Federal Housing Assistance: Comparing the Characteristics and
Costs of Housing Programs (31-JAN-02, GAO-02-76).
For more than 60 years, the federal government has sought to
improve the condition and reduce the cost of rental housing for
poor Americans. In fiscal year 1999, 5.2 million low-income
households received $28.7 billion in federal housing assistance
through more than a dozen programs. Despite this assistance, the
Department of Housing and Urban Development (HUD) estimates that
9 million other very-low-income households still have serious
unmet housing needs. The most widespread problem facing these
households is a lack of affordable housing; many pay more than 30
percent of their income for rent. The housing provided under the
six active federal programs varies by such characteristics as
age, building type, unit size, location, and services. GAO
estimates that, for units with the same number of bedrooms in the
same general location, these production programs cost more than
housing vouchers. Across the six active programs, the federal
government and tenants pay most of the programs' total costs.
Except for one program, the federal government pays the largest
percentage of the average total per-unit costs. GAO's work raises
several housing policy issues, including the relative costs and
benefits of the voucher and production programs and whether
opportunities exist to control costs and stretch federal housing
dollars. The absence of comprehensive and consistent data is an
impediment to monitoring and evaluating housing programs.
Although production programs cost more than vouchers, all housing
programs provide benefits in addition to housing the poor. For
example, production programs seek to increase the supply of
affordable housing, accommodate special needs, and revitalize
distressed communities, while housing vouchers try to promote
mobility and neighborhood choice. Accordingly, these benefits
must be weighed against program costs.
-------------------------Indexing Terms-------------------------
REPORTNUM: GAO-02-76
ACCNO: A02723
TITLE: Federal Housing Assistance: Comparing the Characteristics
and Costs of Housing Programs
DATE: 01/31/2002
SUBJECT: Comparative analysis
Cost analysis
Federal aid for housing
Low income housing
Program evaluation
Public assistance programs
Rental housing
HUD HOPE VI Program
HUD Housing Choice Voucher Program
HUD Low-Income Housing Tax Credit
Program
HUD Section 202 Elderly Housing Program
HUD Section 515 Housing Program
HUD Section 811 Housing Program
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GAO-02-76
United States General Accounting Office
GAO Report to Congressional Committees
January 2002
FEDERAL HOUSING ASSISTANCE
Comparing the Characteristics and Costs of Housing Programs
a
GAO-02-76
Contents
Letter
Results in Brief
Background
Programs Provide a Wide Range of Housing and Services
Production Programs Cost More Than Vouchers
The Federal Government and Tenants Pay the Largest Shares of
Total Costs Housing Policy Issues Federal Agency and State Association
Comments and Our
Evaluation Scope and Methodology
1 3 5 9 17
25 33
38 40
Appendixes
Appendix I:
Appendix II: Appendix III: Appendix IV:
Appendix V:
Appendix VI:
Appendix VII:
Appendix VIII:
Methodology for Estimating Per-Unit Costs of Federally
Assisted Housing Programs 44
Previous Studies 44
Conceptual Framework 46
Estimating Program Costs 47
Comparing Program Costs 51
Cost Shares 56
Sources of Data Used in the Analysis 61
Sensitivity Analysis 64
Evolution of Federal Housing Assistance Programs 71
Federal Expenditures on Housing Programs 77 Defining Budgetary Outlays 77
Program Outlays for Fiscal Year 1999 77 Problems With Comparing Program
Outlays 80
Comments From the Department of Housing and Urban
Development 81
GAO Comments 89
Comments From the U.S. Department of Agriculture 91
GAO Comment 93
Comments From the National Council of State Housing
Agencies 94
GAO Comments 101
GAO Contacts and Staff Acknowledgments 103
GAO Contacts 103
Contents
Acknowledgments 103
Tables Table 1:
Table 2:
Table 3:
Table 4: Table 5:
Table 6: Table 7: Table 8: Table 9:
Impact of Contributions From State, Local, and Private Sources on the
Average First-Year Costs of Two-Bedroom Units for Tax Credit Properties in
Boston and New York Average Total Development Costs Per Unit, by General
Location and for Seven Metropolitan Areas, in 1999 Dollars Average Present
Discounted Value of Development Subsidies Per Unit, by General Location and
for Seven Metropolitan Areas, in 1999 Dollars AverageMonthlyRents,by General
Location and forSeven Metropolitan Areas, in 1999 Dollars Average First-and
30-Year Total Costs Per Unit: Housing Production Program Costs Compared With
Voucher Costs, Adjusted for General Location and Unit Size, in 1999 Dollars
Average First-and 30-Year Total Costs of One-and Two-Bedroom Units, by
General Location, in 1999 Dollars Average First-and 30-Year Total Costs of
One-Bedroom Units, by General Location and for Seven Metropolitan Areas, in
1999 Dollars Average First-and 30-Year Total Costs of Two-Bedroom Units, by
General Location and for Seven Metropolitan Areas, in 1999 Dollars Average
Share of First-and 30-Year Total Costs of One-Bedroom Units Paid by the
Federal Government, Tenants, and Others, in 1999 Dollars
33
48
49 50
52 54 55 56 57 58
59
60
Table 10: Average Share of First-and 30-Year Total Costs of Two-Bedroom
Units Paid by the Federal Government, Tenants, and Others, in 1999 Dollars
Table 11: Average First-and 30-Year Federal Costs Per Unit: Housing
Production Program Federal Costs Compared With Voucher Federal Costs
Adjustedfor GeneralLocation, Unit Size, and Tenant Contribution, in 1999
Dollars
Table 12: Average First-and 30-Year Federal Costs for One-Bedroom Units:
Housing Production Program Federal Costs Compared With Voucher Federal
Costs, Adjusted for General Location and Tenant Contribution, in 1999
Dollars
Contents
Table 13: Average First-and 30-Year Federal Costs for Two-Bedroom Units:
Housing Production Program Federal Costs Compared With Voucher Federal
Costs, Adjusted for General Location and Tenant Contribution, in 1999
Dollars 61
Table 14: Average 30-Year Total Costs of Housing Programs Per Unit Under
Different Rates of Inflation, by General Location, in 1999 Dollars 64
Table 15: Average 30-Year Total Costs Per Unit Under Different Rates of
Inflation: Housing Production Program Costs Compared With Voucher Costs,
Adjusted for General Location and Unit Size, in 1999 Dollars 65
Table 16: Average 30-Year Total Costs of One-and Two-Bedroom Units Under
Different Rates of Inflation, by General Location, in 1999 Dollars 67
Table 17: Average Federal Share of 30-Year Total Costs Per Unit Under
Different Rates of Inflation: Housing Production Program Costs Compared With
Voucher Costs, Adjusted for General Location, Unit Size, and Tenant
Contribution, in 1999 Dollars 68
Table 18: Average Federal Share of 30-Year Total Costs of One-Bedroom Units
Under Different Rates of Inflation: Housing Production Program Costs
Compared With Voucher Costs, Adjusted for General Location and Tenant
Contribution, in 1999 Dollars 69
Table 19: Average Federal Share of 30-Year Total Costs of Two-Bedroom Units
Under Different Rates of Inflation: Housing Production Program Costs
Compared With Voucher Costs, Adjusted for General Location and Tenant
Contribution, in 1999 Dollars 70
Table 20: Multifamily Housing Programs, by Type of Subsidy, in Order of Year
Authorized 73 Table 21: Federal Outlays for Major Assisted Housing Programs
in Fiscal Year 1999 78
Figures Figure 1: Budgetary Outlays and Tax Expenditures for Active and Inactive
Housing Assistance Programs, Fiscal Year 1999,
Dollars in Millions 7
Figure 2: Housing Provided Under the Six Active Programs 10
Figure 3: Distribution and Average Size of Units in the Six Active
Housing Programs 13
Contents
Figure 4: General Location of Units in the Six Active Housing Programs 15
Figure 5: Demographic Characteristics of Neighborhoods Where Assisted
Housing Is Located 16 Figure 6: Average Total 30-Year Cost of One-Bedroom
Units, by General Location 19 Figure 7: Average Total 30-Year Cost of
Two-Bedroom Units, by General Location 20
Figure 8: Average Shares of Total 30-Year Costs for One-Bedroom Units Paid
by the Federal Government, Tenants, and Others 26
Figure 9: Average Annual Incomes of Households Served Under the Six Active
Programs 28
Figure 10: Comparison of the Average Federal Cost of One-Bedroom Units in
Metropolitan Areas for Production Programs and Vouchers, Adjusted for
Household Income and Rent Burden 30
Figure 11: Comparison of the Average Federal Cost of One-Bedroom Units in
Nonmetropolitan Areas for Production Programs and Vouchers, Adjusted for
Household Income and Rent Burden 31
Abbreviations
BMIR below-market interest rate
CMT constant maturity treasuries
FHA Federal Housing Administration
HUD Department of Housing and Urban Development
IRS Internal Revenue Service
NCSHA National Council of State Housing Agencies
PDV present discounted value
RAP rental assistance payment
RHS Rural Housing Service
USDA U.S. Department of Agriculture
A
United States General Accounting Office Washington, D.C. 20548
January 31, 2002
Congressional Committees
For more than 60 years, the federal government has provided assistance to
improve the condition and reduce the cost of rental housing for low-and
very-low-income households.1 In fiscal year 1999, about 5.2 million such
households received about $28.7 billion in federal housing assistance
through more than a dozen programs. Despite this level of assistance, the
Department of Housing and Urban Development (HUD) estimates that almost 9
million other very-low-income households still have serious housing needs.
The most widespread problem facing these households is a lack of affordable
housing; many pay more than 30 percent of their income for rent.2 To help
the Congress and others better understand how federal resources are used to
respond to these needs, we analyzed the characteristics and costs of the
housing under various federal programs. Our analysis focuses on six active
programs that continue to increase the number of households assisted by the
federal government.3 These programs, as described below, include the Housing
Choice Voucher Program (housing vouchers), which is the largest source of
federal funds for housing assistance, and five production programs, which
currently receive federal funds to construct or substantially rehabilitate
units.
* Housing Vouchers supplement tenants' rental payments in privately owned,
moderately priced apartments chosen by the tenants.
* Low-Income Housing Tax Credits provide tax incentives for private
investment and are often used in conjunction with other federal and
1Federal rental assistance programs define "low-income" households as those
with incomes 80 percent or below of area median income and "very-low-income"
households as those with incomes 50 percent or below of area median income.
2See HUD's A Report on Worst Case Housing Needs in 1999: New Opportunity
Amid Continuing Challenges, January 2001. According to HUD, almost 5 million
of these unassisted households have "worst-case" housing needs, meaning that
they pay over 50 percent of their income for rent, live in substandard or
overcrowded housing, or both.
3This analysis does not treat the HOME program as a separate production
program because HOME grants are often used in conjunction with other housing
production programs. The HOME funds provided with the production programs
discussed in this report are included in our analyses of these programs'
costs.
state subsidies in the production of new and rehabilitated affordable
housing units consistent with state-determined housing priorities.
* HOPE VI provides grants-coupled with funds from other federal, state,
local, and private sources-to revitalize severely distressed public housing,
support community and social services, and promote mixed-income
communities.4
* Section 202 provides grants to develop supportive housing for the elderly.
* Section 811 provides grants to develop supportive housing for persons with
disabilities.
* Section 515 provides below-market loans to support the development of
housing for families and the elderly in rural areas.
To obtain information on how federal housing resources could be used more
effectively, the Congress directed in the Quality Housing and Work
Responsibility Act of 1998 that we compare the total per-unit costs of
housing assistance programs, taking into account qualitative differences in
the programs. In response to the mandate and as agreed with your offices, we
(1) described characteristics of the housing provided under the six active
housing assistance programs; (2) estimated the per-unit cost of each of
these programs; (3) computed the portion of each program's per-unit cost
paid by the federal government, tenants, and others (state, local, and
private sources); and (4) identified public policy issues raised by our
study, taking into account tradeoffs between the programs' costs and
qualitative differences. We developed and presented preliminary responses to
these questions in an interim report.5
4HOPE VI replaces existing public housing units and, therefore, does not
increase the supply of affordable housing. Since 1994, public housing has
not received new appropriations to fund incremental units. Nonetheless, we
included HOPE VI among the active housing programs because it represents an
ambitious effort to improve the quality of the housing provided under the
program. Additionally, while other modernization efforts are funded through
public housing's capital fund, the HOPE VI program was able to provide more
extensive cost data, which greatly facilitated our analysis.
5Federal Housing Programs: What They Cost and What They Provide
(GAO-01-901R, July 18, 2001).
To perform our work, we collected and analyzed data on housing costs and
characteristics and tenant income for the nation as a whole and for seven
metropolitan areas, three of which we visited to observe qualitative
differences in representative properties provided under each of the
programs. We obtained the data for our analysis from HUD and other federal
agencies, public housing authorities, state housing finance agencies,
property managers, industry groups, and previous studies on tax credits.6
While the average total per-unit costs of housing vouchers and the
production programs can be estimated over any period, we developed 30-year
(life-cycle) cost estimates. We chose 30 years for our life-cycle estimates
because this is generally the minimal length of time that properties
developed through federal housing programs can be expected to serve
low-income households. Appendixes I and II provide more details on our
methodology and cost estimates.
Results in Brief The housing provided under the six active federal programs
varies widely in certain characteristics, such as age, building type, unit
size, location, and services, both across and within programs. Housing
vouchers are used almost exclusively in existing, older multifamily and
single-family properties in the private housing market. The housing voucher,
tax credit, and HOPE VI programs make available a broad range of building
types and unit sizes. By contrast, the Section 202, Section 811, and Section
515 programs typically deliver a narrower range of building types and
provide smaller units. Most of the assisted housing are located in suburbs
and central cities, except for Section 515 developments, which are situated
in rural areas. Compared with the neighborhoods where other program
properties are located, HOPE VI neighborhoods are poorer, with higher
percentages of minority households and lower percentages of homeowners. The
HOPE VI program offers a broad array of services and amenities to residents,
including employment and child care services. The Section 202 and Section
811 programs provide specific services and amenities that are targeted to
the special needs of the elderly and persons with disabilities,
respectively. For the remaining programs, the level of specific services and
amenities varies from property to property.
6Tax Credits: Opportunities to Improve Oversight of the Low-Income Housing
Program (GAO/GGD/RCED-97-55, Mar. 28, 1997) and Building Affordable Rental
Housing: An Analysis of the Low-Income Housing Tax Credit, City Research
(Boston: 1998).
We estimated that, for units with the same number of bedrooms in the same
general location, the production programs cost more than housing vouchers.
According to our estimates, in metropolitan areas, the average total 30-year
costs of the production programs range from 8 percent greater for
one-bedroom units under the Section 811 program to 19 percent greater under
the tax credit program. For two-bedroom units, the average total 30-year
costs range from 6 percent greater under the Section 811 program to 14
percent greater under the tax credit program. Although data were not
available to present total costs by unit size for the HOPE VI program, the
total cost of a HOPE VI unit with an average size of 2.4 bedrooms is about
27 percent more expensive than vouchers. These differences in costs between
the production programs and vouchers are greater in nonmetropolitan areas
than in metropolitan areas. Across the production programs, the total costs
of one- and two-bedroom units are generally similar. Despite these
programwide averages, the costs of individual properties vary substantially,
primarily because of differences in rents and total development costs.
Across the six active programs, the federal government and tenants pay the
majority of the programs' total costs. For all of the programs except tax
credits, the federal government pays the largest percentage of the average
total per-unit costs (from 65 percent for vouchers to 71 percent for HOPE VI
over 30 years). Under the tax credit program, the tenants pay the largest
share of the total cost (54 percent over 30 years); however, they have
higher incomes, on average, and pay a larger percentage of their income for
rent than other assisted households. If the incomes and rent burdens of
voucher households equaled those for each of the production programs, the
federal government would pay more for one- and two-bedroom units under the
production programs than under the voucher program. Contributions from
state, local, and private sources are generally small as a percentage of
total costs (from 2 percent for Section 202 to 7 percent for HOPE VI over 30
years); however, larger-than-average contributions in certain locations can
reduce rents paid by tenants and the federal cost of rental assistance.
Our work raises a number of housing policy issues, including the relative
costs and benefits of the voucher and production programs and whether there
are opportunities for controlling costs to stretch federal housing dollars
as far as possible. The absence of comprehensive and consistent data is an
impediment to monitoring and evaluating housing programs. While production
programs cost more than vouchers, all housing programs provide benefits in
addition to housing the poor. Production programs
have other goals, such as increasing the supply of affordable housing,
accommodating special needs, or revitalizing distressed communities. Housing
vouchers also have other goals, such as promoting mobility and neighborhood
choice. Accordingly, the benefits derived from achieving these goals must be
weighed against the programs' costs. Increasing contributions from
nonfederal subsidy providers could free federal funding to serve additional
households, and further research might identify opportunities to better
contain development costs. Additionally, cost control strategies must take
into account the costs to the federal government of setting aside sufficient
reserves to meet future capital needs. To evaluate the relative
effectiveness of the six housing programs in meeting national housing policy
objectives and to identify opportunities for controlling costs, further
research is needed. However, the comprehensive, consistent data required for
such research are not always readily available. For example, for tax
credits, the largest housing production program, there is no centralized
national database that includes information on costs.
Background The federal government has helped to provide affordable housing
to low-income households since the passage of the United States Housing Act
of 1937. Since then, federal housing programs have either subsidized the
construction of housing for the poor or provided rental assistance to
tenants in existing privately owned housing. Until 1974, federal housing
programs primarily supported the construction of affordable housing. Then,
in 1974, the Congress added Section 8 of the 1937 Act, which established a
new certificate program that relied on existing, privately owned rental
housing. The certificate program was merged in 1998 with a similar program
and renamed the Housing Choice Voucher Program. Under the voucher program,
the subsidy is tied to the household (tenant-based). The household can
choose to use the subsidy at any available unit that meets the program's
standards, and, if the household chooses to move, the subsidy continues as
long as the new unit also meets the program's standards. Since the early
1980s, housing vouchers have been the centerpiece of federal housing
assistance. Conversely, under the production programs, the subsidy is tied
to the unit (project-based), and the household can benefit from the subsidy
only while living in the subsidized unit. (See app. III for more information
on the evolution of federal housing assistance programs.)
Of the approximately 5.2 million renter households assisted by the federal
government in 1999, about 2.7 million were assisted by programs that no
longer receive appropriations to produce additional units. We refer to these
programs as "inactive." Appropriations are, however, provided to fund
project-based rental assistance, interest reduction payments, and operating
subsidies for the units developed under these programs in previous years.
The remaining 2.5 million units are subsidized under the six active programs
that receive appropriations both to add new units and to subsidize units
funded in previous years. In addition, households in some units benefit from
overlapping subsidies. For example, about 6 percent of voucher households
rent units developed under the production programs, particularly under tax
credits.
In fiscal year 1999, the federal government spent about $28.7 billion,
including $3.5 billion in tax credits, for both the active and inactive
housing programs. Of this combined amount, about $15.1 billion supported
units funded under the inactive programs, and about $13.6 billion in
budgetary outlays and tax credits supported the active programs. As shown in
figure 1, the voucher program is the largest of the active programs,
accounting for about 52 percent of the federal funding for them. The tax
credit program accounts for about 26 percent of the federal funding for
active programs, the HOME program about 10 percent, the Section 202 and
Section 811 programs about 5 percent, the Section 515 program about 5
percent,7 and the HOPE VI program about 2 percent. Appendix IV contains
detailed information on the federal expenditures on housing programs,
including the number of units and the costs associated with each of the
active and inactive programs in fiscal year 1999.
7We include outlays for rental assistance provided to Section 515 units
under the Section 521 program.
Figure 1: Budgetary Outlays and Tax Expenditures for Active and Inactive
Housing Assistance Programs, Fiscal Year 1999, Dollars in Millions
Note: Total equals $28.7 billion in budgetary outlays and tax expenditures.
Outlays for Section 8 project-based include New Construction/Substantial
Rehabilitation, Loan Management Set-Aside, Property Disposition, Section
236, and Rent Supplement. Outlays for "other" include Section 202, Section
811, Section 515, Section 521, and HOPE VI. As previously stated, we
identify HOME as an active program, but our analysis does not treat it as a
separate program because HOME grants are often used in conjunction with
other housing programs.
In the private rental housing market, the rent covers the total cost of
providing a housing unit, including the operating expenses (e.g.,
administrative expenses, utilities, routine maintenance, and property
taxes); debt service; deposits to a replacement reserve for major capital
improvements over time; and a market return to equity investors. Under the
voucher program, the rent also covers the total cost of providing a
housing unit. The assisted household generally pays 30 percent of its income
for rent, and the voucher makes up the difference between the household's
contribution and the market rent. In addition, the federal government pays a
fee, equal to about 7 to 8 percent of the rent, to the public housing
authority that administers the voucher program locally on HUD's behalf.
Thus, under the voucher program, the following formula applies:
Total Costs = Rents + Administrative Fee
In this formula, rents include contributions by the voucher program and
assisted household.
Under the production programs, the federal government provides development
subsidies for new construction or substantial rehabilitation and frequently
provides rental assistance. State and local governments or private entities
may provide additional development subsidies. These federal and nonfederal
subsidies can take various forms, including grants, low-interest-rate loans,
and tax credits. The subsidies can lower the rents, provide additional
services or amenities, or both. When the federal government provides rental
assistance, the assisted household generally pays 30 percent of its income
toward rent, and the government makes up the difference.8 Thus, under the
production programs, the following formula applies:
Total Costs = Rents + Development Subsidies
Rents also include contributions by the housing program and assisted
household.9
For both vouchers and the production programs, our estimates of total costs
recognize that rents are paid over many years and development
8The public housing residents of HOPE VI properties; most Section 202,
Section 811, and Section 515 households; and, according to our estimate,
about 40 percent of tax credit households receive rental assistance, pay
about 30 percent of their income for rent, or both.
9We did not include the costs incurred by federal and other government
agencies to administer and monitor the programs since these costs are not
identified in sufficient detail in the agencies' records. However, we
believe these costs to be extremely small relative to those costs that we
have accounted for.
subsidies are paid either up front or over many years. Appendix I provides
further details on the conceptual framework for our methodology.
Vouchers and the production programs are subject to and insulated from
different cost risks over time. Whereas vouchers are vulnerable to inflation
in market rents, the production programs are less vulnerable because of
federal regulations or limits on rents associated with development
subsidies. However, the production programs can pose substantial cost risks
if capital reserves are underfunded, as they often have been in the past.
Vouchers pose no such risk because the federal government has no commitment
to specific units.
Both the voucher and the production programs are subject to cost-containment
guidelines. For the voucher program, HUD sets payment standards that are
based on fair market rents for over 2,700 market areas, taking into account
unit size (number of bedrooms). These payment standards are intended to give
assisted households a selection of units and neighborhoods while containing
costs. Public housing authorities can ask HUD to increase local rent
ceilings if they believe increases are warranted. For the production
programs, the cost-containment guidelines are intended to provide properties
of modest design. These guidelines may establish cost limits that vary by
location, type of building (e.g., elevator or garden-style), and unit size,
or they may simply require assurances that the costs of proposed properties
are reasonable.
With two exceptions, federal housing assistance programs are administered by
HUD. The exceptions are the Section 515 program, which is administered by
the U.S. Department of Agriculture's (USDA) Rural Housing Service (RHS), and
the low-income housing tax credit program, whose administrative
responsibilities are shared by state and local housing finance agencies and
the Internal Revenue Service (IRS) within the Department of the Treasury.
The state and local agencies allocate tax credits to individual properties
within their jurisdictions, set cost-containment guidelines, and provide
general oversight. IRS oversees compliance with the Tax Code.
Programs Provide a Under the six active programs, properties vary in age,
type, the number of
units, the number of bedrooms within units, location, neighborhood,Wide
Range of Housing amenities, and condition. The emphasis placed on social
services also and Services varies considerably. Figure 2 illustrates some of
the many types of housing
provided under the six active housing programs.
Figure 2: Housing Provided Under the Six Active Programs
Note: The pictures contained in this figure illustrate the following: (a)
vouchers-an 80-year-old three-story apartment complex in central Boston; (b)
tax credits-a rehabilitated single-room-occupancy dwelling for the homeless
in a Baltimore suburb; (c) HOPE VI-a newly constructed apartment complex in
central Atlanta; (d) Section 202-a newly constructed, elevator high-rise for
the elderly in a Baltimore suburb; (e) Section 811-a rehabilitated group
home for persons with mental disabilities in a Fort Worth suburb; and (f)
Section 515-a newly constructed, walk-up apartment for the elderly in rural
Wachusetts, Mass.
Age, Type, and Size of Program Properties
Housing vouchers are used almost exclusively in existing properties whose
median age nationwide is about 35 years, ranging from about 65 years in the
Northeast to about 30 years in the West. According to HUD data, about
three-quarters of vouchers are used in multifamily dwellings, and the
remainder are used in single-family homes. Production program properties are
either newly constructed or substantially rehabilitated. For example, the
HOPE VI program replaces or renovates severely distressed public housing
developments as part of a broader community revitalization strategy. The new
or rehabilitated properties often include special design features that are
intended to integrate the public housing community with the neighborhood.
HOPE VI properties, which have an average of nearly 300 units, span the full
range of building types, from detached homes to row houses to elevator
buildings.
The tax credit and Section 811 programs also provide newly constructed and
substantially rehabilitated properties. Most tax credit properties are
multifamily buildings, including single-room-occupancy dwellings, walk-up
apartments, town houses and row houses, and elevator buildings, and have an
average of 77 units. This average does not include tax credit properties
with Section 515 mortgages.10 Section 811 properties are predominantly of
two types-independent living projects and group homes. Independent living
projects generally provide separate apartments with individual kitchens and
bathrooms, while group homes typically include a bedroom for each resident
and a common kitchen, dining, and living area. Section 811 properties range
from single-family dwellings to walk-up apartments and have an average of
about 12 units. Group homes, however, must house no more than six persons.
Finally, the Section 202 and Section 515 programs primarily provide newly
constructed properties. Section 202 properties are generally mid-and
high-rise buildings with elevators, averaging 45 units nationwide, whereas
most
10For the nation, the average size of tax credit properties with Section 515
mortgages is 32 units. The average size of all tax credit properties is 57.
Section 515 properties are walk-up apartments and often consist of no more
than 24 units, which is a size consistent with the lower population
densities of rural areas.
Average Size and Across the six active programs, units vary in their average
size (as Distribution of Program measured by the number of bedrooms) and
distribution across size, as Units shown in figure 3. The average number of
bedrooms ranges from 1.0 for
the Section 202 and Section 811 programs to 2.4 for the HOPE VI program.
Vouchers and tax credits provide higher percentages of larger family units,
while the Section 515 program includes a mixture of larger units for
families and smaller units for the elderly.
Figure 3: Distribution and Average Size of Units in the Six Active Housing
Programs
Note: Average number of bedrooms appears in parentheses.
Location of Program Properties
Most assisted housing is located in metropolitan areas-a broad term that
includes both central cities and suburbs-but the location of properties
varies somewhat by program. As figure 4 indicates, all HOPE VI units are
found in metropolitan areas, with about 90 percent in central cities. In
addition, about 94 percent of tax credit units11 and about 80 percent of
voucher, Section 202, and Section 811 units are located in metropolitan
areas. Moreover, for all of these programs, the majority of the
metropolitan-area units are located in central cities. By contrast, nearly
70 percent of Section 515 units are found in rural nonmetropolitan areas,
with the balance in the rural parts of metropolitan areas.
11This percentage excludes tax credit units in properties with Section 515
mortgages because we included these units in our calculations for the
Section 515 program. If these units were included in our calculations for
tax credits, the percentage of units in nonmetropolitan areas would increase
from about 6 percent to about 22 percent.
Figure 4: General Location of Units in the Six Active Housing Programs
The neighborhoods where assisted housing is located also vary. According to
data from the Bureau of the Census, the census tracts where HOPE VI units
are found are poorer than the census tracts where other program units are
located. HOPE VI census tracts also have higher percentages of minority
households and lower percentages of homeowners. In general, the demographic
characteristics of the census tracts where other program properties are
located are fairly similar, as shown in figure 5.
Figure 5: Demographic Characteristics of Neighborhoods Where Assisted
Housing Is Located
Note: The data for poverty indicate the percentage of neighborhood
households with incomes below a certain threshold adjusted for family size
as determined by the Bureau of the Census. In addition, the figure excludes
data for Section 515 units because the addresses of Section 515 properties
were not readily available.
Services Provided and Amenities
Besides providing a range of property types with units of different sizes in
different locations, the six active programs vary in the extent to which
they make supportive services12 and amenities available to assisted
households. In general, supportive services are not an integral part of the
voucher, tax credit, and Section 515 programs. However, when individual tax
credit and Section 515 properties serve households with special needs, such
as the elderly or persons with disabilities, they may provide services and
amenities similar to those provided in Section 202 and Section 811
properties. Section 202 properties typically include congregate dining
facilities, and both Section 202 and Section 811 properties include common
rooms and may make transportation, housekeeping, and health care services
available. The HOPE VI program emphasizes services, allowing up to 15
percent of the HOPE VI grant to be used for community and supportive
services. For example, HOPE VI developments often include employment or job
training centers as well as facilities for children. Production program
units are more likely to have modern amenities, whereas voucher units
typically have amenities characteristic of older rental properties. In
addition, although it is expected that new units under the production
programs start out in better condition than the older units under the
voucher program, over time, the condition of these new units, as well as
existing units, depends on the level of maintenance and reinvestment.
Production Programs Cost More Than Vouchers
We estimate that, in the same general location, it costs more, on average,
to provide one-and two-bedroom units under each of the production programs
than it does under the voucher program. The differences between production
programs and vouchers are greater in nonmetropolitan areas than in
metropolitan areas. Across the production programs, the total costs of one-
and two-bedroom units are generally similar. Within individual programs, the
total per-unit costs vary considerably from property to property, even
within the same metropolitan area, largely because of differences in the
properties' rents and total development costs. Actual total costs for the
production programs are higher than our estimates because data on local
property tax abatements
12Supportive services provide residents with the assistance needed to live
independently. In the case of elderly residents, such services can include
transportation, dining services, and recreation.
and the possible underfunding of reserves to meet future capital needs were
not available.
Production Programs Cost More Than Vouchers in Both Metropolitan and
Nonmetropolitan Areas
In both metropolitan and nonmetropolitan areas, the average total 30-year
cost of each of the production programs exceeds the cost of providing a
voucher for a unit with the same number of bedrooms. To control the impact
of unit size on costs, we compared the costs of units with the same number
of bedrooms across programs. We focused on one- and two-bedroom units
because they are provided under most of the programs and generally account
for over 60 percent of each program's units. (We could not include HOPE VI,
the program with the largest average unit size, in this analysis because
data were not available to present total cost by unit size.) As shown in
figure 6, in metropolitan areas, the average total cost ranges from $139,520
for vouchers to $166,610 for tax credits. Compared with vouchers, the
production programs cost from 8 percent more for Section 811 units to 19
percent more for tax credit units.13 In nonmetropolitan areas, the average
total cost ranges from $95,890 for vouchers to $138,060 for tax credits,
and, compared with vouchers, the production programs cost from 35 percent
more for Section 811 units to 44 percent more for tax credit units.
13In our July interim report, we presented total costs for 30 years and for
the first year. This report also presents total costs for 30 years, with
first-year costs presented in appendix I. The total cost in the first year
is the sum of the rent paid in the first year plus the annual payment for
all development subsidies, assuming a 30-year life. Under both cost
estimates, production programs are more expensive than vouchers. The
disparities in costs between each of the production programs and vouchers
are more pronounced in the first year than over 30 years because rents are
higher for vouchers than for the production programs, which use development
subsidies to reduce rents (see table 4 in app. I). As a result, rent
inflation has a more significant impact on the cost of vouchers than on the
costs of the production programs, thereby narrowing the disparities in costs
between the two over time.
Figure 6: Average Total 30-Year Cost of One-Bedroom Units, by General
Location
Note: Since Section 515 is a rural program, we present our cost estimate of
Section 515 for nonmetropolitan areas only.
The drop in average total cost from metropolitan to nonmetropolitan areas
for one-bedroom units is greatest for the voucher program. Vouchers in
nonmetropolitan areas cost 31 percent less than vouchers in metropolitan
areas. For the production programs, nonmetropolitan units cost from 14
percent less than metropolitan units under Section 811 to 17 percent less
under tax credits.
As shown in figure 7, examining the costs of two-bedroom units yields
similar results. In metropolitan areas, the average total costs range from
$161,650 for the voucher program to $184,130 for the tax credit program.
Compared with vouchers, the production programs cost from 6 percent more for
Section 811 units to 14 percent more for tax credit units. In
nonmetropolitan areas, the production programs cost from 20 percent more for
Section 515 units to 38 percent more for tax credit units.14 Again, the drop
in total cost from metropolitan to nonmetropolitan areas for two-bedroom
units is greatest for the voucher program.
Figure 7: Average Total 30-Year Cost of Two-Bedroom Units, by General
Location
14In the seven metropolitan areas we selected for review, one- and
two-bedroom production program units are also more expensive than one- and
two-bedroom voucher units, respectively. Costs for one-and two-bedroom units
for the seven metropolitan areas are provided in tables 7 and 8 in appendix
I.
Note: Section 202 is not included in this analysis because it produces
mainly efficiencies and one-bedroom units. Also, since Section 515 is a
rural program, we present our cost estimate of Section 515 for
nonmetropolitan areas only.
For units greater than two bedrooms, cost data were available for two
programs-tax credits and vouchers. We estimate that the average total cost
of three-bedroom units in metropolitan areas is about $203,510 for tax
credits and $196,470 for vouchers-a difference of about 4 percent. In
nonmetropolitan areas, the average total cost is about $179,400 for tax
credits and $131,580 for vouchers-a difference of about 36 percent. Overall,
we find that the cost differentials between production programs and vouchers
decrease as unit size increases.
We could not include the HOPE VI program in figures 6 and 7 because, again,
data were not available to present total costs by unit size. However, the
total cost of an average HOPE VI unit, with 2.4 bedrooms, is $223,190- this
figure includes only housing-related construction costs. We estimate that
the average voucher cost of a 2.4-bedroom voucher unit is $175,580.
According to these estimates, the HOPE VI program is about 27 percent more
expensive than the voucher program.15 If the costs of remediation,
demolition, construction of housing and community facilities, relocation,
and community-based planning and participation-in addition to
housing-related construction costs-were included, the average total cost of
the program would be $248,720 or 42 percent more expensive than vouchers.
Across the production programs, the average total costs are very similar to
each other. For one-bedroom units in metropolitan areas, the average 30-year
cost of the most expensive program (tax credits) is 10 percent greater than
that of the least expensive one (Section 811). In nonmetropolitan areas, the
difference in the average total cost for one-bedroom units between the most
expensive program (tax credits) and the least expensive one (Section 811) is
even smaller-only 6 percent. The average total costs of two-bedroom units
are also similar across production programs in metropolitan and
nonmetropolitan areas.
15This comparison of HOPE VI and voucher costs follows the method employed
in our interim report, in which we compared the cost of each of the
production programs with the cost of vouchers. In that report, we took the
actual rents for voucher units of different sizes and interpolated a rent
consistent with the average bedroom size for each specific production
program. Because these pairwise cost comparisons use a different average
unit size for each of the programs, we cannot compare costs across the
production programs. We did not normalize all of the production programs to
2.4 bedrooms because this size is considerably larger than the typical units
under the other programs. Figures 6 and 7 permit comparisons for the most
common unit sizes.
Total Costs Vary Across Individual Properties
The average total costs of the voucher and production programs vary across
individual properties, even within the same metropolitan area, primarily
because of variations in the rents charged for the voucher program and by
the development costs for the production programs.16 For example, in the
Boston metropolitan area, the market rents for two-bedroom voucher units
range from about $540 to $1,300 per month, and the average total development
costs of two-bedroom tax credit units range from about $44,800 to $293,340
per unit.
Neighborhood characteristics may influence market rents and total
development costs (in particular, the value of land). Under the voucher
program, variations in market rents within a metropolitan area for
similar-sized units may be influenced by neighborhood differences, such as
quality of schools, crime rates, and pollution.17 Market rents may also be
influenced by the quality of the units, proximity to jobs and shopping
centers, and the amenities and services offered. Under the production
programs, variations in total development costs within a metropolitan area
reflect not only differences in neighborhoods but also in property and unit
amenities, project sponsors, program requirements, and a host of other
factors.18
16For some of the programs reviewed, variances in the costs of individual
properties in certain locations can also be due to their small sample sizes.
17A detailed discussion of the impact of housing characteristics and public
amenities on housing rents is found in chapters 3, 4, and 14 in Denise
DiPasquale and William C. Wheaton, Urban Economics and Real Estate Markets
(1996).
18The impact of property and neighborhood characteristics on total
development costs for the tax credit program is analyzed in Jean L. Cummings
and Denise DiPasquale, "The Low-Income Housing Tax Credit: The First Ten
Years," Housing Policy Debate, Vol. 10, Issue 2 (1999), pp. 251-307. GAO
also analyzed these issues in Tax Credits: Reasons for Cost Differences in
Housing Built by For-Profit and Nonprofit Developers (GAO/RCED-99-60, Mar.
10, 1999). For more information, HUD measured and explained the differences
in total development costs among the inactive housing production programs in
The Costs of HUD Multifamily Housing Programs, HUD, Office of Policy
Development and Research (1982).
For HOPE VI and tax credits, we find high-cost properties located in very
poor neighborhoods where market rents would be insufficient to generate new
construction. Often, production programs, by design, build housing in
neighborhoods where the market would not. There may be additional costs of
building in these neighborhoods. Additional costs may also result from
compliance with federal wage and hiring regulations19 and from participation
of less experienced developers, such as housing authorities or neighborhood
groups, that may be less efficient than larger developers who have better
construction management capacity.20 Nonetheless, it is doubtful that these
factors alone account for the high costs of the most expensive projects in
our database, some of which exceed $200,000 per unit.
19According to HUD, all HOPE VI developments must follow these regulations,
including the Davis-Bacon Act, Section 3 requirements to hire small and
minority contractors, and resident participation requirements. For example,
HUD stated that, depending on the local construction labor market,
Davis-Bacon alone, which requires construction workers to receive locally
prevailing wages and fringe benefits, can increase construction costs by as
much as 25 percent.
20HOPE VI officials recognized that, unlike private sector developers, many
housing authorities hire program and construction managers to oversee HOPE
VI developments, which can increase costs. Also, see Cummings and DiPasquale
(1999), pp. 260 and 261.
Data Were Not Available to Account for Local Property Tax Abatements and
Underfunding of Capital Reserves
Actual total costs for the production programs are somewhat higher than our
estimates because our estimates do not reflect the value of abated property
taxes or shortfalls in capital reserves. Under each production program, some
properties receive tax abatements, and, historically, sufficient reserves
for capital replacements and improvements have not been set aside.21 Indeed,
if future subsidies are needed to maintain the properties under the
production programs, our cost estimates understate the actual costs.
Although data were not available to estimate the additional costs of
property tax abatements and capital reserve shortfalls for individual
properties, we estimated, on the basis of industry averages, that under a
worst-case scenario (i.e., total tax abatements and no payments to
reserves), the total 30-year costs would be understated by nearly 15
percent.22 This scenario is most applicable to the HOPE VI program, in which
full property taxes are not paid and capital reserves are not fully funded.
Under the other four production programs, many properties fund capital
reserves and pay full property taxes. For these programs, our cost estimates
are likely to be understated by less than 15 percent.
21One HUD study estimates that modernization needs of public housing are
nearly $20,000 per unit. If these needs were met, the ongoing annual accrual
needs of public housing are estimated at almost $1,700 per unit. See Capital
Needs of the Public Housing Stock in 1998, Abt and Associates Inc. (2000).
However, given the unique nature of public housing, its history may not shed
much light on the future of other current programs. Perhaps more relevant,
another HUD study estimates that the annual accrual needs of FHA-insured
multifamily properties are almost $1,100 per unit. See Status of HUD-Insured
(or Held) Multifamily Rental Housing in 1995, Abt Associates, Inc. (1999).
22This percentage represents an increase of $35,220 to the total 30-year
cost of $223,190 for the HOPE VI program. Our estimate of this increase is
based on the national average property tax rate of $11 per $1,000 in
property value, according to the 1999 American Housing Survey, and an annual
set-aside of $600 per unit. About 25 percent of this increase is
attributable to shortfalls in capital reserves and 75 percent to property
tax abatements. Interviews with industry officials indicate that annual
set-asides for new construction under the tax credit program are about $300
per unit. HUD officials, on the other hand, argue that the history of public
housing and other federal multifamily housing programs suggests that a
set-aside of about $1,000 per unit is more appropriate. When an annual
shortfall of $300 per unit is assumed and no changes are made to the
property tax abatement estimates, our total 30-year cost estimate increases
by 14 percent. When $1,000 per unit is assumed, our total 30-year cost
estimate increases by 18 percent.
The Federal Government and Tenants Pay the Largest Shares of Total Costs
Across the six active programs, the federal government and tenants pay the
majority of the programs' average total costs. For all of the programs
except tax credits, the federal government pays the largest percentage of
the average total costs. For tax credits, the tenants pay a slightly higher
percentage, but they have higher incomes, on average, and pay a larger
percentage of their income for rent than other assisted households. If the
incomes and rent burdens of voucher households equaled those for each of the
production programs, the federal government would pay more for one-and
two-bedroom units under the production programs than under the voucher
program. Contributions from state, local, and private sources are, on
average, small as a percentage of total costs, but in certain locations,
contributions from these sources can reduce rents paid by the tenants and
the federal cost of rental assistance.
The Federal Government The federal government pays most of the total costs
for all of the programs and Tenants Pay Most of the with the exception of
tax credits, for which tenants pay the largest share of Total Costs of
Assisted total costs. As figure 8 shows, the federal share, as a percentage
of average
total costs, is about 65 percent for vouchers; 60 percent for Section
515;Housing and 70 percent for HOPE VI, Section 202, and Section 811. The
federal share is the smallest for tax credits-about 40 percent.
Figure 8: Average Shares of Total 30-Year Costs for One-Bedroom Units Paid
by the Federal Government, Tenants, and Others
Notes:
1. The cost shares for HOPE VI are for all units, not one-bedroom units,
because the program does not identify costs by the number of bedrooms.
2. This figure presents data on average cost shares for the nation, which
are similar to those for metropolitan and nonmetropolitan areas.
3. "Other" includes state, local, and private funding sources.
As figure 8 shows, tenants contribute between 21 percent (HOPE VI) and 54
percent (tax credits) of the total housing costs over 30 years. The tenant
share for each of the programs is dependent on the average income of the
households served and the average portion of this income paid for rent. The
more the assisted households pay, the less the federal government needs to
contribute.
As figure 9 shows, compared with the other programs, tax credit households
have the largest average income, about $14,150 (in 1999 dollars), 23 and pay
the largest portion of their income for rent-about 35 percent
overall-compared with about 30 percent for most of the households assisted
through the other programs.24 As a result, the tenant share of total cost is
the largest for the tax credit program. The other active housing programs
target households with lower average incomes, and, therefore, tenants under
these programs pay a smaller share of the average total per-unit costs. Most
of these households receive rental assistance and pay about 30 percent of
their income for rent, leaving the federal government and, to a far lesser
extent, other subsidy providers to cover the remaining costs. Figure 9
displays the average incomes of the households assisted through the six
active programs.
23The tax credit program serves two distinct groups. The first group, which
we estimate includes about 40 percent of tax credit households, has an
average income of $8,350 (in 1999 dollars), comparable to the average
incomes of households assisted through the other active programs. This group
receives rental assistance and pays about 30 percent of its income for rent.
The second group, on the other hand, has a larger average income of $17,750,
does not receive rental assistance, and faces much higher rent burdens,
sometimes exceeding 50 percent of its income. (See GAO/GGD/RCED-97-55, p.
41.)
24According to our most recent letter on tax credits, Tax Credits:
Characteristics of Tax Credit Properties and Their Residents
(GAO/RCED-00-51R, Jan. 10, 2000, pp. 6 and 7), about 57 percent of tax
credit households paid 30 percent or less of their income for rent, about 21
percent paid between 31 and 40 percent, about 8 percent paid between 41 and
50 percent, about 8 percent paid over 50 percent, and 5 percent paid an
unknown percentage.
Figure 9: Average Annual Incomes of Households Served Under the Six Active
Programs
Sources: GAO's analysis of data from HUD's Multifamily Tenant
Characteristics System and APicture ofSubsidizedHouseholds, RHS agency
officials, and GAO/GGD/RCED-97-55.
After Adjustments, the Federal Cost of the Production Programs Is Greater
Than Vouchers
If the average incomes of tax credit and voucher households were equal25 and
if both groups of tenants paid the same percentage of their income for rent,
it would cost the federal government about 30 percent more for the tax
credit program than for housing vouchers for a one-bedroom unit in
metropolitan areas (fig. 10). Similarly, if the average incomes of the other
production programs and voucher households were equal and if both groups of
tenants paid the same percentage of their income for rent, it would cost the
federal government, in metropolitan areas, from 7 percent more for Section
811 to 16 percent more for Section 202 for one-bedroom units over 30 years.
For two-bedroom units, it costs the federal government, in metropolitan
areas, 2 percent more for Section 811 and 15 percent more for tax credits.
The federal cost of an average-size HOPE VI unit (2.4 bedrooms) is 24
percent more than vouchers, and if all costs, in addition to housing-related
expenses, were considered, the federal cost of HOPE VI would be 43 percent
more.26 We also estimated the federal cost of three-bedroom units, where
data were available, and found that tax credit units in metropolitan areas
cost the federal government 3 percent less than vouchers.
25Since differences in household incomes and rent burdens can have a
significant impact on federal costs, we adjusted the rent paid by the
voucher household to equal the rent paid by the tax credit household. We
also made similar adjustments for the comparisons between vouchers and the
other production programs.
26Because data for the HOPE VI program were not available by unit size, we
followed the approach used in our interim report to estimate the program's
federal cost. For the other programs, we were able to compare cost across
different unit sizes.
Figure 10: Comparison of the Average Federal Cost of One-Bedroom Units in
Metropolitan Areas for Production Programs and Vouchers, Adjusted for
Household Income and Rent Burden
Note: Since Section 515 properties are located in rural areas, they are not
included in this figure. Due to data limitations, HOPE VI cost data reflect
the average for all units, not one-bedroom units. Also, it is not
appropriate to compare across production programs because the assumed tenant
rental contribution for housing vouchers is different for each of the
production programs.
As shown in figure 11, in nonmetropolitan areas, the differences in the
comparative federal cost of vouchers and production programs are greater.
For example, the federal cost of one-bedroom tax credit units is about 180
percent more than the federal cost of vouchers in nonmetropolitan areas,
compared with about 30 percent more in metropolitan areas. The federal costs
for the other production programs are from 57 percent (Section 811) to 67
percent (Section 202) greater than for vouchers in nonmetropolitan areas.
For two-bedroom units, it costs the federal government, in nonmetropolitan
areas, 103 percent more for tax credits. For the other programs, the federal
costs in nonmetropolitan areas are 28 percent greater
for Section 515 and 39 percent greater for Section 811. Finally, the federal
cost of three-bedroom tax credit units in nonmetropolitan areas is 102
percent more than vouchers. Additional data on the federal costs of one-and
two-bedroom units appear in tables 12 and 13 in appendix I.
Figure 11: Comparison of the Average Federal Cost of One-Bedroom Units in
Nonmetropolitan Areas for Production Programs and Vouchers, Adjusted for
Household Income and Rent Burden
Note: Since HOPE VI properties are located exclusively in metro areas, they
are not included in this figure. Also, it is not appropriate to compare
across production programs because the assumed tenant rental contribution
for housing vouchers is different for each of the production programs.
Contributions From Other Sources, While Generally Small, Can Reduce Rents or
Lower Federal Costs
Contributions from state, local, and private sources, as shown in figure 8,
cover a small share of the total costs of the production programs.27 At the
national level, these contributions do not exceed, on average, 7 percent
over 30 years. This percentage, however, would be somewhat higher if data
were available to account for the impact of property tax abatements, as
previously discussed in this report.
Even though the share of total costs paid by these sources is, on average,
small, we identified state and local subsidies that, in certain locations,
had a significant impact on rents or federal costs. For example, a
comparison of the subsidies provided to properties in the New York and
Boston metropolitan areas demonstrates the impact of a significant
nonfederal subsidy. As shown in table 1, the average contribution from
state, local, and private sources for a two-bedroom tax credit unit is over
five times greater in New York than in Boston in the first year. At the same
time, both the total and federal per-unit costs were about the same for both
cities. Because of the difference in subsidies from state, local, and
private sources, the average monthly rent paid by a tax credit household was
about $820 in Boston and about $430 in New York-a difference of nearly 90
percent. The primary reason for the difference in tax credit rents is that
New York City provides virtually all of the mortgages for tax credit
properties, at rates averaging about 1 percent-a very significant subsidy.
Conversely, in the Boston metropolitan area, the state provides about
two-thirds of the mortgages at interest rates that are very close to market
rates. In addition, rent reductions resulting from state and local subsidies
present opportunities to decrease the federal cost of providing rental
assistance to these units.
27These contributions are not applicable to the voucher program.
Table 1: Impact of Contributions From State, Local, and Private Sources on
the Average First-Year Costs of Two-Bedroom Units for Tax Credit Properties
in Boston and New York
Note: To
illustrate
clearly the
impact of these
subsidies on the
resulting rents,
we chose to present the average total costs in the first year, rather than
over 30 years. Also, the tenant shares of costs for both Boston and New York
are less than the average annual rents charged for the units because the
tenant shares do not include the estimated rental assistance payments paid
by the federal government.
After Adjustments, the Total Government Cost of the Production Programs Is
Greater Than Vouchers
Our data also allow us to compare the total government (federal, state, and
local) cost of production programs and vouchers, while making the same
assumptions concerning household income and rent burdens as in the federal
cost comparisons.28 In metro areas, the total government costs for a
one-bedroom unit under the production programs, compared with vouchers, are
12 percent more for Section 811, 20 percent more for Section 202, and 53
percent more for tax credits. The total government cost for an average-size
unit under HOPE VI is 37 percent more. In nonmetropolitan areas, the total
government costs for a one-bedroom unit under the production programs,
compared with vouchers, are 60 percent more for Section 811, 67 percent more
for Section 202, 75 percent more for Section 515, and 214 percent more for
tax credits. The differentials in total government costs are similar for
two-bedroom units.
Housing Policy Issues The overriding goal of the federal housing programs we
reviewed is to house the poor. However, the housing programs have additional
goals- vouchers provide mobility and neighborhood choice, and production
programs have additional goals, from creating new affordable units, to
meeting the needs of the elderly or persons with disabilities, to promoting
community development. Whether the benefits derived from these additional
goals justify the programs' additional costs is a major housing policy
question. For all of the programs, controlling costs is important to
28 Our estimate of total government cost may include private subsidies.
However, these subsidies generally make up a very small fraction of the
total cost of the programs.
ensure the efficient use of federal subsidies. Increasing contributions from
nonfederal sources could stretch federal housing dollars for the production
programs, and further research might suggest opportunities for containing
development costs. Cost control strategies must include the potential costs
to the federal government of setting aside sufficient funding for capital
reserves. Assessing the extent to which the programs are collectively
addressing the nation's affordable housing needs and controlling costs is
difficult because detailed data on the various housing programs are not
consistently available.
Achieving the Goals of Federal Housing Policy
If costs were the only consideration, our estimates would suggest that the
production programs should be replaced with vouchers. However, federal
housing programs deliver benefits that must be taken into account when
addressing costs. Voucher recipients can choose housing in neighborhoods
that offer better educational and employment opportunities, or they can also
choose to remain in place while paying less for rent. In many markets,
production programs are the only sources of new affordable rental units, and
use restrictions will keep these units affordable for decades to come,
limiting the impact of market forces. These units can be crucial, especially
when housing markets are tight or landlords are unwilling to rent to voucher
recipients. Certain housing authorities have found that the fair market
rents in some metropolitan areas are too low, making it difficult for
voucher recipients to find housing.29
29Comprehensive and current data on success rates for the nation were not
available. HUD is completing The Voucher Success Rates study based on sample
data from 48 metropolitan public housing authorities. Anecdotal evidence,
while not conclusive, points to the difficulty of finding housing with
vouchers. A search of the NEXIS database found over 70 news articles
published over the past year about the challenges faced by voucher
recipients. We found references to this problem reported for certain
high-cost areas, such as Boston and San Francisco, and also for certain
low-cost areas, such as Little Rock, Ark. For example, see "Many Housing
Vouchers Forfeited: Lack of Affordable Units Undermining Section 8," The
Boston Globe, Mar. 24, 2001; "Desperate Clutch for Subsidized Shelter; S.F.
Applicants in Frenzy," The San Francisco Chronicle, Sept. 5, 2001; and
"Project Tenants to Enter Tight Housing Market," Arkansas Democrat-Gazette,
Feb. 18, 2001.
In addition, there are substantial differences in the housing and services
provided under each of the production programs that must also be considered.
For example, the Section 202 and Section 811 programs make available
services that are not readily found in affordable housing in the private
rental market. These services can be particularly important for frail
elderly residents or persons with disabilities, for whom housing vouchers
are probably not a reasonable alternative. As the nation's population ages,
production programs for the elderly may become an even more important part
of national housing policy. Finally, in many urban areas, the production
programs have formed an integral part of an overall community development
strategy, as in the case of the HOPE VI program. As a matter of public
policy, the benefits of mobility, increasing the supply of affordable
units,30 providing additional services for special needs populations, or
revitalizing distressed communities must be weighed against the costs of
these efforts.
Controlling Federal Costs Opportunities to control the federal cost of
housing assistance are limited. Shifting more of the cost to very-low-income
households would not be practical, given that the federal government and
tenants cover the majority of costs for all programs and very-low-income
tenants can contribute only a very small portion of the total cost. Without
contributions from other sources, the federal cost share inevitably
increases as tenant income declines. Thus, the bottom line is that housing
very poor households is expensive for the federal government under all
programs. To shift more of the cost burden to tenants, the programs would
have to serve higher income households.
In some instances, increasing contributions from state and local sources may
be an option for limiting federal expenditures for some of the production
programs, as our discussion of New York City's mortgage interest subsidy
indicated. Substantial subsidies from these sources could eliminate or
reduce the need for federal rental assistance, freeing federal funds to
assist other households. However, state and local governments
30A 1999 study measured the impact of production program subsidies on the
supply of housing. It found that, with the exception of public housing,
these subsidy programs most likely add little or nothing to the total
housing stock because they were simply displacing private, unsubsidized
construction. The study concluded that public housing has steadily added to
the housing stock since its inception. See Michael P. Murray, "Subsidized
and Unsubsidized Housing Stocks 1935 to 1987: Crowding Out and
Cointegration," Journal of Real Estate Finance and Economics, Vol. 18 (Jan.
1999).
vary in their ability and willingness to support affordable housing. Federal
incentives, such as additional tax credit or grant awards for major
financial commitments, might promote greater nonfederal participation.
Further research on projects' adherence to cost-containment guidelines could
identify opportunities for controlling development costs. Our data on the
production programs show wide variation in the costs of projects under the
same program in the same metropolitan area. While the higher costs of some
units reflect the cost differential between new construction and
rehabilitation or the premiums paid for special features, the reasons for
the higher costs of other units are less obvious. Understanding the
considerable variation in per-unit costs requires more work on the
determinants of development costs and the effectiveness of current
cost-containment guidelines. To the extent that a property's development
costs can be contained and a production program's objectives still achieved,
federal dollars can go further.
Further research on the adequacy of the production programs' capital
replacement reserves would put the federal government in a better position
to manage potential long-term cost risks. As we previously noted, the
production programs could pose a cost risk to the federal government if
capital reserves are underfunded. The experience with modernization programs
for public housing and other production programs suggests that this cost
risk can be large. It is still too early to tell whether tax credit
properties will suffer from capital shortfalls as they age. However, even if
they do suffer, the structure of the tax credit program may limit the risk
to the federal government. The government does not own the units or hold the
mortgages on most of them. As a result, the potential role of the federal
government is unclear if these units were to need an infusion of capital. It
is possible that, as the ownership of tax credit properties changes over
time, new owners will apply for tax credits to rehabilitate the properties,
but their applications will have to be assessed by the relevant state
agencies, which will have no statutory obligation to provide the credits.
Availability of Housing Cost Data
Our analysis for this report, which required detailed, consistent data on
housing characteristics, services, and costs for the six active programs,
relied on information collected and centralized by HUD and RHS but was
hampered by gaps in the data for some programs. For example, HUD's
centralized data on the Section 202 and Section 811 programs do not include
information on the sources of funds other than the capital advance. For the
HOPE VI program, data were available on total costs and on HUD's portion of
the total costs, but information on tax credits and state, local, and
private funds was limited.31 To varying degrees, HUD and RHS have data on
tenant characteristics and on property revenues and expenses. Cooperation
and coordination across federal agencies to establish standards for
collecting data on housing programs would facilitate the development of
information to further our understanding of federal housing programs.
For the tax credit program, no federal agency is responsible for collecting
and centralizing data from the state and local housing finance agencies that
administer the program. While IRS oversees compliance with the federal
regulations for using tax credits, it does not oversee the program's impact
on national housing policy, including its relationship to other federal
housing programs. Recognizing the importance of the tax credit program, HUD
established a limited national database on tax credit properties. This
database has information, which the housing finance agencies have
voluntarily reported to HUD, on the properties placed in service through
1998, including their location, number of units, number of bedrooms per
unit, type of construction (new or rehabilitated), and type of sponsor
(nonprofit or for-profit). However, HUD's database does not include
information on tenant characteristics, project costs, and property operating
revenues and expenses. These data, though generally available from the
housing finance agencies, have not been centralized, making analysis and
evaluation of the program difficult. As a result, for this report, we relied
on a database constructed by a private research firm.
Given the size of the tax credit program-soon to exceed $4 billion per
year-it is important to monitor and evaluate the program's impact on
national housing policy. However, no federal agency has been designated to
perform this role, and no requirements have been established for state
31 HOPE VI program officials, however, are revising their data collection
procedures to provide more details on all sources of funds.
finance agencies to report data on project costs and households served.
Accordingly, there is a need for a national, centralized database on the tax
credit program to serve as the basis for evaluating the program's success in
serving various populations, assessing how federal funds are being used,
determining to what extent other sources of funding are being leveraged,
gauging projects' compliance with cost-containment guidelines, and
monitoring projects' ongoing and long-term financial viability. To develop
this database, a federal agency would have to be explicitly designated as
responsible for collecting the information and establishing reporting
requirements for the housing finance agencies that manage the program. The
costs and benefits of designating such an agency and requiring more detailed
reporting by the housing finance agencies would have to be weighed before
any action could be taken.
Federal Agency and State Association Comments and Our Evaluation
We provided HUD, USDA, and the National Council of State Housing Agencies
(NCSHA) 32 with a draft of this report for their review and comment. HUD
commended us for our effort in collecting data from various sources to
address the "critical question" concerning the relative costs of federal
rental housing programs. HUD's primary concern was that it believes our
30-year cost estimates understate the costs of the production programs
because the history of previous production efforts suggests that capital
reserves for future replacements and improvements are often underfunded and,
as a result, substantial amounts of additional subsidies may be necessary in
later years. We agree in part. While past production programs have received
additional subsidies to maintain their properties in satisfactory condition,
the extent to which newer programs, such as tax credits and the capital
advance programs under Section 202 and Section 811, will require additional
subsidies to maintain the properties is currently unknown. To address these
concerns, we include additional information on the impact of different
amounts of capital reserve shortfalls on our 30-year cost estimates. HUD
recommended that we shorten our life-cycle cost period to 15 years to reduce
the uncertainties concerning these additional future subsidies. We did not,
however, shorten our cost period because development subsidies are intended
to buy low-income housing for more
32NCSHA is a national nonprofit organization created in 1970 to assist state
housing agencies in advancing the interest of low-income people through the
financing, development, and preservation of affordable housing. NCSHA's
members operate in every state and the District of Columbia, Puerto Rico,
and the U.S. Virgin Islands.
than 15 years; most production programs today require that housing remain
affordable for at least 30 years.
HUD was also concerned that the title of the report, as well as certain
parts of the draft, suggested that production programs respond to broader
objectives than the voucher program. HUD believes that vouchers provide
benefits in addition to affordable housing, including mobility. We have
changed the title of the report and, where appropriate, added discussions
about the additional benefits derived from vouchers. The complete text of
HUD's comments and our response are included in appendix V. HUD also
provided us with technical comments, which we incorporated into the report,
as appropriate.
USDA generally agreed with our comparison of costs across programs and
stated that further research is needed on the adequacy of production
programs' capital replacement reserves in order to address long-term federal
cost risks. In addition, USDA stated that cooperation and coordination
across federal agencies is needed to establish standards for collecting data
on housing programs. According to USDA, standardized reporting format would
greatly reduce the complexity and cost of compliance for owners, property
managers, and government agencies. The complete text of USDA's comments and
our response are included in appendix VI.
NCSHA commented that, in its opinion, comparing costs across programs, and
especially comparing the costs of production programs and housing vouchers,
is not useful. We disagree. While it is true that each program has some
unique objectives, fundamentally, housing vouchers and housing production
programs share a core objective of providing housing for low-and
very-low-income households. In addition, since housing subsidies are not an
entitlement and only about one-third of eligible households receive
assistance, it is imperative that scarce subsidies dollars be used as
efficiently as possible. NCSHA's comments suggest that it believes that the
unmeasured benefits of the tax credit program exceed those of vouchers and
should eliminate the gap between the costs of vouchers and of tax credit
units. However, NCSHA provides no support for this view. The work presented
in our report provides a starting point for assessing the relative costs of
housing assistance programs. The cost differentials we present provide an
estimate of how large the additional benefits would have to be to justify
the additional costs. As HUD points out in its comments, future work should
focus on measuring these additional benefits to provide a fuller picture of
the relative costs of these housing assistance programs.
NCSHA questioned the need for a national database on costs for the tax
credit program, arguing that the tax credit is one of the most exhaustively
studied programs. We disagree. There are very few studies of the tax credit
program that assess the costs of providing housing under the program, the
financial viability of tax credit projects over time, or the households
served by the program because such analysis requires an exhausting data
collection effort. For the two most detailed studies on the national costs
of tax credits-ours (1997) and that of Cummings and DiPasquale (1999), data
collection from a variety of disparate sources took well over a year.
Cummings and DiPasquale have the most recent cost information, and their
data end in 1996. Our 1997 study provides the only description of the
characteristics of tenants in tax credit developments for the nation, and
our data are only for developments placed in service between 1992 and 1994.
Michael A. Stegman, in a 1999 review, argued that we know very little about
the tax credit program.33 He noted that estimates vary on even very basic
facts, such as how many units have been developed. The tax credit program
consumes real taxpayer resources, and as with any government program,
taxpayers deserve to know what is being purchased with their dollars and at
what cost. The complete text of NCSHA's comments and our response are
included in appendix VII.
Scope and Methodology
To accomplish our objectives, we collected and analyzed data on housing
costs and characteristics and tenant income for the nation as a whole and
for seven metropolitan areas-Baltimore, Boston, Chicago, Dallas/Fort Worth,
Denver, Los Angeles, and New York. These locations are geographically
diverse and representative of both low-cost and high-cost housing markets.
We obtained the data for our analysis from a variety of sources, including
HUD, RHS, the Bureau of the Census, public housing authorities, state
housing finance agencies, property managers, industry groups, and previous
studies on tax credits.34 We also visited representative properties in three
of the seven metropolitan areas to observe qualitative differences in the
housing and services provided under each of the programs.
33Michael A. Stegman, "Comment on Jean L. Cummings and Denise DiPasquale's
`The Low-Income Housing Tax Credit: An Analysis of the First Ten Years':
Lifting the Veil of Ignorance," Housing Policy Debate, Vol. 10, Issue 2
(1999).
34GAO/GGD/RCED-97-55, and Building Affordable Housing: An Analysis of the
Low-Income Housing Tax Credit, City Research (Boston: 1998).
To estimate the cost of each of the six active housing programs, we
developed a 30-year (life-cycle) cost estimate. We chose 30 years for our
life-cycle estimates because this period is generally the minimal length of
time that properties developed through federal housing programs can be
expected to serve low-income households. We presented our cost estimates, as
applicable, for metropolitan and nonmetropolitan areas to illustrate the
impact of location on cost. To account for differences in unit size, we
determined the cost of one-, two-, and three-bedroom units for each of the
programs, where possible. This approach enabled us to compare costs across
programs for units of the same size.
To compute the portion of each program's cost paid by the federal
government, tenants, and others, we identified the amounts in rents and
development subsidies paid by these sources. In comparing the relative
federal cost of production programs and vouchers, we made adjustments to
account for differences among the programs in tenants' rental contributions,
which affect the size of the federal rental assistance subsidy. As we did
for total costs, we accounted for differences in unit size by determining
the cost of one-, two-, and three-bedroom units, where possible. Our
methodology is described further in appendix I.
We performed our work from September 1999 through November 2001 in
accordance with generally accepted government accounting standards.
As arranged with your offices, we will send copies of this report to
interested congressional committees and Members of Congress; the Secretary
of Agriculture; the Secretary of Housing and Urban Development; the
Director, Office of Management and Budget; the Executive Director,
Millennial Housing Commission; and other interested parties. We will also
make copies available to others on request.
If you have any questions about this report, please contact me at (202)
512-7631. Key contributors to this report are listed in appendix VIII.
Stanley J. Czerwinski Director, Physical Infrastructure Issues
List of Congressional Committees
The Honorable Jack Reed Chairman The Honorable Wayne Allard Ranking Minority
Member Subcommittee on Housing
and Transportation Committee on Banking, Housing, and Urban Affairs United
States Senate
The Honorable Barbara A. Mikulski
Chairwoman
The Honorable Christopher S. Bond
Ranking Minority Member
Subcommittee on Veteran Affairs, HUD
and Independent Agencies
Committee on Appropriations
United States Senate
The Honorable Marge Roukema
Chairwoman
The Honorable Barney Frank
Ranking Minority Member
Subcommittee on Housing and Community Opportunity
Committee on Financial Services
House of Representatives
The Honorable James T. Walsh
Chairman
The Honorable Alan B. Mollohan
Ranking Minority Member
Subcommittee on VA, HUD, and Independent Agencies
Committee on Appropriations
House of Representatives
Appendix I
Methodology for Estimating Per-Unit Costs of Federally Assisted Housing
Programs
A key objective of this report is to compare the total costs of providing
housing to low-and very-low-income households under the six active federal
housing programs. Previous studies on the relative costs of housing programs
have generally found that vouchers are less expensive and more
cost-effective than production programs. However, most of these studies are
over 20 years old, and, as a result, they do not provide information on the
newer active housing programs. Valid cost comparisons require that we
compare the costs of providing similar units in similar locations. In
addition, the structure of the subsidies provided under the programs varies
in ways that significantly affect cost comparisons. Vouchers are short-term
commitments to provide housing assistance, while production programs provide
units with certain restrictions to ensure that the units will remain
affordable in the future, often over 30 years. To account for differences in
the timing of investments under the various programs, we estimated their
30-year life-cycle costs.35 Once we determined the cost of each program, we
identified how these costs are shared by the federal government, assisted
households, and other sources-state, local, and private entities. Finally,
the available cost data varied considerably across the six programs,
requiring us to piece together data from many different public and private
sources.
Previous Studies The role of production programs has been a central issue in
major national housing policy reviews of the last four decades-the Kaiser
Committee in 1968, the President's Commission on Housing in 1982, and the
National Housing Task Force of 1988. The focus of these reviews shifted from
increasing the physical quality of the housing stock in the Kaiser
Committee, to increasing housing affordability in the President's Commission
on Housing, to addressing housing availability and affordability in the
National Housing Task Force.36 Since the early 1980s, vouchers have been the
centerpiece of federal housing assistance. With the
35Life-cycle cost is the total cost of owning, operating, and maintaining a
property over its useful life. In this analysis, we assume a useful life of
30 years. Also, for the purposes of comparison, we provide in this appendix
detailed data on the first-year costs, which appeared in our July 2001
interim report. The total first-year cost is the rent paid in the first year
plus the annualized present value of all development subsidies, paid over 30
years at the government discount rate of 6 percent.
36Langley C. Keyes and Denise DiPasquale, " Housing Policies for the 1990s,"
in Building Foundations: Housing and Federal Policy, ed. Denise DiPasquale
and Langley C. Keyes (University of Pennsylvania Press, 1990).
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
HOPE VI program and the creation and extension of the Low-Income Housing Tax
Credit program, the debate concerning the role of production programs has
continued. In his review of the cost effectiveness of alternative housing
assistance programs, William C. Apgar argues that there is a role for
production programs in housing policy, concluding that "economic theory and
recent empirical evidence suggest that [vouchers] are not best at all times
and under all situations."37
In a comprehensive 2001 review of federal housing programs, Edgar O. Olsen
argues that the cost-effectiveness of alternative approaches in assisting
low-income households must be considered if the federal government is to
assist as many households as possible.38 Measuring cost-effectiveness
involves comparing the total cost of providing the assisted housing and its
estimated market rent. The study reviews the housing cost literature and
finds that these studies unanimously conclude that the cost of production
programs, such as Public Housing, Section 8 New Construction, and Section
236, exceeds their market value. Those studies that looked at vouchers found
that voucher rents were very close to their market rents. According to
Olsen, the estimates in these studies probably understate the inefficiency
of construction programs relative to housing vouchers because, among other
things, all indirect subsidies are not fully included, such as the value of
donated land and property tax exemptions or abatements. The review finds
that the small number of studies on the cost-effectiveness of housing
programs is not conclusive in establishing whether subsidized new
construction is needed in localities with the lowest vacancy rates. The
review concludes, "whether there are any market conditions under which
construction programs are more cost-effective than vouchers is surely one of
the most important unanswered questions in housing policy analysis."
For the most part, the housing programs evaluated in the studies reviewed by
Olsen are no longer active. While we can still learn a great deal from this
work, the current active housing programs have features that distinguish
them from earlier programs. Most of the research done on the costs of these
programs is over 20 years old. Some of the most detailed analyses
37William C. Apgar, "Which Housing Policy is Best?" Housing Policy Debate,
Vol. 1, Issue 1 (1990).
38Edgar O. Olsen, "The Cost-Effectiveness of Alternative Methods of
Delivering Housing Subsidies," Thomas Jefferson Center for Political
Economy, Working Paper 351 (Dec. 2000), available at
http://www.virginia.edu/~econ/TJpapersx.htm.
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
are based on the housing experiments of the 1970s, and we have not had
anything close to the quality and depth of those data.
Conceptual
Framework
We started our analysis by constructing the total costs of a unit under each
program, regardless of who bears the costs. As discussed in this report, in
the private rental housing market, rents cover the total costs of providing
a housing unit. The total costs include operating expenses (e.g.,
administrative expenses, utilities, routine maintenance, and property
taxes); debt service; deposits to a replacement reserve for major capital
improvements over time; and a market return to equity investors. We defined
the total costs of vouchers as the sum of the total rent paid by both the
federal government and the assisted household and the fee paid by the
Department of Housing and Urban Development (HUD) to the local housing
authority to administer the program:
Total Costs = Rents + Administrative Fee
For production programs, costs are more complicated because an asset with a
long useful life is produced. In the private housing market, the value of
the housing equals the present discounted value (PDV) of the net rental
income stream over the useful life:
Value = PDV(Net Rental Income)
The rental income stream must cover the total costs: 39
PDV(Rental Income) = Total Costs = Total Development Costs + PDV(Operating
Costs)
In the private market, if the present discounted value of market rents does
not cover total costs, the housing development will not be built. Federal
39We did not include the costs incurred by federal agencies (HUD, the Rural
Housing Service, and the Internal Revenue Service) to administer and monitor
the programs, since these costs are not identified in sufficient detail in
the agencies' records. However, we believe these costs to be extremely small
relative to those costs that we have accounted for. In addition, we did not
include the cost to the government in forgone taxes due to depreciation
because the rationale for the depreciation deduction in tax law is to permit
investors to realize the real costs associated with a structure's wearing
out over time. However, to the extent that a building's tax life (27.5
years) is generally shorter than its economic life, some portion of the
depreciation benefit may be viewed as a subsidy.
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
production programs generally provide housing at below-market rents or
provide housing in locations where market rents would be insufficient to
cover costs. In either case, the difference between total rents paid and
total costs is covered by development subsidies. Therefore, for production
programs, the relationship is as follows:
Total Production Program Costs = PDV(Rental Income) + PDV(Development
Subsidies)
Estimating Program Costs
Table 2 presents the average total development costs per unit for the
productions programs by general location and for seven metropolitan areas.
Information on housing vouchers does not appear in the table because the
program relies on existing housing. Nationally and in most metropolitan
areas, the total development costs are considerably higher for HOPE VI than
for the other production programs. The HOPE VI figures for most of our seven
metropolitan areas incorporate data for only two developments. As a result,
the average for a particular metropolitan area can be skewed by the presence
of large projects with high or low development costs. In the New York
metropolitan area, for example, one very large HOPE VI development involved
rehabilitation, which can cost much less than new construction, and,
consequently, the average HOPE VI development cost for New York is unusually
low. At the same time, three HOPE VI properties in the Baltimore
metropolitan area involving new construction had development costs very
similar to each other.
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
Table 2: Average Total Development Costs Per Unit, by General Location and
for Seven Metropolitan Areas, in 1999 Dollars HOPE VIa Location Tax credits
Seven metro areas
Housing-related
costs All costs Section 202 Section 811 Section 515
Nation $73,590 $117,920 $143,450 $73,510 $70,430 $58,280
Metro 75,690 117,920 143,450 75,430 73,020 b
Nonmetro 62,010 b b 60,270 63,120 58,280
Baltimore 77,360 166,380 221,210 80,250 69,420 b
Boston 116,710 197,000 261,610 94,160 96,000 b
Chicago 79,340 102,470 108,950 75,020 71,370 b
Dallas/Fort Worth 60,100 78,920 96,460 52,390 66,710 b
Denver 72,650 102,170 126,440 72,160 74,640 b
Los Angeles 104,750 113,060 154,310 94,360 97,520 b
New York 111,580 76,710 107,010 101,730 116,180 b
aThe total development costs for HOPE VI reflect mostly planned figures.
Housing-related costs exclude the costs of remediation, demolition, the
construction of housing and community facilities, relocation, and
community-based planning and participation, most of which are not applicable
to the other housing programs. These other expenses are included, along with
the housing-related expenses, in the "All costs" column.
bSince Section 515 primarily serves nonmetropolitan areas, we do not show
Section 515 data for metropolitan areas. Also, since HOPE VI exclusively
serves metropolitan areas, we do not show HOPE VI data for nonmetropolitan
areas.
For some programs, the entire development cost is subsidized with up-front
grants, while for others, it is subsidized over time with tax credits or
below-market loans. Table 3 presents our estimates of the present discounted
value of the average development subsidies per unit in 1999 for the five
production programs we reviewed, both for the nation and for seven
metropolitan areas. For HOPE VI, Section 202, and Section 811, the federal
government pays the total development costs up front with grants; as a
result, the development subsidies are equal to the total development costs.
Section 515 provides below-market fixed-rate loans of 1 percent with 50-year
terms. To estimate the subsidy provided through a below-market interest-rate
loan, we compared the rate on the loan with the rate on 30-year constant
maturity treasuries (CMT)-which is a very conservative indicator of market
interest rates. We estimated the value of the subsidy by taking the spread
between the 30-year CMT and the actual interest on the loan and by
calculating the forgone interest over the life of the loan. We took the
present discounted value for the flow of interest
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
subsidies over 30 years. We assumed a discount rate of 6 percent,
representing the government cost of funds according to data published by the
Office of Management and Budget. We assumed the project would be sold in
year 30. For tax credits, the federal government provides investors with a
flow of tax credits over 10 years. In addition, state and local governments
or private entities may provide grants or below-market loans. For tax
credits, the present discounted value of the development subsidies is the
sum of (1) the present discounted value of the flow of the tax credits, (2)
any grants provided, and (3) the present discounted value of the flow of the
interest subsidies on any below-market loans.40
Table 3: Average Present Discounted Value of Development Subsidies Per Unit,
by General Location and for Seven Metropolitan Areas, in 1999 Dollars
HOPE VIa Location Tax credits Seven metro areas
Housing-related
costs All costs Section 202a Section 811a Section 515
Nation $50,350 $117,920 $143,450 $73,510 $70,430 $41,730
Metro 52,790 117,920 143,450 75,430 73,020 b
Nonmetro 44,690 b b 60,270 63,120 41,730
Baltimore 51,780 166,380 221,210 80,250 69,420 b
Boston 50,630 197,000 261,610 94,160 96,000 b
Chicago 62,190 102,470 108,950 75,020 71,370 b
Dallas/Fort Worth 31,470 78,920 96,460 52,390 66,710 b
Denver 29,080 102,170 126,440 72,160 74,640 b
Los Angeles 81,380 113,060 154,310 94,360 97,520 b
New York 111,780 76,710 107,010 101,730 116,180 b
aFor the HOPE VI, Section 202, and Section 811 programs, total costs are
paid entirely up front and no debt service payments are made for these
units. As a result, the total development subsidies are equal to the total
development costs.
bSince Section 515 primarily serves nonmetropolitan areas, we do not show
Section 515 data for metropolitan areas. Also, since HOPE VI exclusively
serves metropolitan areas, we do not show HOPE VI data for nonmetropolitan
areas.
As shown in table 3, the development subsidies for the tax credit and
Section 515 programs are generally lower than for the HOPE VI, Section
40We estimated the interest subsidies using the same procedure we used for
Section 515 below-market loans.
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
202, and Section 811 programs, whose total development costs are covered by
federal grants. However, the development subsidies for tax credit properties
in the New York metropolitan area are quite high. In New York, the city
provides all first mortgages on tax credit projects at steep discounts,
substantially increasing the level of development subsidies. In the Los
Angeles metropolitan area, state and local governments have given priority
to tax credit proposals for single-room-occupancy developments and have
provided substantial subsidies.
As shown in table 4, voucher rents, which include both the tenant and
federal contributions, are higher than rents for the five housing production
programs. Unlike the production program rents, which are reduced by
development subsidies, the voucher rents are consistent with market rents.
Development subsidies can be used to lower rents, pay for additional costs,
and/or provide additional amenities. For the HOPE VI, Section 202, and
Section 811 programs, rents need only cover operating costs and replacement
reserves, since up-front federal grants pay the total development costs. For
the tax credit and Section 515 programs, under which portions of the
development costs are financed and rents must cover debt service payments,
rents are somewhat higher than for the other production programs but are
still generally below market rents.
Table 4: Average Monthly Rents, by General Location and for Seven
Metropolitan Areas, in 1999 Dollars Production program Seven metro areas
Housing
Location vouchersa Tax credits HOPE VI b Section 202 Section 811 Section 515
Nation $610 $540 $430 $340 $320 $380
Metro 650 530 430 350 340 d
Nonmetro 440 450 c 300 280
Baltimore 630 510 c 380 250 d
Boston 880 820 c 420 470 d
Chicago 640 500 c 470 450 d
Dallas/Fort 650 670 c 310 310 d
Worth
Denver 710 700 c 290 350 d
Los Angeles 730 440 c 380 440 d
New York 750 430 c 490 550 d
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
aFor vouchers, the average rent does not include a monthly administrative
fee, which, at the national level, averages about $48 per unit and, in the
seven metropolitan areas, ranges from $42 per unit in Denver to $61 per unit
in Los Angeles.
bOur estimate of HOPE VI "rent" is based on the national average operating
subsidy plus tenant contribution for all public housing units.
cFor individual metropolitan areas, reliable cost data were not available.
dSince Section 515 units are located in rural areas, rent data are presented
for nonmetropolitan areas only.
Comparing Program Costs
In this report, we estimated total program costs over 30 years.41 In this
appendix, we also provide estimates of costs in the first year, as reported
in our interim report. For vouchers, the total life-cycle cost is the
present discounted value of a 30-year flow of rents plus the present
discounted value of the administrative fee over 30 years. We assumed an
annual rent inflation rate of 3 percent.42 Furthermore, as discussed in
appendix II, we tested the sensitivity of our cost estimates to different
inflation rates. For the production programs, we calculated the present
discounted value of the rental income stream over 30 years, again assuming
an annual rent inflation rate of 3 percent, plus the present discounted
value of the development subsidies.43 For the development subsidies, we took
the actual payments made over time for each of the subsidies and summed the
present discounted value of each of those flows using the 6-percent
government discount rate. For example, for tax credits, we took the present
discounted value of the 10-year flow of credits to investors. In estimating
the first-year cost of vouchers, we simply added the total annual rent in
the first year and the annual administrative fee. For the production
programs, we added the total annual rent in the first year and the present
value of the development subsidies, annualized over 30 years at the
government discount rate of 6 percent.
41We assumed a 30-year holding period because each of the housing production
programs we evaluated has a low-income-use restriction of at least 30 years.
42To project out rents over 30 years, we used a constant rate of 3 percent,
which was based on a 10-year average rate of rent inflation for the nation
according to the Consumer Price Index.
43Assuming the same rate of rent inflation for vouchers and the production
programs may overstate the costs of the production programs. Under the
housing production programs, increases in rents are restricted by the
programs' guidelines. For example, rents in tax credit properties are
usually limited to 30 percent of either 50 or 60 percent of the area median
income, adjusted for unit size.
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
Table 5 shows our estimates of the total average per-unit costs of the six
active housing programs. Columns 2 and 5 provide the average per-unit costs
of production programs for the first year and 30 years, respectively.
However, these averages do not reflect adjustments for the differences in
unit size shown in column 1.
Table 5: Average First- and 30-Year Total Costs Per Unit: Housing Production
Program Costs Compared With Voucher Costs, Adjusted for General Location and
Unit Size, in 1999 Dollars
First year 30 years
Program Program
Adjusted total cost Adjusted
as total cost as
Average total total
per-unit a percentage per-unit a percentage
number of Total cost of of adjusted Total cost of of adjusted
per- per-
bedrooms unit voucher voucher cost unit voucher voucher cost
cost cost
Program/Location (1) (2) (3) (4) (5) (6) (7)
Vouchers
aa aa
Nation 2.2 $7,870 $160,580
aa aa
Metro 2.2 8,350 170,370
aa aa
Nonmetro 2.1 5,660 115,500
Tax credits
Nation 1.9 10,110 $7,380 137% 181,870 $150,470 121%
Metro 1.9 10,200 7,770 131 182,710 158,510
Nonmetro 2.0 8,610 5,390 160 154,100 109,990
HOPE VI
Metrob
Housing-related 2.4 13,730 8,610 159 223,190 175,580 costs
All costs 2.4 15,580 8,610 181 248,720 175,580
Section 202
Nation 1.0 9,420 6,480 145 156,590 132,110
Metro 1.0 9,790 6,840 143 162,720 139,520 117
Nonmetro 1.0 7,950 4,700 169 132,600 95,890 138
Section 811
Nation 1.0 8,930 6,480 138 148,290 132,110 112
Metro 1.0 9,320 6,840 136 154,820 139,520 111
Nonmetro 1.1 7,800 4,770 164 129,620 97,310 133
Section 515
Nonmetroc 1.6 7,640 5,190 147 135,840 105,800 128
aNot applicable.
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
bAll of HOPE VI's units are located in metropolitan areas.
cSince Section 515 units are located in rural areas, it is more appropriate
to compare the costs of Section 515 units in nonmetropolitan areas.
In this report, we examine the cost of one-and two-bedroom units. For HOPE
VI, we did not have data on individual unit sizes. To compare HOPE VI costs
with voucher costs, we took the actual average rent for a voucher unit with
a given number of bedrooms and interpolated a rent consistent with the
average number of bedrooms for HOPE VI. For example, the average size of a
HOPE VI unit was 2.4 bedrooms in 1999, and all of these units were located
in metropolitan areas. The average rent for the voucher program at that time
was $610 for a two-bedroom unit and $752 for a three-bedroom unit in
metropolitan areas. We subtracted these two rents and multiplied the
difference ($142) by the fraction by which the size of the average HOPE VI
unit exceeded two bedrooms (0.4). We added the resulting product ($57) to
the average rent for a two-bedroom voucher unit to derive our estimate of
the rent for a 2.4-bedroom voucher unit-about $667. Finally, we added the
average administrative fee, which is about $50 per month in metropolitan
areas. The resulting total cost of vouchers is about $717 per month, or
about $8,610 per year (see table 5).
In our interim report, we made these interpolations for unit size to compare
the cost of vouchers with the cost of each production program. In table 5,
columns 3 and 6 provide the adjusted voucher costs. These adjustments may
narrow or widen the gap between the costs of vouchers and of a specific
production program. Tax credit, Section 202, and Section 811 units are
smaller, on average, than voucher units. As a result, this adjustment widens
the gap between the costs of these programs and vouchers. Columns 4 and 7
present the total cost of the production programs as a percentage of the
costs of adjusted vouchers. Although all of the production programs are more
expensive than vouchers, both in the first year and over 30 years, the
difference is smaller over 30 years. The magnitude of the difference
decreases over time because the government subsidies for the production
programs are fixed while the voucher subsidies increase with market rents.
Furthermore, because of the development subsidies, the rents for production
program units are lower initially than the rents for voucher units, as was
shown in table 4. Therefore, even though we assumed the same rate of rent
inflation for both types of units, the impact of rent inflation is less for
the production programs because their starting rents are lower than voucher
units.
A problem with the adjusted costs presented in table 5 is that they provide
for cost comparisons between vouchers and only one production program
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
at a time. Because of differences in average unit size across the production
programs, we could not compare costs across these programs. To provide for
cost comparisons across all of the programs, we used a second approach,
calculating the average first-year and 30-year costs for one-and two-bedroom
units, as shown in table 6. For vouchers, we knew the number of bedrooms for
each recipient, so we simply calculated the average rents for one-and
two-bedroom units. For the production programs, except HOPE VI, we knew the
rents by the number of bedrooms. Table 6 does not include the HOPE VI
program because cost data were not available by the number of bedrooms. For
each project that has one- or two-bedroom units, we calculated the average
development subsidy per unit. Since projects may have a mixture of units of
different sizes, there will be some error in assigning an average per-unit
subsidy across all units.
Table 6: Average First- and 30-Year Total Costs of One-and Two-Bedroom
Units, by General Location, in 1999 Dollars First year 30 years Unit
size/Program Nation Metro Nonmetro Nation Metro Nonmetro
One-bedroom Two-bedroom
Vouchers $6,480 $6,840 $4,700 $132,110 $139,520 $95,890
Tax credits 9,100 9,280 7,600 164,270 166,610 138,060
Section 202 9,250 9,480 7,950 153,510 157,410 133,070
Section 811 8,850 9,140 7,850 146,600 151,280 129,890
Section 515 a a 7,470 a a 132,890
Vouchers 7,460 7,920 5,390 152,170 161,650 110,050
Tax credits 10,080 10,240 8,500 182,150 184,130 151,350
Section 811 9,690 10,350 8,430 160,370 171,240 139,480
Section 515 a a 7,500 a a 132,600
Note: Due to data limitations, we cannot present HOPE VI cost by bedroom
size. Also, Section 202 does not generally develop two-bedroom units and, as
a result, is not included in our two-bedroom analysis.
aSince Section 515 units are located in rural areas, it is more appropriate
to compare the costs of Section 515 units in nonmetropolitan areas.
Table 7 presents our estimates of the total costs of one-bedroom units in
metropolitan areas nationwide and in the seven metropolitan areas we
selected for review. This table does not include information for the HOPE VI
program because data were not available to identify costs by unit size for
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
these metropolitan areas. The table also excludes data for the Section 515
program because it is primarily used in nonmetropolitan areas.
Table 7: Average First- and 30-Year Total Costs of One-Bedroom Units, by
General Location and for Seven Metropolitan Areas, in 1999 Dollars
First year 30 years
Tax Location Vouchers credits Section 202 Section 811 Vouchers Tax credits
Section 202 Section 811
Metro $6,840 $9,280 $9,480 $9,140 $139,520 $166,610 157,410 $151,280
Seven metro areas
Baltimore 6,740 9,460 10,380 a 137,410 169,980 173,160 a
Boston 9,480 10,900 12,050 12,290 193,400 205,950 201,310 204,440
Chicago 6,620 10,310 9,760 10,040 135,000 181,210 163,000 170,320
Dallas/ Fort 6,150 8,030 7,480 8,540 125,400 152,130 127,350 142,080
Worth
Denver 6,330 9,380 8,660 10,700 129,160 180,760 141,890 182,290
Los Angeles 7,820 10,200 10,980 12,950 159,550 177,320 178,460 214,340
New York 8,200 12,410 13,290 a 167,300 201,820 222,030 a
Note: Section 515 is not included in this table because it develops
properties in rural areas. Due to data limitations, we cannot present HOPE
VI cost by bedroom size.
aThere were too few properties to estimate the average cost of one-bedroom
units.
Table 8 provides our estimates of the total cost of two-bedroom units in
metropolitan areas nationwide and in our seven metropolitan areas. Besides
excluding the HOPE VI and Section 515 programs, this table excludes the
Section 202 program because it primarily provides one-bedroom units.
Information for the Section 811 program was also very limited.
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
Table 8: Average First- and 30-Year Total Costs of Two-Bedroom Units, by
General Location and for Seven Metropolitan Areas, in 1999 Dollars
First year 30 years
Location Vouchers Tax credits Section 811 Vouchers Tax credits Section 811
Metro $7,920 $10,240 $10,350 $161,650 $184,130 $171,240
Seven metro areas
Baltimore 7,830 10,720 a 159,760 198,190 a
Boston 10,900 14,270 a 222,350 263,980 a
Chicago 7,940 11,400 12,280 161,970 202,480 213,500
Dallas/Fort Worth 7,690 9,930 a 156,780 189,000 a
Denver 8,420 10,820 10,020 171,690 207,760 160,610
Los Angeles 9,410 13,520 13,170 192,020 232,040 217,380
New York 9,710 14,290 13,970 198,090 232,690 231,350
Note: Section 515 is not included in this table because it develops
properties in rural areas. Also, Section 202 does not generally develop
two-bedroom units and, as a result, is not included in this table. Due to
data limitations, we cannot present HOPE VI cost by bedroom size.
aThere were too few properties to estimate the cost of two-bedroom units.
Cost Shares Table 9 presents the average share of the total per-unit cost of
a one-bedroom unit paid under the various programs by the federal
government, tenants, and other sources, including state, local, and private
entities. With the exception of vouchers, housing programs make different
sources of funding available to varying degrees. The tax credit program, for
example, involves more development subsidies from state, local, and private
entities than the Section 202 and Section 811 programs. For all programs
except tax credits, we obtained the average federal rental assistance
payment and tenant contribution for each property. For the tax credit
program, no data were available on the amount of rental assistance provided
by the federal government. Using data from our 1997 report on tax credits,
we estimated the percentage of average rent paid for all units by the
federal government in the form of Section 8 tenant-based and project-based
assistance.44 In our
44According to our report entitled Tax Credits: Opportunities to Improve
Oversight of the Low-Income Housing Program (GAO/GGD/RCED-97-55, Mar. 28,
1997), the average annual rent for 1992 to 1994 was $5,760 and the average
Section 8 subsidy was about $1,500 for all units. When we divide the average
subsidy by the average rent, the resulting percentage is 26 percent.
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
30-year analysis, we increase both the federal and tenant contributions for
rent at the same rate.
Table 9: Average Share of First- and 30-Year Total Costs of One-Bedroom
Units Paid by the Federal Government, Tenants, and Others, in 1999 Dollars
First year 30 years
Nonmetro 4,800 2,280 390 7,470 81,010 46,510 5,370 132,890
Note: Since Section 515 units are located in rural areas, it is more
appropriate to compare the costs of Section 515 units in nonmetropolitan
areas.
a"Other cost share" includes state, local, and private funding sources.
bNot applicable.
Table 10 presents the share of costs paid by these different sources for
two-bedroom units. Although data were not available to calculate cost shares
for HOPE VI units of different sizes, we included the cost share for the
average HOPE VI unit, with 2.4 bedrooms. Also, since we did not have HOPE VI
data on operating subsidies and tenant contributions for individual
properties, we applied the average per-unit operating subsidy and tenant
contribution for all public housing units. Finally, Section 202
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
does not provide two-bedroom units and, consequently, does not appear in
table 10.
Table 10: Average Share of First- and 30-Year Total Costs of Two-Bedroom
Units Paid by the Federal Government, Tenants, and Others, in 1999 Dollars
First year 30 years
Program/ Federal Tenant cost Other cost Federal Tenant cost Other cost
Location cost share share sharea Total cost cost share share sharea Total
cost
Vouchers
Nation $4,760 $2,700 b $7,460 $97,160 $55,020 b $152,170
Metro 5,110 2,820 b 7,920 104,230 57,420 b 161,650
Nonmetro 3,220 2,180 b 5,390 65,680 44,380 b 110,050
Tax credits
Nation 4,450 4,840 $790 10,080 72,540 98,670 $10,930 182,150
Metro 4,470 4,820 950 10,240 72,740 98,280 13,110 184,130
Nonmetro 4,090 3,820 600 8,500 65,180 77,980 8,200 151,350
HOPE VI
Metroc Housing-10,210 2,320 1,190 13,730 159,350 47,400 16,430 223,190
related costs
All costs 11,900 2,320 1,360 15,580 182,650 47,400 18,660 248,720
Section 811
Nation 7,020 2,180 480 9,690 109,190 44,550 6,630 160,370
Metro 7,680 2,120 540 10,350 120,430 43,320 7,490 171,240
Nonmetro 5,760 2,300 370 8,430 87,490 46,960 5,020 139,480
Section 515
Nonmetrod 4,890 2,280 330 7,500 81,540 46,510 4,550 132,600
Note: Section 202 does not generally develop two-bedroom units and, as a
result, is not included in the two-bedroom analysis.
a"Other cost share" includes state, local, and private funding sources.
bNot applicable.
cAll of HOPE VI's units are located in metropolitan areas.
dSince Section 515 units are located in rural areas, it is more appropriate
to compare the costs of Section 515 units in nonmetropolitan areas.
Using the approach in our interim report, table 11 presents our estimates of
the average federal per-unit costs of the six housing programs. Columns 2
and 5 provide the average federal costs for the first year and 30 years,
respectively. In comparing the federal costs of the production programs
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
and vouchers, we made adjustments to reflect the differences in average unit
size, as shown in column 1, and in average tenant contributions. To estimate
federal voucher cost that accounts for differences in tenant contribution,
we simply subtracted the average tenant contribution for each of the
production programs from the interpolated total voucher costs (shown in
table 5, columns 3 and 6). This adjusted federal cost appears in columns 3
and 6 in table 11. In other words, we assumed that the average tenant
contributions under the voucher program were the same as those under the
production programs.
Table 11: Average First-and 30-Year Federal Costs Per Unit: Housing
Production Program Federal Costs Compared With Voucher Federal Costs
Adjusted for General Location, Unit Size, and Tenant Contribution, in 1999
Dollars
First year 30 years
Actual Actual
federal cost federal cost
as a as a
Adjusted percentage
Adjusted percentage of of
Average Actual federal per- adjusted Actual federal per-adjusted
number of federal unit voucher federal federal unit voucher federal
per- per-
Program/ bedrooms unit cost cost voucher cost unit cost cost voucher cost
Location (1) (2) (3) (4) (5) (6) (7)
Tax credits
Nation 1.9 $4,500 $2,610 172% $73,010 $53,190 137%
Metro 1.9 4,510 3,060 147 73,020 62,420
Nonmetro 2.0 4,050 1,430 283 65,040 29,070
HOPE VI
Metroa
Housing-related 2.4 10,210 6,280 163 159,350 128,170 costs
All costs 2.4 11,900 6,280 189 182,650 128,170
Section 202
Nation 1.0 6,920 4,200 165 107,130 85,610 125
Metro 1.0 7,050 4,470 158 109,090 91,080 120
Nonmetro 1.0 5,960 2,790 214 92,630 57,000 163
Section 811
Nation 1.0 6,680 4,440 150 104,100 89,780 116
Metro 1.0 6,940 4,760 146 108,410 100,240 108
Nonmetro 1.1 5,800 2,840 204 88,860 60,280 147
Section 515
Nonmetrob 1.6 4,960 2,910 170 83,690 59,290 141
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
aAll of HOPE VI's units are located in metropolitan areas.
bSince Section 515 units are located in rural areas, it is more appropriate
to compare the costs of Section 515 units in nonmetropolitan areas.
The comparison of federal cost can also be analyzed by unit size. Table 12
presents the average federal per-unit costs for one-bedroom units. As in
table 11, we adjusted the federal voucher cost by assuming that the
households assisted with vouchers made the same average contribution toward
rent as the households under the production programs.
Table 12: Average First- and 30-Year Federal Costs for One-Bedroom Units:
Housing Production Program Federal Costs Compared With Voucher Federal
Costs, Adjusted for General Location and Tenant Contribution, in 1999
Dollars
First year 30 years
Adjusted Actual federal Actual federal
federal cost as a Adjusted cost as a
per-unit percentage of federal percentage of
Program/ Actual voucher adjusted Actual adjusted
federal federal federal per-unit federal
Location per-unit cost voucher cost per-unit voucher cost voucher cost
cost cost
Tax credits
Nation $4,020 $2,140 188% $65,480 $43,530 150%
Metro 4,090 2,500 164 66,420 51,060
Nonmetro 3,380 970 348 55,290 19,740
Section 202
Nation 6,810 4,220 161 104,900 86,050
Metro 6,900 4,470 154 106,230 91,260
Nonmetro 5,960 2,720 219 92,630 55,560
Section 811
Nation 6,570 4,480 147 102,040 91,360
Metro 6,780 4,820 141 105,370 98,310
Nonmetro 5,780 2,770 209 88,530 56,560 157
Section 515
Nonmetroa 4,800 2,420 198 81,010 49,380 164
Note: Due to data limitations, we cannot present HOPE VI cost by bedroom
size.
aSince Section 515 units are located in rural areas, it is more appropriate
to compare the costs of Section 515 units in nonmetropolitan areas.
Similarly, table 13 presents the average federal costs for two-bedroom
units.
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
Table 13: Average First- and 30-Year Federal Costs for Two-Bedroom Units:
Housing Production Program Federal Costs Compared With Voucher Federal
Costs, Adjusted for General Location and Tenant Contribution, in 1999
Dollars
First year 30 years
Actual federal Actual federal
cost as a cost as a
Adjusted percentage of Adjusted percentage of
Program/ Actual federal adjusted Actual federal adjusted
federal per-unit federal federal per-unit federal
Location per-unit voucher cost voucher cost per-unit voucher cost voucher cost
cost cost
Tax credits
Nation $4,450 $2,620 170% $72,540 $53,500 136%
Metro 4,470 3,100 144 72,740 63,370
Nonmetro 4,090 1,570 261 65,180 32,070
Section 811
Nation 7,020 5,280 133 109,190 107,620
Metro 7,680 5,800 132 120,430 118,330
Nonmetro 5,760 3,090 186 87,490 63,090
Section 515
Nonmetroa 4,890 3,110 157 81,540 63,540
Note: Due to data limitations, we cannot present HOPE VI cost by bedroom
size. In addition, Section 202 does not generally develop two-bedroom units
and, as a result, is not included in the two-bedroom analysis.
aSince Section 515 units are located in rural areas, it is more appropriate
to compare the costs of Section 515 units in nonmetropolitan areas.
Sources of Data Used in the Analysis
The sources of data used in our analysis vary by program and by our seven
metropolitan areas. The primary sources of these data were the headquarters
and field offices of HUD and of the U.S. Department of Agriculture's (USDA)
Rural Housing Service (RHS), public housing authorities, and managing agents
and owners of federally assisted properties. For the tax credit program, we
also relied heavily on tax credit data collected and analyzed by a private
research firm, supplemented by data we collected from state housing finance
agencies. We attempted to verify the accuracy of the data collected and
corrected any observed errors. We converted all development cost and rent
data to 1999 dollars using the Consumer Price Index. For all of the
programs, we relied on the information provided by the various offices.
However, we contacted the appropriate officials or property management
agents to correct any apparent inaccuracies in the data we received.
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
Housing Vouchers We obtained from HUD national and aggregate
metropolitan-area data from the Multifamily Tenant Characteristics Systems
on gross rents, housing assistance payments, tenant contributions, and
incomes for the housing voucher and certificate programs. We also collected
information from HUD and individual housing authorities on the average
administrative fee paid to housing authorities. These data were provided for
about 1.4 million households participating in the programs in 2000.
Tax Credits Because of the decentralized nature of the tax credit program,
there is no national database to evaluate the program's characteristics,
including costs. Consequently, we relied extensively on rent and development
subsidy data collected and analyzed by City Research, which is a private
research firm located in Boston. City Research assembled and analyzed
detailed data on over 2,500 tax credit properties, with over 150,000 units,
which were acquired by 4 national syndicators.45 These units were estimated
to represent about 25 to 27 percent of those generated under the program
from 1987 through 1996. The results of City Research's analyses were
published in a report and in a housing journal.46 We compared the nationwide
rent data collected by City Research with the data collected for our 1997
study47 and supplemented City Research's data with our data on tax credit
properties placed in service in 1999 within the seven metropolitan areas.
HOPE VI We obtained data from HUD on the total development costs for 130
planned and completed HOPE VI developments, which contained about 63,560
planned units as of 2000. Approximately 10 percent of these properties were
either completed or substantially completed. HOPE VI properties use multiple
sources of funding, but the data were not sufficiently detailed to identify
funding by individual sources other than the HOPE VI and HUD
45The four syndicators were Boston Capital Partners, Inc.; Boston Financial;
Enterprise Social Investment Corporation; and the National Equity Fund, Inc.
Each of these syndicators has a national portfolio and has been active in
the tax credit market throughout the tax credit program's history.
46Building Affordable Rental Housing: An Analysis of the Low-Income Housing
Tax Credit (Feb. 1998) and "The Low-Income Housing Tax Credit: The First Ten
Years," Housing Policy Debate, Vol. 10, Issue 2 (1999).
47GAO/GGD/RCED-97-55.
Appendix I
Methodology for Estimating Per-Unit Costs
of Federally Assisted Housing Programs
grants. For properties in the seven metropolitan areas, we contacted public
housing authorities and were able to obtain complete data on their sources
of funds. For our national cost estimate, we based the distribution of costs
paid by state, local, and private entities on the actual cost shares in our
seven metropolitan areas. The properties in the seven metropolitan areas
constituted about 20 percent of the units in our HOPE VI inventory. The HOPE
VI program also funds various types of activities (e.g., property
demolition, tenant relocation, and community services) in addition to
housing-related construction. We estimated both housing-related costs and
all costs for the HOPE VI program.
Public housing, in general, does not identify revenues and expenses on a
property-by-property basis. This information also is not available for the
HOPE VI program. Consequently, to estimate a national rent for the HOPE VI
program, we obtained from HUD the average tenant rental contribution and
operating subsidy paid by HUD for all public housing units. Together, these
payments constitute an approximation of a traditional rental payment.
Section 202 and Section 811 HUD identified about 135 properties, comprising
about 6,040 units, that were placed in service nationwide in fiscal year
1998 under the Section 202 program and about 115 properties, comprising
about 1,420 units, under the Section 811 program. From the list provided, we
contacted 39 HUD field offices to obtain detailed data on the properties'
total development costs and the sources of funds used to pay these costs. We
also obtained data from the field offices on properties' rents. Most of the
seven metropolitan areas did not have enough properties placed in service in
1998 to compute meaningful averages for development costs and rents.
Consequently, we asked the field offices to identify the properties placed
in service from 1996 to 1999 to ensure that we would have at least four
properties under each program to better compute such averages.
Section 515 RHS state offices identified 53 Section 515 properties,
containing about 1,250 units, that were placed in service in fiscal year
1998. The state offices provided data on total development costs, including
the sources and terms of funds used to finance these costs. The state
offices also provided information on 1999 rents. Since Section 515 is a
rural program, we did not include it in our analysis of the seven
metropolitan areas.
Appendix II
Sensitivity Analysis
To test the robustness of the results presented in this report and
illustrate the sensitivity of our estimates to specific assumptions about
rental market conditions, the following tables provide estimates of the
30-year total costs of the six housing programs when two different rates are
used to increase rents over time. In the letter and appendix I, our base
30-year cost estimates assume an annual rate increase of 3 percent, which
approximates the annual average rent inflation for the past 10 years (about
2.9 percent), according to the Consumer Price Index. We discounted the
annual costs by 6 percent, which is the approximate 30-year discount rate
published by the Office of Management and Budget. In tables 14 through 19,
we estimate the average 30-year total costs of the housing programs using
rates of rent increases that are 2 percentage points above and below our
base rate.
Overall, an increase in the rate of inflation from our base estimate of 3
percent to 5 percent decreases the difference in total cost between the
production programs and vouchers. As noted in appendix I, the production
programs are less vulnerable than vouchers to inflation in market rents
because, among other things, development subsidies are fixed over time.
Consequently, rent inflation has a smaller impact on the production programs
than on vouchers because the starting rents are lower for the production
programs than for vouchers.
Table 14: Average 30-Year Total Costs of Housing Programs Per Unit Under
Different Rates of Inflation, by General Location, in 1999 Dollars
30-year total costs at an inflation rate of: Program/Location Average unit
size 1 percent 5 percent
Vouchers
Nation 2.2 $127,710 $206,510
Metro 2.2 135,490 219,090
Nonmetro 2.1 91,860 148,540
Tax credits
Nation 1.9 154,950 219,490
Metro 1.9 156,120 219,870
Nonmetro 2.0 131,710 185,400
HOPE VI
Metroa
Housing-related costs 2.4 201,640 253,290
All costs 2.4 227,170 278,820
Appendix II Sensitivity Analysis
(ContinuedFromPreviousPage)
30-year total costs at an inflation rate of: Program/Location Average unit
size 1 percent 5 percent
Section 202
Nation 1.0 139,770 180,660
Metro 1.0 144,040 186,380
Nonmetro 1.0 118,170 153,890
Section 811
Nation 1.0 133,540 172,480
Metro 1.0 138,500 178,890
Nonmetro 1.1 117,050 150,320
Section 515
Nonmetro b 1.6 116,570 162,750
aAll HOPE VI units are located in metropolitan areas.
bSince Section 515 units are located in rural areas, it is more appropriate
to compare the costs of Section 515 units in nonmetropolitan areas.
Table 15: Average 30-Year Total Costs Per Unit Under Different Rates of
Inflation: Housing Production Program Costs Compared With Voucher Costs,
Adjusted for General Location and Unit Size, in 1999 Dollars
30-year total costs at an inflation rate of:
1 percent 5 percent
Production Production
Average Average
total program cost total program cost
per-unit Adjusted per-unit Adjusted
cost of total as a cost of total as a
Production production per-unit percentage production per-unit percentage
cost of of cost of of
program/Location program voucher voucher cost program voucher voucher cost
Vouchers
aa aa
Nation $127,710 $206,510
aa aa
Metro 135,490 219,090
Nonmetro 91,860 148,540
Tax credits
Nation 154,950 $119,670 129% 219,490 $193,500 113%
Metro 156,120 126,060 124 219,870 203,840 108
Nonmetro 131,710 87,470 151 185,400 141,450 131
aa aa
HOPE VI
Metrob
Housing-related 201,640 139,640 145 253,290 225,790 112 costs
All costs 227,170 139,640 163 278,820 225,790 123
Appendix II Sensitivity Analysis
(ContinuedFromPreviousPage)
30-year total costs at an inflation rate of:
1 percent 5 percent
Production Production
Average Average
total program cost total program cost
per-unit Adjusted per-unit Adjusted
cost of total as a cost of total as a
Production production per-unit percentage production per-unit percentage
cost of of cost of of
program/Location program voucher voucher cost program voucher voucher cost
Section 202
Nation 139,770 105,070 133 180,660 169,890
Metro 144,040 110,960 130 186,380 179,420
Nonmetro 118,170 76,260 155 153,890 123,310
Section 811
Nation 133,540 105,070 127 172,480 169,890
Metro 138,500 110,960 125 178,890 179,420
Nonmetro 117,050 77,390 151 150,320 125,130
Section 515
Nonmetroc 116,570 84,150 139 162,750 136,060
aNot applicable.
bAll HOPE VI units are located in metropolitan areas.
cSince Section 515 units are located in rural areas, it is more appropriate
to compare the costs of Section 515 units in nonmetropolitan areas.
Appendix II Sensitivity Analysis
Table 16: Average 30-Year Total Costs of One-and Two-Bedroom Units Under
Different Rates of Inflation, by General Location, in 1999 Dollars
30-year total costs at an inflation rate of:
1 percent 5 percent Unit size/Program Nation Metro Nonmetro Nation Metro
Nonmetro
One-bedroom Two-bedroom
Vouchers $105,070 $110,960 $76,260 $169,890 $179,420 $123,320
Tax credits 139,750 142,120 116,980 198,520 200,820 167,510
Section 202 137,010 140,490 118,170 176,550 181,060 153,890
Section 811 130,990 135,260 116,150 168,410 173,660 149,080
Section 515 a a 113,930 a a 159,390
Vouchers 121,020 128,560 87,520 195,690 207,880 141,530
Tax credits 154,840 156,930 129,770 220,300 222,130 181,500
Section 811 143,370 153,100 124,710 184,130 196,580 160,100
Section 515 a a 114,110 a a 158,450
Note: Due to data limitations, we cannot present HOPE VI cost by bedroom
size. Also, Section 202 does not generally develop two-bedroom units and, as
a result, is not included in the two-bedroom analysis.
aSince Section 515 units are located in rural areas, it is more appropriate
to compare the costs of Section 515 units in nonmetropolitan areas.
Appendix II Sensitivity Analysis
Table 17: Average Federal Share of 30-Year Total Costs Per Unit Under
Different Rates of Inflation: Housing Production Program Costs Compared With
Voucher Costs, Adjusted for General Location, Unit Size, and Tenant
Contribution, in 1999 Dollars
30-year total costs at an inflation rate of:
1 percent 5 percent
Actual federal Actual federal
cost as a cost as a
percentage of percentage of
Estimated estimated Estimated estimated
federal federal Actualfederal federal
Program/ Actual voucher voucher federal voucher voucher
federal
Location cost cost cost cost cost cost
Tax credits
Nation $66,000 $42,310 156% $82,810 $68,410 121%
Metro 66,100 49,640 133 82,700 80,270
Nonmetro 59,210 23,110 256 73,190 37,390
HOPE VI
Metroa
Housing-related 147,510 101,940 145 175,900 164,830 costs
All costs 170,810 101,940 168 199,200 164,830
Section 202
Nation 99,670 67,780 147 117,550 109,600
Metro 101,520 71,720 142 119,650 115,970
Nonmetro 85,990 44,190 195 101,920 71,450
Section 811
Nation 96,490 71,540 135 114,740 115,670
Metro 100,280 77,060 130 119,770 124,610 96
Nonmetro 83,210 45,430 183 96,770 73,450 132
Section 515
Nonmetrob 73,950 47,160 157 97,300 76,240 128
aAll of HOPE VI units are located in metropolitan areas.
bSince Section 515 units are located in rural areas, it is more appropriate
to compare the costs of Section 515 units in nonmetropolitan areas.
Appendix II Sensitivity Analysis
Table 18: Average Federal Share of 30-Year Total Costs of One-Bedroom Units
Under Different Rates of Inflation: Housing Production Program Costs
Compared With Voucher Costs, Adjusted for General Location and Tenant
Contribution, in 1999 Dollars
30-year total costs at an inflation rate of
1 percent 5 percent
Actual federal Actual federal
cost as a cost as a
percentage of percentage of
Estimated estimated Estimated estimated
Actualfederal federal Actual federal
Program/ federal voucher voucher federal voucher federal voucher
Location cost cost cost cost cost cost
Tax credits
Nation $59,090 $34,620 171% $74,400 $55,970 133%
Metro 60,050 40,610 148 75,330 65,660
Nonmetro 49,810 15,700 317 62,960 25,390
Section 202
Nation 97,840 68,440 143 114,770 110,660
Metro 99,180 72,580 137 116,070 117,360
Nonmetro 85,990 44,190 195 101,920 71,450
Section 811
Nation 94,770 72,660 130 112,200 117,490
Metro 97,790 78,180 125 115,960 126,420
Nonmetro 82,840 44,980 184 96,480 72,730
Section 515
Nonmetroa 71,560 39,270 182 94,200 63,490
Note: Due to data limitations, we cannot present HOPE VI cost by bedroom
size.
aSince Section 515 units are located in rural areas, it is more appropriate
to compare the costs of Section 515 units in nonmetropolitan areas.
Appendix II Sensitivity Analysis
Table 19: Average Federal Share of 30-Year Total Costs of Two-Bedroom Units
Under Different Rates of Inflation: Housing Production Program Costs
Compared With Voucher Costs, Adjusted for General Location and Tenant
Contribution, in 1999 Dollars
30-year total costs at an inflation rate of:
1 percent 5 percent
Actual federal Actual federal
cost as a cost as a
percentage of percentage of
Estimated estimated Estimated estimated
Actualfederal federal Actual federal federal
Program/ federal voucher voucher federal voucher voucher
Location cost cost cost cost cost cost
Tax credits
Nation $65,430 $42,550 154% $82,480 $68,800 120%
Metro 65,650 50,400 130 82,630 81,490
Nonmetro 59,560 25,510 233 73,030 41,250
Section 811
Nation 101,310 85,590 118 120,210 138,400
Metro 111,160 94,100 118 133,380 152,170
Nonmetro 82,340 50,170 164 94,680 81,140
Section 515
Nonmetroa 72,570 50,530 144 94,080 81,710
Note: Due to data limitation, we cannot present HOPE VI cost by bedroom
size. Also, Section 202 does not generally develop two-bedroom units and, as
a result, is not included in the two-bedroom analysis.
aSince Section 515 units are located in rural areas, it is more appropriate
to compare the costs of Section 515 units in nonmetropolitan areas.
Appendix III
Evolution of Federal Housing Assistance Programs
Federal housing assistance, which began with the enactment of the U.S.
Housing Act of 1937, involves subsidies to construct new affordable housing
and to make rents affordable in existing rental housing. From 1937 through
1974, the emphasis was almost exclusively on new construction. Then, with
the enactment of Section 8 of the 1937 Act, as amended in 1974, tenant-based
rental assistance programs assumed growing importance. Finally, the Tax
Reform Act of 1986 gave renewed impetus to new construction, and, over the
last decade, the voucher and tax credit programs have provided the bulk of
the new federal housing subsidies.
The federal government has supported several types of new construction
programs, starting with public housing. Under this program, authorized in
1937, the government financed properties owned and managed by local public
housing authorities. In 1966, it began contracting with private developers
to build housing for low-income households in rural areas under the Section
515 Rural Rental Assistance program. Other early programs, including the
Section 202 Elderly and Disabled Housing Direct Loan program and the Section
221(d)(3) Below-Market Interest Rate (BMIR) program, provided
low-interest-rate loans to nonprofit organizations and cooperatives. In
1968, the Section 236 program succeeded the Section 221(d)(3) BMIR program
and encouraged for-profit developers to produce affordable housing by
subsidizing mortgage interest rates.
Questions about the cost-effectiveness of new construction led the Congress
to explore options for using existing housing to shelter low-income
families. In 1965, it tested one such option, enacting Section 23 of the
1937 Act, which authorized public housing authorities to lease private
unsubsidized apartments for households eligible for public housing. In 1974,
it added Section 8 to the 1937 Act and created the certificate program, the
first major program to rely on existing privately owned rental housing and
to provide tenant-based, rather than project-based, assistance. Another type
of Section 8 assistance, the voucher program, started as a demonstration
program in 1983, was made permanent in 1988, and operated simultaneously
with the certificate program until 1998. At that time, the Congress
consolidated the two programs into the Housing Choice Voucher Program, which
combined features of both earlier programs. This program is now the largest
federal housing assistance program.
From 1974 to 1986, federal housing policy emphasized the use of existing
housing over new construction. Then, with the Tax Reform Act of 1986, the
Congress renewed its commitment to housing production while continuing
Appendix III
Evolution of Federal Housing Assistance
Programs
to support tenant-based assistance. The 1986 Act substituted tax credits for
older incentives to construct low-income housing, such as accelerated
depreciation. Under the tax credit program, approximately 700,000 to 800,000
units have been built. In 2000, the Congress increased the per-capita
allocation of tax credits from $1.25 to $1.50 beginning in 2001. In 2002,
this allocation is scheduled to rise to $1.75, and beginning in 2003, the
allocation will be adjusted for inflation. The program will likely soon
become the second largest housing program (after vouchers) for low-income
households. In large part because of the renewed emphasis on new
construction through tax credits, the majority of the additional recipients
of federal housing assistance since 1990 have received project-based
assistance.
Other funds for new construction have come through the HOME Investment
Partnerships Program, enacted in 1990, which awards block grants to state
and local governments, primarily for the development of affordable housing.
In addition, the HOPE VI program has provided grants since 1993 for local
housing authorities to demolish their worst properties and replace them with
lower density developments. Table 20 summarizes the history of federal
housing assistance programs, including their authorization date and current
status.
Appendix III
Evolution of Federal Housing Assistance
Programs
Table 20: Multifamily Housing Programs, by Type of Subsidy, in Order of Year
Authorized
Year Program Type of subsidy authorized Status Description
Public Pays for developing, operating,
Housing Project-based: 1937 No new and modernizing
Operating subsidy projects owned by local public
commitments
housing
Grant since 1994 authorities. Before 1987, funds
paid off debt
Debt-service payment (see HOPE service for project development
costs over 20 to
Payment in lieu of VI) 40 years. From 1987 to 1994,
taxes development costs
have been financed with up-front
grants. Since
1970, the program has also paid
approximately
the difference between housing
authorities'
formula-determined cost levels and
rent
collections and other receipts.
Section 202 Project-based: 1959 No new Provides direct loans at
below-market rates for up
Elderly and to 40 years to finance the
Direct loan with below- commitments
construction of rental
Disabled housing for the elderly and
Housing market interest rates since 1991 disabled. All projects
Direct Loan Rental assistance built since 1974 also receive
paymenta Section 8 rent
Program subsidies.
Section 221(d)(3) Project-based: 1961 No new Provides subsidies that
reduce to 3 percent the
Below-Market Below-market interest commitments interest rate on private
rate 40-year mortgages for
Interest Rate loan since 1968 multifamily rental housing.
Tenants in certain
Mortgage insurance units receive rent
subsidies.
Rental assistance
paymenta
Section 515 Rural Project-based: 1962 Active Provides direct loans to
developers at a 1-percent
Rental Assistance Direct loan with below- interest rate. Supplementary
rental assistance is
market interest rates provided to approximately half of
the units
Rental assistance through Section 521. Some units
paymenta also receive
rental assistance through the
Section 8
programs.
Rent Supplement Project-based: 1965 No new Provides rental assistance for
housing projects
Rental assistance insured under certain Federal
payment commitments Housing
since 1973 Administration (FHA) mortgage
insurance
programs. Most outstanding
commitments under
rent supplement programs have
been converted
to Section 8 rental assistance.
Section 23 Project-based: 1965 No new Local public housing authorities
leased
Leased Lease of privately acceptable units from private
Housing owned commitments landlords and sublet
units since 1973 these units to eligible
households at below-
market rents. This program was a
precursor of
the Section 8 Existing Housing
Certificates
program.
Section 236 Project-based: 1968 No new Provides monthly subsidies that
reduce to 1
Interest rate subsidy percent the interest rate on
commitments
private 40-year
Mortgage insurance mortgages for multifamily rental
since 1973
projects. Tenants
Rental assistance of certain units receive rent
paymenta subsidies through the
rental assistance program (RAP).
Many units
receiving RAP have been converted
to Section 8
assistance.
Appendix III
Evolution of Federal Housing Assistance
Programs
(ContinuedFromPreviousPage)
Year Program Type of subsidy authorized Status Description
Section 521 Project-based: 1968 Active Provides rental assistance payments
to owners
Rental assistance payment and developers of RHS-financed
rental units
under Section 515 and farm labor
housing loans
and grants (Section 514/516) on
behalf of low-
income tenants.
Section 8 New Project-based: 1974 No new Provides rent subsidies in
new or substantially
Construction and Rental assistance commitments rehabilitated projects.
payment Subsidy initially covered
Substantial Tax-exempt financinga since 1983, the difference between
tenants' payment and fair
Rehabilitation Mortgage insurancea except for market rent, as determined by
HUD. Subsidy
Below-market interest contracts were for 20 to 40
rate Section 202 years. Tax incentives
loana program (see and financing arrangements
also may reduce
above) owners' effective mortgage
interest rates and
project rents. Current
restructuring of ongoing
contracts will result in
realignment of subsidy
payments.
Section 8 Loan Project-based: 1974 No new Provides subsidies to units in
financially troubled
Management Set- Rental assistance projects in the FHA-insured
payment commitments inventory and on the
Aside and sale of HUD-owned projects,
respectively.
Property Subsidies ensure improved cash
flows and
Disposition preserve projects for lower
income tenants.
Subsidies cover the difference
between tenant
payments and unit rents, which
often are below
market rates because of other
federal subsidies.
Section 8 Existing Tenant-based: 1974 Merged in Aids low-income households to
rent housing units
Housing Rental assistance 1998 with in the market. Rent cannot
payment the exceed the HUD-
Certificates Section 8 established fair market rent
for the geographical
Voucher area. HUD pays the difference
between the
actual unit rent and the
program tenant payment.
Administered by local public
housing authorities,
which enter into contracts
with landlords.
Community Project-based: 1974 Active Distributes grants to local and state
governments
Development by formula for community development
Grant
activities.
Block Grants The Housing and Community Development Act of
1974 established this program. Rehabilitation
and other housing activities now consistently
represent the largest single use of funds.
Section 8 Tenant-based: 1983 Merged in Similar to the Section 8
Certificate program in
Vouchers Rental assistance 1998 with that assisted households could live
payment in privately
Existing owned units and public housing
authorities
Housing administered the program. Unlike
the Certificate
Certificates program in that recipients could
occupy units
whose rents exceeded the voucher
payment
standard-roughly equivalent to the
fair market
rent-if they paid the difference.
If rents were
below the payment standard,
households could
keep the difference (also known as
the "shopper's
incentive").
Appendix III
Evolution of Federal Housing Assistance
Programs
(ContinuedFromPreviousPage)
Year Program Type of subsidy authorized Status Description
Low-Income Project-based: 1986 Active The Tax Reform Act of 1986 substituted tax
Housing Tax credits for existing tax incentives to construct
Tax credit
low-
Credits income housing, such as accelerated
depreciation. The maximum tax credit allowed
per year is about 9 percent of a newly
constructed project's development costs, less
land and certain other costs. Project owners can
claim the tax credit award annually on their tax
returns for 10 years.
Affordable Project-based: 1989 Active Provides grants or
reduced-interest-rate loans for
Housing the production of affordable rental
Program Grant and owner-
Below-market interest occupied housing. Program was
rate intended to
loan expand the Federal Home Loan Bank
system's
overall involvement in community
lending and
promote the production of low-income
housing.
Section 202 Project-based: 1990 Active Provides capital advances to
finance the
Supportive Capital advance (grant) construction or rehabilitation of
rental housing for
Housing for the Rental assistance very-low-income elderly households.
payment Capital
Elderly advances do not have to be repaid
as long as the
housing remains available for
occupancy by very-
low-income elderly households for
40 years.
Section 811 Project-based: 1990 Active Provides capital advances to finance
the
Supportive Capital advance (grant) construction or rehabilitation of
rental housing for
Housing for Rental assistance payment very-low-income persons with
disabilities. Capital
Persons with advances do not have to be repaid as
long as the
Disabilities housing remains available for
occupancy by very-
low-income persons with disabilities
for 40 years.
HOME Multipurpose (project-and 1990 Active Provides formula grants to states and
localities.
tenant-based): Communities use these grants, often in
Development grant partnership with local nonprofit groups,
to build,
Rental assistance payment buy, and/or rehabilitate affordable
housing for rent
Homeownership assistance or homeownership or to provide
tenant-based
rental assistance to low-income
households.
HOPE VI 1993 Active Provides grants to public housing
Project-based: authorities to
Operating subsidy transform severely distressed public
housing sites
Grant into economically viable communities and
to
support service programs.
Appendix III
Evolution of Federal Housing Assistance
Programs
(ContinuedFromPreviousPage)
Year
Program Type of subsidy authorized Status Description
Housing
Choice Tenant-based:
Voucher Rental assistance
Program payment
1998 Active Aids low-income households to rent housing units in the market.
Public housing authorities have discretion to set voucher payment standards
anywhere between 90 and 110 percent of the local fair market rent. HUD pays
the difference between the payment standard (or, if less, the unit's rent)
and the total tenant payment, which is usually at least 30 percent of
adjusted household income. If the unit's rent exceeds the payment standard,
the tenant can pay the difference, provided that household initial rent
burden does not exceed 40 percent of adjusted income.
aThe subsidy is provided by another housing program.
Source: GAO adaptation of the analysis in CurrentHousing Problemsand
Possible Federal Responses, Congressional Budget Office (Dec. 1988).
Appendix IV
Federal Expenditures on Housing Programs
An outlay is generally a payment of an obligation incurred, representing
federal spending for programs at a particular time. In fiscal year 1999, the
federal government provided housing assistance to about 5.2 million renter
households at a cost of about $28.7 billion in budgetary outlays and tax
credits. This assistance was delivered through both tenant-based and
project-based programs. Since federal outlays cover expenditures for
everything from development to rental assistance and since the timing of
these outlays varies, using federal outlays to compare per-unit costs across
programs would be misleading. Nevertheless, outlays are useful as indicators
of federal spending for programs at a particular time. Determining how much
the federal government spends each year to assist households under a
particular program is complicated when units or households benefit from more
than one subsidy.
Defining Budgetary Outlays
An outlay is generally defined as the payment of an obligation incurred in a
previous year or in the same year. Although outlays measure federal spending
for programs at a particular time, they do not represent, nor were they
intended to represent, the total costs of housing to all parties, including
state and local governments, private entities, and assisted households. For
assisted housing programs, outlays cover the federal costs. More
specifically, for housing vouchers, outlays cover the cost of the
tenant-based rental assistance provided to low-income households and the fee
paid to local housing authorities for administering the program. For housing
production programs, outlays pay for a broader range of activities that vary
by program, from the project-based rental assistance provided for the
Section 8 New Construction and Substantial Rehabilitation program to the
operating, capital improvement, and debt-service subsidies provided for
public housing.
Program Outlays for Fiscal Year 1999
Table 21 presents the outlays for housing assistance programs administered
by HUD and RHS. Also included are the estimated forgone taxes for the
Low-Income Housing Tax Credit program administered by the Internal Revenue
Service. The table categorizes these programs as inactive or active. Whereas
the outlays for inactive programs support existing units and do not
currently fund the production of any new units, the outlays for active
programs provide assistance to previously built units while continuing to
fund new units of affordable housing. Within both the inactive and active
project-based categories, an assisted property can be
Appendix IV
Federal Expenditures on Housing Programs
privately or publicly owned. In the case of vouchers, assistance is provided
to the tenant.
Table 21: Federal Outlays for Major Assisted Housing Programs in Fiscal Year
1999
Operating
Operating subsidy/
Total units subsidy/Rental Development/ Rental
funded as of assistance Modernization Total outlays assistance
Program FY '99 (in millions) (in millions) (in millions) per unita
Inactive
Publicly owned, project-based Public Housing 1,273,500 $3,860b $3,080 $6,940
$5,450 Privately owned, project-based
Section 8 New Construction/Substantial 643,600 4,320 - 4,320 6,710
Rehabilitation
Section 202 Elderly and Disabled 207,100 1,190 - 1,190 5,750
Housing Direct Loan
Section 8 Property Disposition 60,300 360 - 360 5,970
Section 8 Loan Management Set-Aside 409,000 1,650 - 1,650 4,030
Rent Supplement 20,900 60 - 60 2,870
Section 236 464,000 610 - 610 1,310
Section 221(d)(3) Below-Market Interest 145,000 - - - -
Ratec
Active
Tenant-based
Section 8 Certificates/Vouchers 1,580,500 7,010 -7,010 4,440 Publicly owned,
project-based Public Housing: HOPE VId --320 320 -
Privately owned, project-based
Section 202 Supportive Housing for the 65,500 80 500 580 1,220
Elderly
Section 811 Supportive Housing for 17,800 20 110 140 1,120
Persons With Disabilities
Section 515 Rural Housing Rental 484,700 - 90 90 -
Assistance
Section 521 264,700 560 - 560 2,120
Low-Income Housing Tax Creditse 700,000 - 3,500 3,500 -
Multipurpose
HOME Investment Partnerships Programf ---1,350 -
Total 5,247,300g $19,710 $8,950 $28,670 -
Appendix IV
Federal Expenditures on Housing Programs
Note: Figures may not add due to rounding.
aPer-unit calculations cannot be done for outlays used to construct new
units because outlays for one particular year do not correspond to the
number of units actually placed in service that year. Only rental assistance
is included in the per-unit cost estimates, with the exception of Public
Housing (see note b).
bOutlays for operating expenses include $2.9 billion in operating subsidies,
$705 million in annual debt service payments on the costs of developments
constructed before 1974, and $283 million for the Drug Elimination program.
The outlay per unit for public housing's operating subsidy is $2,260.
Outlays for development and modernization under HOPE VI are broken out
separately from those for Public Housing.
cInterest rate subsidies were made at closing and accordingly would not be
reflected in 1999 outlays.
dAs of 2000, the HOPE VI program had demolished over 30,000 units and
constructed over 7,000 units of public housing units.
eSince there is no official estimate of the number of units developed under
the Low-Income Housing Tax Credit program, we relied primarily on estimates
from HUD's National Low-Income Housing Tax Credit database.
fBecause reliable data were not readily available, this table excludes
substantial numbers of commitments made through the HOME Investment
Partnerships Program. In addition, HOME funds can be used for tenant-based
assistance or assistance to new homebuyers. These funds can also be used for
acquisition, rehabilitation, or in limited circumstances, construction of
both rental and owner-occupied housing.
gThe total number of units is adjusted to account for cases in which one
particular unit may be receiving subsidies from two different programs. For
instance, approximately 40 percent of tax credit units receive Section 8
project-based or tenant-based assistance.
Source: GAO analysis of agency data. Forgone taxes resulting from the
Low-Income Housing Tax Credit program are from Estimates ofFederal
TaxExpenditures forFiscal Years 1999-2005, prepared by the Joint Committee
on Taxation for the House Committee on Ways and Means and the Senate
Committee on Finance.
Overall, rental assistance accounted for nearly $15.9 billion of the $28.7
billion in federal outlays and tax credits for the major housing assistance
programs in fiscal year 1999. Operating and other related subsidies for
public housing cost another $3.9 billion. The remaining $9 billion covered
$3.1 billion for public housing capital and management improvement efforts,
$3.5 billion in forgone tax revenue for the development of affordable
housing under the tax credit program,48 and $2.4 billion in subsidies for
the development of affordable housing under the other active housing
programs. In other words, nearly 70 percent of the 1999 federal expenditures
provided for rental assistance of existing units, and the remainder was used
to develop additional units of affordable housing.
48While forgone tax revenue is not a budgetary outlay, we include its
estimated value in table 21 because it represents a significant cost to the
federal government for what is currently the largest program supporting the
development of affordable housing.
Appendix IV
Federal Expenditures on Housing Programs
Problems With Comparing Program Outlays
Because the annual federal per-unit outlays for different housing programs
often cover different housing costs, they should not be used to compare
subsidy costs across programs. For example, the annual federal per-unit
outlays for housing vouchers cover all of the government's costs. By
contrast, the annual outlays for the housing production programs often do
not include all of the subsidy costs. Specifically, they may not include-nor
were they intended to include-the up-front development costs paid in
previous years when properties were built; the indirect costs of forgone
taxes to federal, state, or local entities; or the costs of funding capital
replacement reserves.
Computing the costs of federal housing assistance programs is further
complicated when subsidies overlap-that is, when rental assistance is
combined with development subsidies to make units affordable for
very-low-income households, both in older and in newly developed properties.
We estimate that about 1.1 million households receive overlapping subsidies.
Specifically, we estimate that about 85 percent of the units that received
interest rate subsidies under the Section 236 program also receive Section 8
project-based assistance. In addition, according to our September 1999
estimate,49 about 10 to 14 percent of the households in tax credit units
also receive tenant-based housing vouchers. To the extent that rental
assistance lowers the costs of serving households in Section 236 and tax
credit units, the average annual per-unit outlays understate federal
expenditures for those units.
49Tax Credits: The Use of Tenant-Based Assistance in Tax-Credit-Supported
Properties (GAO/RCED-99-279R, Sept. 17, 1999).
Appendix V
Comments From the Department of Housing and Urban Development
Note: GAO comments supplementing those in the report text appear at the end
of this appendix.
Appendix V
Comments From the Department of Housing
and Urban Development
See comment 1.
See comment 2.
Appendix V
Comments From the Department of Housing
and Urban Development
Appendix V
Comments From the Department of Housing
and Urban Development
See comment 3.
Appendix V
Comments From the Department of Housing
and Urban Development
See comment 4.
Appendix V
Comments From the Department of Housing
and Urban Development
Appendix V
Comments From the Department of Housing
and Urban Development
See comment 5.
Appendix V
Comments From the Department of Housing
and Urban Development
Appendix V
Comments From the Department of Housing
and Urban Development
The following are GAO's comments on the Department of Housing and Urban
Development's letter dated January 10, 2002.
GAO Comments 1.
2.
3.
As suggested in HUD's comments, we have expanded the discussion of federal
costs in the letter and included figures 10 and 11 on the differences in the
federal costs of production programs and vouchers for one-bedroom units.
Detailed data on federal costs are still included in appendix I.
Contributions from state and local sources are generally a small share of
the 30-year total costs of housing programs. Nonetheless, given the emphasis
placed on leveraging nonfederal funding by many of the programs, we have
incorporated a brief discussion of the total government costs of the various
housing programs, as suggested in HUD's comments. We have revised the draft
to clarify that the administrative costs of the production programs are not
fully accounted for because of data limitations.
We recognize in our report that if current set-asides for future capital
improvements were insufficient, our estimates of total costs will be
accordingly understated. To address the issue of underfunded capital
reserves, we revised the draft to include two additional scenarios
evaluating the possible impact of shortfalls above and below our initial
base estimate. We find that over 30 years, these shortfalls make up a small
part of the average total costs.
HUD also comments that the history of federal housing programs indicates
that additional subsidies are often required within the first 15 years to
maintain the physical and financial viability of subsidized properties. We
have revised the draft to include a note citing two studies prepared for HUD
that estimate the capital needs of public housing and FHA-insured
properties. However, the extent to which the experience of the older
programs reviewed in these HUD studies is a good predictor of the future
requirements of newer programs, such as tax credits, Section 202, or Section
811, is simply not known. For this reason, we refer to the importance of
having current data on the financial condition of these properties.
We disagree with HUD's suggestion that we shorten our cost period to 15
years because, in general, development subsidies buy more than 15 years of
affordable housing.
Appendix V
Comments From the Department of Housing
and Urban Development
4. We focused on one- and two-bedroom units because the large majority of
units (over 75 percent) developed under the production programs (except HOPE
VI) have either one or two bedrooms. Nonetheless, we revised the draft to
include cost estimates for three-bedroom units for the tax credit and
voucher programs-both of which had sufficient data for this analysis. As
noted in this report, data for three-bedroom units were not available for
the other programs.
Single unit-weighted cost figures were presented in our interim report (July
18, 2001) and are also presented in appendix I. We believe that our cost
estimates in this report control for differences in unit size more
rigorously than the single unit-weighted estimates. HUD states that we
averaged total development costs evenly across units of different sizes,
thereby reducing the accuracy of our cost estimates in the letter. In
reality, we averaged total development subsidies across all units. For tax
credits and Section 515, total development subsidies are less than total
development costs, which means that the unsubsidized portion of total
development costs is captured in the rents, which account for about 70
percent of the 30-year total cost estimates. In the case of grant programs,
such as Section 202 and Section 811, the total development cost is
completely subsidized. However, these two programs tend to develop
properties that comprise units with the same number of bedrooms.
5. We agree that vouchers also respond to objectives other than providing
affordable housing. We have revised the draft to include a discussion of
these benefits and changed the title of this report so as not to imply that
we have assessed how well production programs meet their stated objectives.
Appendix VI
Comments From the U.S. Department of Agriculture
Note: The GAO comment supplementing those in the report text appears at the
end of this appendix.
Appendix VI
Comments From the U.S. Department of
Agriculture
See comment.
Appendix VI
Comments From the U.S. Department of
Agriculture
The following is GAO's comment on the Department of Agriculture's letter
dated January 14, 2002.
GAO Comment We are retaining the estimated annual average income that
appeared in the draft report since it is based on data for fiscal year 1998,
the year for which we collected cost data from RHS.
Appendix VII
Comments From the National Council of State Housing Agencies
Note: GAO comments supplementing those in the report text appear at the end
of this appendix.
Appendix VII
Comments From the National Council of
State Housing Agencies
Appendix VII
Comments From the National Council of
State Housing Agencies
See comment 1.
Appendix VII
Comments From the National Council of
State Housing Agencies
See comment 2.
See comment 3.
Appendix VII
Comments From the National Council of
State Housing Agencies
See comment 4.
Appendix VII
Comments From the National Council of
State Housing Agencies
See comment 5.
See comment 6.
Appendix VII
Comments From the National Council of
State Housing Agencies
Appendix VII
Comments From the National Council of
State Housing Agencies
The following are GAO's comments on the National Council of State Housing
Agencies' (NCSHA) letter dated January 11, 2002.
GAO Comments 1.
2.
3.
4.
5.
6.
We agree that tax credits tend to produce new or substantially rehabilitated
housing units with amenities and services often not provided by the average
voucher unit. While new or substantially rehabilitated units may, on
average, be of higher quality than the average voucher unit, the age of a
unit may not accurately reflect its quality. In addition, the extent to
which the benefits from the additional amenities and services justify their
costs remains an open question.
We agree that there are potential benefits to the broader community from tax
credits. These potential benefits were discussed in the housing policy
issues section of the draft report.
We assumed an affordability period of 30 years throughout the draft. We
agree with NCSHA that some properties have longer affordability requirements
but note that other properties have shorter affordability requirements as
well. In its comments, HUD requested that we present 15-year estimates
rather than 30-year estimates. For simplicity, we continue to present
30-year estimates. Additionally, because of the time value of money,
projections beyond 30 years will have a small impact on relative costs.
Rent growth for production programs may or may not lag behind that for
vouchers. The tables presented in appendix II provide the opportunity to
consider the impact on rents of other rates of inflation.
We agree that the reserves required for new or substantially rehabilitated
units may be considerably lower than those required for older properties.
HUD raised concerns that our base annual estimate of $600 per unit was too
low, given past experience, while NCSHA argues that the figure is too high.
To address both concerns, we revised the draft to include two additional
scenarios evaluating the possible impact of shortfalls above and below our
base estimate. We find that over 30 years, these shortfalls make up a small
part of the average 30-year total costs.
NCSHA questioned the need for a national database on costs for the tax
credit program, arguing that the tax credit is one of the most exhaustively
studied programs. Few studies of the tax credit program
Appendix VII
Comments From the National Council of
State Housing Agencies
have assessed the costs of providing housing under the program, the
financial viability of tax credit projects over time, or the households
served by the program. Michael A. Stegman's 1999 review attributes our lack
of information to the fact that the program is financed by tax expenditures
rather than by direct appropriations and therefore does not require annual
budget justifications.50 Additionally, he notes that housing advocates have
been reluctant to support independent evaluation of the program. The tax
credit program consumes real taxpayer resources, and as with any government
program, taxpayers deserve to know what is being purchased with their
dollars and at what cost.
50Michael A. Stegman, "Comment on Jean L. Cummings and Denise DiPasquale's
`The Low-Income Housing Tax Credit: An Analysis of the First Ten Years':
Lifting the Veil of Ignorance," Housing Policy Debate, Vol. 10, Issue 2
(1999).
Appendix VIII
GAO Contacts and Staff Acknowledgments
GAO Contacts Stanley J. Czerwinski (202) 512-7631 Daniel Garcia-Diaz (202)
512-4529
Acknowledgments In addition to the persons named above, Patrick Doerning,
Elizabeth Eisenstadt, Dennis Fricke, and William McNaught made key
contributions to this report. External consultants Denise DiPasquale and
Jean L. Cummings, City Research, and Edgar O. Olsen, Department of
Economics, University of Virginia, also contributed to this report.
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