In the 1960s, HUD began to stimulate the nation’s affordable housing supply by offering incentives and financial assistance to multifamily housing developers who agreed to rent their properties
to low- and moderate-income households. Today, there are more than 22,000 such properties,
comprising more than 1.5 million units. Many property owners, however, are choosing either to opt out of assistance programs early by prepaying their subsidized mortgages or by not renewing their expiring Section 8 contracts with HUD. Concerned about this drain on the affordable housing supply, HUD commissioned a study to learn why owners remove their properties from the assisted housing stock and what happens to the properties once they are no longer earmarked for low- and moderate-income families. The report, Multifamily Properties: Opting In, Opting Out and Remaining Affordable, summarizes the study, which examines these questions
from three perspectives: a quantitative analysis of properties no longer receiving assistance; an affordability analysis of properties that have opted out of HUD’s affordability programs; and interviews with owners faced with these decisions in three Metropolitan Statistical Areas (MSAs): Sacramento, Dallas, and Cincinnati.
Properties that Leave Assisted Stock
The quantitative analysis identified characteristics of assisted multifamily properties that were statistically
related to decisions to remove properties from assisted programs. The properties with a higher probability
of removal from assisted programs include those which:
A recent HUD report finds that removing properties from assisted
programs does not automatically lead to a loss of affordable housing.
Rented below the local Fair Market Rent (FMR);
Received 100 percent assistance (possibly because they had the most to gain in a conversion to market rental rates);
Were located in a metropolitan or central city
location;
Were often located in neighborhoods with higher median rents, higher median incomes, lower poverty, and fewer housing vacancies;
Held the longest tenure in assisted programs;
Were occupied by families, rather than by the elderly or disabled;
Were more often owned by for-profit companies (rather than nonprofits, which often have funding restrictions);
Were larger in size; and/or
Were in poor physical condition.
Affordability After Opt-Out
HUD’s affordability analysis suggests that what happens to properties after opting out often varies, and that the removal of properties from assisted programs
does not automatically lead to a loss of affordable
housing. Housing vouchers made it possible for 59 percent of a sample of opted-out properties to rent for less than the local FMR. The remainder of the units in the sample had rents that fell between 100 and 125 percent of FMR, potentially causing households with vouchers to spend more than 40 percent of income for rent. Without rental assistance or vouchers, however, the number of units affordable to very low-income households dropped. Only 6 percent of the units were affordable to unassisted households with incomes at 30 percent of the local area median income (if they spent at least 30 percent of their income on rent).
Talking to Owners
HUD also conducted site visits to several locations with high opt-out rates to discover owners' reasons for opting out of, or remaining in, the Section 8 program. The largest motivator for leaving Section 8 was economic, especially in areas where opportunities for obtaining market-rate rentals were growing. This appeared to be the case in Sacramento's tight rental market. Owners in Dallas opted out of the program in areas where the market would bear it. Opt-out rates in Cincinnati also depended on how robust the rental market was in a given area and the location of the property. Owners in all three MSAs also said that the requirements and restrictions of the Section 8 program seemed overly burdensome, especially when an owner held both market rate and Section 8 properties.
The report concludes with recommendations that would increase incentives for owners to stay with HUD-assisted programs, especially in areas where rents are less affordable after owners opt out. Suggestions include reducing administrative burdens on owners and evaluating rent-setting policies.
Order a printed copy of Multifamily Properties: Opting In, Opting Out and Remaining Affordable for a nominal fee by calling HUD USER at 800.245.2691 and selecting option 1, or download it at no cost from www.huduser.org/publications/affhsg/opting_in.html.
House Price Trends and Homeownership Affordability
Recent House Price Trends and Homeownership Affordability, a report from HUD USER, reviews factors that influence housing prices, provides new evidence on recent trends in cost and ownership affordability, and offers suggestions for the next steps in pricing research.
The report also examines different types of house price indices, reviews how affordability indices are calculated and applied, outlines the basic theory behind house-pricing models, and details how regulatory constraints influence demand and supply factors. The report includes chapters on market value dynamics and the financial accelerator, housing price bubbles and fluctuations, and how people form their expectations of housing worth.
Recent House Price Trends identifies the need for additional research on:
How consumers gather and process information about market conditions;
How consumers decide when it is the "right" time to buy or sell a house;
Supply conditions, including land cost and its impact on supply;
How land use regulations affect the supply and cost of housing;
The decisionmaking of developers, renovators, and financiers; and
The interaction of supply and demand as it affects the cost of housing.
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