The end of Section 8?!

The first draft of this article was a mess. In an attempt to answer the simple question of “what’s going to happen to Section 8,” I wrote down everything I could think of, in some semblance of order. As I stared at that first draft, trying to make sense of it all, I thought to myself, “Well... this is an interesting way to discover you’re a crazy person.” In a valiant attempt to spare you, dear reader, from unbridled psychosis, I’ve cleaned up my ramblings a bit. Enjoy.

On May 2^nd, President Trump released a “skinny” budget proposal and everyone in the affordable housing business lost their damn minds. Republicans claimed victory (though nothing has happened) and Democrats shook their heads, clutched their pearls, and called him a monster, though, again, nothing has happened. To help cut through the noise, I will tell you what has been proposed, why it probably won’t work, and what the real and ideal future of Section 8 should be.

Trump has proposed reducing the HUD budget by ~33 billion as part of his budget. Below are some of the potential impacts.

• 26.7 billion dollar reduction in rental assistance programs like Section 8. Impacting Housing Choice Vouchers, Public Housing Programs, programs for the elderly and disabled, subordinate debt tools, and Emergency Housing Vouchers.

• Transition to a State Block Grant system. Essentially removing HUD from the administration of rental assistance programs, allocating those dollars to individual states, and allowing states to design their own rental assistance programs.

• The imposition of time limits for how long individuals can receive Section 8 assistance.

• Reductions in HUD staffing.

Now, let’s set some ground rules because some of what I say today will upset people. First, I work in affordable housing and am an affordable housing advocate. I care about our residents, people in need, and those who’ve been dealt a tough hand. Second, the affordable housing programs in our country desperately need reform. They are abused by residents and landlords alike, there is limited oversight, and the American taxpayer picks up an inefficient and needlessly expensive tab. Third, politics and proposed budgets are complex. If your view of any politician is “they’re 100% right” or “they’re 100% wrong,” I’m worried you might be too dumb to vote. A dogmatic view of any political party is crazy person behavior. Trust me, I’m a crazy person.

Let’s start with an overview of how the Section 8 program works. I can feel your eyes glazing over, so I’ll keep it brief. There are, generally, two kinds of Section 8 assistance.

1. Housing Choice Vouchers (“HCV”). This is the one most people are familiar with. A renter gets an HCV (the general public calls these Section 8 vouchers), and they can move into an apartment. In some states, landlords can refuse HCV, but in others, they can’t. The reasons why are for another newsletter.
   
   The tenant pays 30% of their income, and the HCV pays the rest. Technically, HUD pays the rest, and the funds are administered through a local Housing Authority. Even more technically, YOU pay the rent with your tax dollars. If rent for an apartment is $1,000 per month, and 30% of the renter’s income is $200, the renter pays $200, and the landlord gets a check from the Housing Authority for $800.

2. Project-Based Vouchers (“PBV”). There are several kinds, but that nuance is also for another newsletter. In this scenario, HUD has a contract with the property. Tenants move in and pay 30% of their income, and HUD pays the landlord the difference between that number and the market rent. Market rent gets abused, as I’ve ranted about in the past, but that’s the basic trade. If tenants move out, they do not take that voucher with them. The next renter to move into that unit continues to benefit from the subsidy contract.

I’m simplifying a complex system, but this incredible wisdom, which I’m bestowing upon you free of charge, will help you follow along for the rest of this article.

Is Trump going to get rid of Section 8? Nope. I suppose I could end the article here, but perhaps a few reasons why might be helpful.

Public Policy Argument

In addition to reducing the budget for the Section 8 program, Trump has proposed pushing those programs down to the state level. Despite this being a popular narrative, he has not called for eliminating rental assistance. But let’s say he was proposing to eliminate rental assistance altogether. Doing so would be deviating from nearly 100 years of public policy in America.

From the 1830s to the 1890s, private landlords provided affordable housing through tenement homes. No ventilation, many without toilets, sporadic heat in the winter, tons of people crammed into shacks. Bleak and inhumane. Conditions in tenement homes were so bad that the government started to step in around the turn of the century and implement building codes and housing standards.

In the 1930s, the government started to build large public housing projects. There were countless problems with public housing, but there were two main themes to emerge. First, maintenance and management were a problem, and the properties fell into disrepair. If you’ve ever met someone who works for the government, this should not surprise you. Imagine calling someone at the DMV to get your water heater fixed. Second, these projects created an intense concentration of poverty and a feeling of despair. Crime ran rampant, projects were far away from community resources, and residents didn’t have a clear path out. Remember this the next time some idiot suggests that the best solution to our current housing crisis is public housing. Liberals, a group I occasionally belong to, love to talk about revised public housing as “social housing” but it’s a dumb idea put forth by public policy people who’ve never managed an apartment building and haven’t built shit. Anyway.

In the late 1950s and early 1960s, we created various below-market interest rate programs to encourage private development of affordable housing. Section 236, Section 202, Section 221(d)(3) BMIR, and Section 515 are some examples. If you're interested, you can look these up.

The most successful evolution away from public housing came in 1974 with the introduction of the Section 8 housing program. The basic idea was to subsidize private landlords taking on the role of providing affordable housing. PBVs were issued to specific buildings, and landlords had a dependable income stream. HCVs were issued to individual renters, and suddenly, they had mobility. The program has flaws; I often rail against them, but it was a huge success.

Section 8 is also very expensive. Direct subsidy costs the government nearly 70 billion dollars a year, so in 1986, the Low Income Housing Tax Credit (“LIHTC”) was created. The goal of the LIHTC program was to encourage private developers and financial institutions to develop and manage affordable housing. Proponents of the LIHTC program argue that offering a reduction in tax liability is cheaper and more effective than a direct subsidy.

Finally, the point of this history lesson. Every housing program in our country has been an attempt to improve upon the ones that came before it. Housing policy is iterative, so getting rid of Section 8 without a plan for how the following program would be materially better is a non-starter for people on both sides of the aisle. Most people don’t burn down their house before building a new one.

Financial Argument

If you suffered through my history lesson, you might still think, “you’re an idiot. Public policy and history be damned; Section 8 has to go.” Fine. So, how about a financial argument?

If Section 8 is eliminated, or severely cut without a transition plan, here’s what will happen.

• Immediately after announcing that Section 8 is done, States will implement an eviction moratorium. States won’t know what to do, but their knee-jerk reaction will be to pause evictions so that millions of renters aren’t put out on the street.

• Property owners will lose billions of dollars in equity overnight. Most HCVs currently pay 70-80% of the rent on each unit, so that money is gone. Most properties have many HCVs, not just a few, so you could be looking at significant lost revenue, which would lead to foreclosures.

• The equity markets will collapse. Many major banks and financial institutions have significant exposure to the Section 8 program.

• Investors will immediately begin to question the viability of the LIHTC program. New construction of affordable housing across the country will come to a standstill. Why start a project if the subsidy required to make it work could suddenly vanish?

• Properties will get foreclosed on, lenders will sue the State and call the eviction moratorium a “taking,” and eventually, people who previously counted on HCVs will be homeless or have to move into very rough environments.

• Any new affordable housing program that gets proposed will be met with skepticism.

Despite his posturing that he’s willing to be just that, Trump doesn't want to be the president who crushed the market.

Trump owns Section 8 housing. Kushner Companies owns Section 8. Tom Barrack, Geoffrey Palmer (donor), and Steve Witkoff (Special Envoy to the Middle East) all own Section 8. Bill Pulte (Chairman of Fannie and Freddie) and Steven Roth (Vornado founder and big Trump donor) have significant exposure to the housing market and are interested in its stability. Trump is a real estate guy, and his friends and donors are real estate guys, so dismantling a portion of their cash flows seems unlikely.

Pattern of Behavior Argument

Looking at Trump's rhetoric and actions on other high-profile issues gives us some indication of how he’ll treat Section 8. To borrow a wonderful expression, he’s been “all hat and no cattle” on many of his campaign promises.

• DOGE: More smoke than fire. There were promises of massive reductions in government spending and increases in efficiency, but that hasn’t really come to fruition, despite the press conferences, tweeting, and other showmanship. The initial target was 2 trillion, which has been revised to 160 billion. Not to be a dick, but that second number is much smaller than the first one. Like most politicians, Trump wants the public appearance of a win.

• Immigration: In Trump’s first term, he deported fewer people than Obama or Biden. Wanting to ramp things up, he promised to deport 13 million people in his second term. So far, he’s deported around 100,000. Let’s assume efficiency picks up and he deports 300,000 per year. That’s still 1/10^th of his promised amount. However, he talks about it all the time, the White House makes memes about it, and every Republican on TV is bragging about this administration being tough on the border. The appearance of a win.

• Tariffs: Good lord. Where do I start? Trump’s tariff policy seems to lean on chaos more than strategy. Opponents will tell you he doesn’t understand math, supporters talk about “the art of the deal,” and I gotta believe the truth lies somewhere in between. He’s behaving like a crazy person to negotiate (we’ll see how successfully), but he’s not actually going to roll out the massive tariffs he talked about. The appearance of a win.

• Section 8: Trump’s behavior is predictably unpredictable. He will make noise about Section 8, cut some programs around the margins, and probably concede a bunch of things to push some other policy. The idea that he will deliver on his full promises here when he has historically not done so seems unlikely.

What happens next?

Look, I’m a relatively anonymous idiot on the internet, and this is a free newsletter, but I’ve got enough scar tissue to have some expertise. So, if things don’t play out like I suggest, remember how much you paid for my advice. Also, as we’ve recently learned, I’m crazy.

HCV

A portion of HCVs is called Emergency Housing Vouchers (“EHV”). These were created during COVID-19 to assist families at risk of homelessness; currently, 60,000 households benefit from EHVs. I’d bet these are eliminated over the next few years. COVID-19 is not a public health crisis anymore, so support for keeping this program in place feels limited.

Aside from EHVs, I would expect a small reduction in HCVs that don’t follow any particular logic in pursuit of a win. Maybe 5-8%? Something the administration can point to.

PBV

I expect getting rent increases tied to renovations will become much more difficult. The “mark to market” that developers love won’t be nearly as easy. It’s also safe to assume that a few PBVs will have their rents reduced in a very public way to show the administration is taking a stance on graft (I’d be happy to suggest a few projects), but I don’t anticipate any significant changes here.

The affordable housing business has long speculated about the future of Option 3 contracts. For those unfamiliar, an Option 3 contract is a PBV but with no ability to “mark your rents to market,” if that makes sense. For most of these properties, the in-place rents are well below market rents. Some developers believed that HUD would revamp Option 3 contracts to allow some budget-based rent increase, or some other lever, but that would require a significant increase in the HUD budget. Safe to say that with the current administration, Option 3 properties won’t see any rent increases for a long time.

Subordinate debt

“Cuts to Section 8” is the headline, but HUD oversees more than just Section 8, and other programs are on the chopping block. Programs like the HOME Investment Partnership and the Community Development Block Grants are key sources of funding for LIHTC development. I anticipate more cuts here simply because cutting a potential future commitment is much easier than cutting a real current commitment. A 15-20% reduction in these funds wouldn’t surprise me. So, you’ll see construction of new affordable housing come down.

Staffing

~9,000 people are working for HUD; you should expect that number to decrease significantly. Layoffs are a sensitive subject, so I would posit that are few things are true at the same time.

• Our government, for a variety of reasons, is wildly inefficient. The affordable housing business has a well-known saying regarding working with HUD. “They’re not happy until you’re not happy.” It’s a clever joke, but many true words are spoken in jest. It simply should not be this way. Could HUD be more effective with fewer people? Yes, without question. Are there people working at HUD I would not trust to walk my dog? Also, yes.

• People losing their jobs, whether you think their jobs are important or not, sucks. Many of them have families, and life is complex.

• When the general public celebrates government layoffs, I do not believe most of them wish ill on the individual employees. I believe the revelry represents a poorly articulated feeling that the government isn’t working for them anymore.

• A variety of HUD departments, particularly those with a DEI lean, will become functionally obsolete.

What should happen?

If you’ve somehow made it this far, let me tell you how I’d do things. My company is a bit of an outlier in the affordable housing business. We don’t heavily rely on subsidies for new development, we don’t buy Section 8 deals that only work if we press the rents, and our exposure to HCVs is about average. In other words, I have enough experience to be an expert, and enough freedom from grift to think we should burn the current system to the ground and start over.

Rental Assistance Oversight

I agree with President Trump that rental assistance of all kinds should be moved to the state level. The federal government does not have a great history of efficiently providing housing at scale, and affordable housing needs vary dramatically by state. Pushing all rental assistance down to the state level through block grants is a good idea and allows for a more localized approach to affordable housing. The mechanics of making that happen are complex, and for another article, I fully support the idea.

Plus, all states already have a state housing finance agency that oversees the LIHTC program and other soft funds, so putting direct rental assistance under their purview is the logical next step. It would give them greater control over creating new housing, income mixing, and various other things.

HCV

I also agree that there should be a time limit for able-bodied adults to remain on rental assistance. Here is how affordable housing should work.

1. A small percentage of the disabled or elderly legitimately need rental assistance, and I believe they should receive it for the rest of their lives. How society cares for those who need help speaks volumes about our ideals. I’m primarily a capitalist, but I believe that our country is fundamentally broken if we turn our backs on citizens in need, even if that is the “most efficient” use of dollars.

2. For nearly everyone else, affordable housing programs should be a safety net, not a permanent residence, as they were originally intended. Life is painfully hard at times, (I have more experience with this than I would like), and I can tell you that sometimes you just need some fucking help. Affordable housing, when done well, should be there for people. You move in, spend ~five years getting back on your feet, and then graduate out. We need a system that facilitates that.

So, yes, there should be a limit on Section 8. We should get rid of the incentives to stay on Section 8, provide incentives/assistance for saving, and some type of graduated voucher program. It should be both hard to stay on Section 8 for long and easy to see a path out. Neither is currently true.

HCVs should provide more flexibility for housing authorities to determine the correct payment standard for each apartment complex, not some blanket number that’s too high or too low depending on the block.

PBV

Like HCVs, most adults should be limited to a time period, and rent should be graduated. Supportive services to help residents move up and out of Section 8 should be required for all PBV properties.

We need better controls against landlords gaming the system with artificially inflated rents. The people working at HUD should have some real estate experience calling out bullshit rent comps used to drive these increases. It’s an egregious waste of money that could be used to provide more housing, and some of my peers should be deeply ashamed of themselves. I also think HUD employees should be incentivized and earn a bonus for new units created.

I would like to see an audit of all PBV contracts to determine if their rents are suitable for the market. I’ve said this before, but if you’re reading this, I’m happy to help with this initiative. Based on what I’ve seen, the government overpays for these contracts by ~30%. If you run HUD and want to save billions of dollars, I’d start looking there.

Subordinate debt

HUD should focus on allocating things like the HOME funds and CDBG money to new construction. LIHTC developers love to return to the state for more funding on the same project every fifteen years, but that’s a bad use of funds. Prioritize new construction.

Conclusion

There will be some changes around the margin, but the sky isn’t falling. Also, to my affordable housing friends, try not to complain too much because no one wants to hear your shit. Nothing is happening uniquely to you. Toughen up.

A better path exists; we could provide affordable housing far more efficiently and with better outcomes. I hope to be part of that solution someday, but that day isn’t today.