Are They Protected? a National Analysis of What Happens to Subsidized Tenants When an Owner Opts out
Abstract: The U.S. Department of Housing and Urban Development (HUD) financed roughly 850,000 units of housing through the project-based Section 8 program. Between 1995 and 2010, over 159,000 households lived in properties where the owner, or HUD, terminated the project-based Section 8 subsidy. Thousands of additional units will leave the subsidized rental stock in the coming years. Upon termination, low-income tenants residing in these properties become eligible for tenant protection vouchers, which are designed to shield them from being displaced and/or spending a higher share of their income on rent. However, little is known about how well these vouchers work in practice, and what happens to tenants in properties if and when the place-based subsidy ends. In this paper we analyze a detailed database from HUD to identify what happens to tenants in properties where the owner opts-out of HUD’s project-based Section 8 program. We also use the exogenous shock of an owner opt out to determine whether tenant and neighborhood characteristics predict if households can successfully use their HUD voucher to rent a unit on the private market.
First, we identify how many households lived in a property where the owner opted-out, which tenants were eligible to receive a voucher and who successfully used their voucher. We then test whether there is variation in who can lease a unit with their voucher based on household and market characteristics. Theoretically, all low-income households who receive a voucher should be able to use it to rent any unit within the HUD-determined fair market rent for the area. Studies suggest that voucher recipients encounter landlords who will not rent to them. In addition, there is evidence of variation in which households can find a unit with a voucher based on tenant characteristics and local rent levels. An owner’s decision to opt out of a federal subsidy program is an exogenous shock to tenants who live in these properties because the owner, not the tenant, chooses to end the place-based subsidy. By using the exogenous shock of owners opting out, this paper overcomes concerns about selection bias and missing data in the existing literature and provides a valid estimate of the variation in who can lease a unit with a voucher.
The tenant protection voucher is designed to act as a safety net for tenants who live in subsidized rental housing. Our study sheds light on how well this safety net works in practice. In addition, this study allows us to better understand the barriers low-income households encounter when using a voucher to rent a unit on the private market.