Housing Choice Vouchers: It's Not All About The Benjamins

But a lot of it is, and that’s what I will focus on this time.  Be warned: the Housing Choice Voucher Program is enormously complicated, and this is no place for a detailed analysis.  I will stick to the basics, because understanding why voucher holders seem to end up in one of two locations isn’t about corruption or conspiracy (although I accept that corruption is not absent), it’s about what the program is designed to do and how the regulations say it must be done.  These ultimately derive from the funding that is available, so it’s The Benjamins that I begin with.

First, I want to clear up an issue of terminology.  In my first post on housing assistance I used the term “individual” to describe a voucher holder.  While an individual can receive a voucher, the program is structured around the household, and that is the term I will employ from now on.  The amount of a voucher is calculated utilizing both household income and household size, (and a few other things, of course). 

The 2012 report that I have been using for my data lists 2,625 vouchers in effect as of that year, and I will continue to use that data.   Keep in mind that anything produced in 2012 utilizes data from no later than 2011, and it’s now 2014, so don’t fixate on the precise numbers.  They have probably changed a little, but the reasons for the disparity in voucher locations most certainly have not.

The Montgomery County Housing Authority (MCHA) administers the housing choice voucher program as the jurisdictional public housing authority for the county.  At the foundation of everything, of course is the fact that the MCHA has only a fixed—and inadequate—amount of money to distribute on an annual basis.  HUD also caps the number of vouchers that MCHA can issue, but the money allotted is not enough to fund all the vouchers it could issue.  There is also a waiting list with about 900 households on it, but no new names have been added to it since 2007.

Each voucher amount is a separate calculation, but all derive from obedience to the rules and use of the formulas.  The formulas aren’t basic at all, but we only need to know about them, not the details.  I will be just skimming the surface of a hugely complicated program, but will try to outline its fundamental rules.

The foundation of the whole program of housing subsidies is a belief that an American family should have to pay no more than 30% of its net income for housing.  A lot of research (and no small amount of controversy) went into establishing this baseline number, and a lot of misunderstanding has resulted.  Despite all the lip service paid to this number, the program is not structured to cover the difference between 30% of a voucher-holding household’s income and the amount it pays for rent, as we will see.  But what makes the 30% figure so important is that we are talking about this percentage of the income of the lowest earners on the local wage front.  The average annual income of program participants in Montgomery County, Pa. is $15-16,000.  Keep in mind that’s an average figure, with some lower and some higher.  The voucher holder is required to pay 30% of its income to the private landlord, and that may not be very much.  The MCHA thus ends up paying a substantial amount of the rent (directly to the landlord), but even that will not usually make up the difference between the rent and the tenant’s contribution.  You’ll see why—and how important it is—if you stick with me through this.

Remember, the vouchers are portable, so there is theoretically no barrier to a household moving where it wishes to live.  But The Benjamins say otherwise.  The Housing Choice Voucher Program is not designed to make up the difference between 30% of a household’s income and the prevailing market rent in any particular neighborhood.  The actual amount is determined by several bureaucratic calculations, the combination of which reduces how much a voucher is actually worth.

The first is something called the “Fair Market Rent” (FMR).  Note the terminology: “fair,” not “free”.  That’s important.  The term “Fair Market Rent” is borrowed from the real estate industry, although the end product is pretty much the opposite of what the term means in that context.  It’s not determined by local supply and demand, but by HUD, and it is customized for the huge variation in rental prices in the different “jurisdictions” all across the country.  HUD basically collects rental rates from several locations in a jurisdiction such as Montgomery County, Pa., from the low to the high.  It then processes this information and arrives at a net figure that applies throughout the county, regardless of a housing unit’s actual free market rent.  This doesn’t mean that the FMR is a single number.  The amount is based on the number of bedrooms in a unit and how the tenant pays utilities (the FMR includes the cost of utilities in addition to the rent), which makes for an enormous number of variations in the actual amount of each voucher.

There is a second number that figures in here.  HUD has different arrangements with each of its jurisdictions about how much of the FMR it is actually going to pay.  It’s called the Percentile.  As the FMR is assumed to be a figure near the middle, the ideal arrangement is when HUD allows a housing authority to spend at the 50^th Percentile.  Then—and only then—is the amount the authority can pay for a voucher equal to the FMR.  The allowed percentile varies with jurisdictions, and can be lowered.  HUD pays Montgomery County at the 50^th percentile, and thus at the FMR.  This becomes the maximum amount the MCHA can offer in a voucher.

This is so important that I will review the point:  a public housing authority allocates a specific amount of money to a voucher according to a calculation utilizing bureaucratically-processed information.  The voucher holder then has to utilize that voucher in the free market world of real estate.  That is a major disconnect, because while criticism of the housing choice voucher program derives from real world experience, all housing authority actions—with The Benjamins most definitely included—take place in accordance with a voluminous and detailed collection of regulations.  To say that “reality doesn’t matter” does not overstate the point by much.

The FMR is an average number, and should be somewhere around the middle of the true free market rents available around the county.  The actual rents charged are, of course, determined by private landlords.  The market rent for a specific bedroom unit in Wynnewood, for example, is considerably more than for the same bedroom unit in Norristown or Pottstown.  So, which landlords are most likely to reject the voucher program?  Clearly, those whose rents are so high that the subsidy doesn’t make up the difference, and that pretty much means at least half of all the available rental units in the county. 

Here’s the bottom line:  The current structure of the Housing Choice Voucher Program, even before considering any other of its many issues, strongly directs the recipients into the less expensive half of the rental units in Montgomery County.  Before we continue with a critique of what the program fails to accomplish, we must understand that this is exactly what the voucher program was designed to do: aid low-income families to move into what Wikipedia calls “medium-quality apartments”.  The MCHA says the actual wording of the Act is “modest”.  Please note that I said "understand," not "accept".  I plan to continue educating you about not just the program's shortcomings, from from where they truly originate, so that blame--and thereby corrective action--can be more effectively focused.

At a fundamental level the problem is all about The Benjamins in that with a great deal more money the other obstructions could be overcome.  That’s not a real world scenario, however, and adding a smaller amount would have opposite effects on the two goals I set out at the beginning of my first post on this subject.  Simply “throwing more money at the problem”—adding to the housing authority’s budget but not altering any of the rules under which it is distributed—would at least lessen the number of needy people on the county waiting list, and that’s a good thing.  But it would also increase the number of housing vouchers in Norristown and Pottstown, and that’s not.  More money by itself is not the answer.  Next time we discuss more about why this is true.

My thanks to Joel Johnson and his staff at the Montgomery County Housing Authority for leading me through the maze of the programs they administer (and some they don’t).  All errors of fact expressed above—and in future posts—are mine alone.