of housing, it is not affordable. Rental subsidies aim to meet this affordability threshold.
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Calculations
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When a family receives a Section 8 housing voucher, it represents the difference between the rent a private landlord charges them for housing and 30 to 40 percent of their income, notes HUD's Housing Choice Voucher fact sheet. HUD uses the fair-market rent for an area as the basis for determining exactly how much a family's share of a Section 8 rent should be. In public housing, the calculation is not based on fair-market rent since HUD does not anticipate collecting market rate on the dwellings it provides. In most cases, HUD simply charges a family rent that is equal to 30 percent of their income, less deductions for dependents and elderly or disabled family members, according to HUD's public-housing program website.
Geography
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Where a family lives impacts program eligibility for both Section 8 and public housing and the size of a family's Section 8 subsidy. To qualify for Section 8 assistance, a family's household income cannot be more than 50 percent of their area's median, while HUD sets the cap at 80 percent of the median for public housing. HUD bases the public-housing subsidy solely on income, so it only varies with how much money a family makes. Income, as well as the fair-market rent for an area, dictates the exact amount of a household's Section 8 subsidy.
Example
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As per HUD's public housing website, a family, with one elderly household member, whose total annual income equals $12,000 can deduct $400 for the presence of the elderly individual. This brings their adjusted annual income to $11,600, which works out to $967 a month. The public-housing rent, or Total Tenant Payment, on that rent equals 30 percent of the adjusted monthly income, which is $290. HUD pays the portion of a Section 8 family's rent that exceeds 30 percent of their income when a family rents a unit at or below fair-market rate. A family can rent a unit that exceeds the fair-market rate, however, they must pay the excess rent without spending more than 40 percent of their income on rent. For instance, the 2010 fair market rent on a two-bedroom in Denver is $1,007. If a family earning $1,000 a month rents a unit for $1,100, HUD makes them pay $393 in rent (30 percent of $1,000 plus the $93 over market rate). Since the family's share of the rent in this case is 39.3 percent they could rent the unit through the Section 8 program.
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