Increase Payments by Tenants in Federally Assisted Housing

Background

The federal government provides housing assistance directly to low-income tenants through the Housing Choice Voucher program (sometimes called Section 8), public housing, and project-based rental assistance. Those three types of assistance, which are funded by the Department of Housing and Urban Development, generally require tenants to pay 30 percent of their household income (after certain adjustments) toward housing expenses; the federal government covers the balance of the tenants' rent, up to established limits. In 2016, by the Congressional Budget Office's estimate, expenditures for all three programs came to roughly $8,000 per recipient household. That amount includes rent subsidies as well as payments to the local public housing agencies and contractors that administer the programs.

Option

Under this option, tenants' rental contribution would gradually increase from 30 percent of adjusted household income in 2019 to 35 percent in 2024 and then remain at that higher rate.

Effects on the Budget

Provided that federal appropriations were reduced accordingly, those higher rent contributions would decrease outlays from 2019 through 2028 by a total of $21 billion: $10 billion for the Housing Choice Voucher program, $4 billion for public housing, and $7 billion for project-based rental assistance, CBO estimates. People in 3.9 million low-income households would pay an increasing share of their income for rent through 2024, at which point the average annual increase in household rent paid by tenants would be $810 (an amount equivalent to 5 percent of their average adjusted household income).

Decreases in federal outlays would equal increases in tenants' rental contributions. That relationship would probably hold even if the increase in tenants' contribution was three times larger—15 percentage points—than the one examined here (5 percentage points). The relationship would no longer hold if the increase was so large that demand for housing assistance fell significantly. However, even if tenants' rental contribution increased by 15 percentage points, demand for housing assistance would probably not ease substantially. In 2015, more than 8 million households were eligible for housing assistance but not receiving any and were paying more than 50 percent of their household income in rent. (The number increases to almost 12 million if households that spend more than 30 percent of their income on rent are considered.) CBO expects that many of those households would enroll in a housing assistance program even if their expected rental contribution was 45 percent of their income.

Uncertainty about the budgetary effects of this option stems from uncertainty about the option's effects on tenants' incentives to work. Because a larger share of any increase in tenants' income would go toward rent, the incentive for tenants to boost their earnings would decrease under the option. CBO's estimate does not incorporate a response by tenants to that incentive. Separately from the changes in behavior stemming from the option itself, if actual increases in income for lower-income households were higher or lower than CBO projects, savings associated with the option would increase or decrease accordingly.

Other Effects

One argument for this option is that even if tenants' required rental contribution was increased to 35 percent of their income, that share might still be lower than the share of income paid by their counterparts who do not receive housing assistance.

An argument against implementing this option is that assisted renters would have less money to purchase other necessary goods and services, such as food, health care, and transportation. In addition, by increasing the proportion of income that tenants are required to pay for rent, the option would reduce the incentive for participants to boost their income.