Opting In:
Renewing America's Commitment to Affordable Housing

April 1999

Executive Summary

Twenty-five years ago, the Federal Government created what would become the largest rental housing subsidy in the Nation's history: Section 8. The Section 8 program now helps 3 million families around the country afford decent housing, more than double the number of families assisted by the next largest housing program, public housing.

Section 8 includes two forms of subsidy: tenant-based and project-based, each assisting roughly one-half the total Section 8 units. The tenant-based program provides vouchers that give residents the freedom to use their subsidies in a wide range of private market housing, while the project-based program provides subsidies tied to specific properties so that the properties themselves remain subsidized. Between the two types of subsidy, Section 8 provides assistance to thousands of families in each and every State around the country-in urban centers and rural farmland, in high rise apartments and single family homes.

Celebrating its twenty-fifth anniversary, the Section 8 program stands at a crossroad, facing a challenge that threatens its viability for the next 25 years and beyond. Without reform, the program risks losing the best of its project-based housing while spending too much on the properties that remain. By remaking Section 8, however, a different future is possible-a future which preserves the best project-based housing at a fair price for the taxpayer, a future that expands housing opportunities for the millions of needy families around the country who go without any housing assistance at all. Already the Clinton Administration and Congress have embarked on many of the reforms needed to remake Section 8. This report documents the magnitude of the challenge that still lies ahead, and the opportunities for change that the challenge brings. Finally, it outlines the principles that the Administration and Congress can use to respond to the coming challenge.

Starting in 1975, HUD signed 20-year contracts with private owners to provide project-based Section 8 subsidy to their properties. These long-term contracts are now expiring, creating widespread fear and uncertainty about whether the properties will continue as affordable housing. Using the latest data on Section 8 expirations, the report discusses the following problems:

• Expirations are increasing. During the next 5 years, two-thirds of all project-based Section 8 contracts will expire, totaling almost 14,000 properties containing 1 million subsidized housing units. As expirations increase, so does the risk of losing affordable housing. Last year more than 17,000 subsidized units in over 300 properties left the project-based Section 8 program, more than 3 times the total from the year before.

• Contracts are expiring everywhere. Forty-four States in the country have more than 50 percent of their units expiring in the next 5 years. By September 2004, 89,000 units will expire in California, 81,000 in New York, 69,000 in Ohio, 46,000 in Texas, 41,000 in Illinois, 40,000 in Pennsylvania, 35,000 in Florida and Michigan, 34,000 in Massachusetts, and 29,000 in Indiana. Every State in the country has more than 1,000 units expiring in the next 5 years.

• One-year renewals compound the problem. Unlike the original long-term contracts, budget constraints have limited contract renewals to 1 year, multiplying the number of contracts that face expiration each year. This magnifies the uncertainty of residents and owners about the security of their housing.

• Shortage of affordable housing leaves limited options. Despite 6 years of unprecedented economic growth, worst case housing needs remain at or near the all-time high of 5.3 million households. According to a recently released HUD study, "Ironically, the strong economy is a key factor pushing rent levels to new record highs. Rather than benefiting from the surging economy, low-income renters are left to compete for the dwindling supply of affordable rental housing available on the private market." With few places to turn, residents' fears about displacement from project-based Section 8 housing are magnified.

  The report also highlights the following reasons why the growing wave of project-based Section 8 expirations is cause for concern:

• Expirations lead to the loss of project-based Section 8 housing. When contracts expire, either HUD or the owner can choose not to renew. While most properties remain as project-based Section 8 housing, the latest evidence shows that about 10 percent "opt out" and convert to unsubsidized housing. Since October 1996, more than 30,000 subsidized units in over 500 project-based Section 8 properties have left the program. Each month, more than a thousand project-based Section 8 units opt out.

• Opt-outs can place residents at risk. HUD protects residents in properties that opt out by providing vouchers, which can be used successfully by residents in most areas to remain in their current units or move to other housing. Yet while vouchers are a critical tool, they do not effectively protect residents everywhere. In higher-rent neighborhoods where opt-outs are more likely, residents can be faced with substantial hikes in the portion of the rent they pay.

  Unable to afford these increases, residents are forced to move and compete for a dwindling supply of affordable housing. In a recent case in Iowa, an opt-out pushed up the average portion of the rent paid by elderly residents by two-thirds. In a rural area with little rental housing, these seniors may be forced to move long distances to find decent affordable housing.

• Opt-outs threaten the best affordable housing. Owners who choose to opt out can do so because they have good properties in good neighborhoods. The latest data show that 90 percent of the subsidized units in properties whose owners say they will likely opt out are located in low-poverty neighborhoods, where good housing also brings better opportunity-more jobs, better schools, and less crime.

• Opt-outs are occurring everywhere. Just as Section 8 housing is located throughout the country, so are the properties that leave the project-based program. The latest data show that opt-outs have occurred in 47 States. Since October of 1996, 4,000 units have opted out in California, 3,500 in Texas, 1,800 in New York, 1,500 in Florida and Pennsylvania, 1,100 in Washington and Ohio, 1,000 in North Carolina, 900 in Massachusetts and Michigan, and 700 in Colorado and Indiana.

  The growing wave of contract expirations threatens the future of this vast affordable housing resource. At the same time, it offers an historic opportunity to remake the Section 8 program. The report discusses three principles already guiding reforms that must also apply to future renewals of Section 8 contracts:

• Subsidize only good housing. When a contract expires, HUD will make every effort to keep well-maintained properties in the Section 8 program. HUD is building the public trust, however, by refusing to renew properties in poor condition or extend contracts with property owners unwilling to play by the rules.

• Pay a fair price. Rents that HUD pays will be based on what a property is worth. HUD should not pay an owner more than the property could get on the open market, but neither should HUD expect owners of good housing in good neighborhoods to accept less than a fair price.

• Preservation is not enough. Keeping the best project-based Section 8 housing in the program will not stop all opt-outs or reduce the record number of households with worst case housing needs. To ensure that residents are not threatened by displacement, Congress and HUD must expand authority for vouchers that protect residents from rent hikes in opt-outs. In addition, we must relieve the affordable housing crisis by increasing the number of families assisted by the Section 8 program. Last year, in landmark legislation to reform the public housing program, Congress authorized 100,000 new vouchers for fiscal year 2000.

Twenty-five years old, the Section 8 program stands at a crossroad. The largest rental subsidy in the nation's history, the program must chart a new course if it is to continue to provide decent affordable housing for millions of families across the Nation. HUD is well on its way to accomplishing these reforms, but significant work lies ahead this year. Only by preserving the best of project-based Section 8 housing, protecting residents in properties that leave the program, and expanding the supply of Section 8 vouchers can HUD and Congress fulfill their commitment to the Nation's neediest citizens. In an era of plenty, the time to act is now.

I. The History of Section 8 Housing

In 1937, Congress passed the United States Housing Act, landmark legislation that established the first Federal framework for government-owned affordable housing. The Act gave birth to public housing, which became the Nation's primary vehicle for building subsidized housing. Federal dollars were directed to State and local public corporations, called Public Housing Authorities, that in turn used the money to build, own, and operate the housing. During the next two decades, this partnership of Federal resources and State and local Authorities built more than 500,000 housing units affordable to the Nation's poorest citizens, and by the mid-1970's the total stood at over 1 million units.

In 1974, Congress pushed national housing policy in a different direction by channeling Federal resources directly to private owners to build and maintain affordable housing. Prior to 1974, the Federal Housing Administration and other initiatives created incentives for financial markets to provide private capital for building affordable housing. The new Section 8, added to the 1937 Housing Act, went farther by providing subsidies to private owners to help pay the rent for low-income families in their properties.

Section 8 immediately replaced public housing as the most important source of new Federal subsidies for rental housing. Section 8 grew so quickly that by 1980 it matched the size of the entire public housing program built over 40 years-1.2 million housing units. Today, Section 8 includes about 3 million units, more than double the size of the public housing program, at a cost of about $16 billion per year.

Section 8 includes two forms of subsidy: tenant-based and project-based. Both help low-income households rent privately-owned housing units, and both pay the difference between what a low-income household can afford-generally defined as 30 percent of their income-and the rent for the unit. The Section 8 tenant-based program provides vouchers that remain with the households that use them-when a family chooses to move, they are free to bring the subsidy to their next home. The project-based Section 8 program, on the other hand, provides subsidies tied to specific properties-when a family moves out, they can not take the subsidy with them, but instead it is used by the next eligible family so that the property itself remains subsidized.

During the initial years of the program, more than 200,000 units of Section 8 were added each year on average, with the tenant-based voucher program growing somewhat more quickly than project-based. Starting in 1980, however, the growth in project-based subsidies accelerated, accounting for three-quarters of the average increase of 170,000 units per year until 1985. After 1985, vouchers took the lead again as new project-based subsidies were phased out, and growth overall slowed to under 90,000 units per year on average. Despite the slower growth, however, it was not until 1995 that Section 8 saw its first reduction in history. With a freeze on new vouchers from 1995 through 1998, Section 8 ceased to be a source of new rental subsidies for the Nation's poorest citizens. Only last year did the growth of Section 8 resume with an addition of 50,000 new vouchers. Figure 1 shows the drop-off in funding for new Section 8 subsidies-the total number of Section 8 units remains flat overall after 1995, with only slight variations from year to year reflecting changes in usage and the replacement of some project-based and other subsidies by Section 8 vouchers.

Even with the recent freeze on new vouchers, Section 8 remains the largest rental subsidy program in the country, with thousands of units in every state. (See Figures 2 and 3.) Despite its size, however, Section 8 is less well-known than the smaller public housing program. Ironically, this lack of recognition is a sign of Section 8's success-located throughout the country in urban centers and rural farmland, in high rise apartments and single family homes, Section 8 housing has become a part of the American landscape. In many places, project-based Section 8 properties are indistinguishable from unsubsidized rental properties, and vouchers fit in precisely because they are generally used in otherwise unsubsidized rental properties.

Figure 1 Number of Units Receiving Section 8 Subsidy, 1976-1998

Figure 2: Number of Project-Based Section 8 Units by State - 1999 NEW ENGLAND   Maine 8,671 New Hampshire 6,481 Vermont 3,484 Massachusetts 60,492 Rhode Island 16,487 Connecticut 24,148     NEW YORK/NEW JERSEY   New York 131,043 New Jersey 52,483     MID ATLANTIC   Pennsylvania 66,079 Delaware 5,108 Maryland 30,043 District of Columbia 11,194 West Virginia 11,286 Virginia 34,366     SOUTHEAST   North Carolina 28,754 South Carolina 19,811 Georgia 31,762 Florida 48,529 Alabama 19,024 Mississippi 18,952 Tennessee 33,970 Kentucky 24,776     MIDWEST   Illinois 67,182 Indiana 34,040 Ohio 82,198 Michigan 64,589 Minnesota 32,823 Wisconsin 34,763     SOUTHWEST   Louisiana 19,601 Arkansas 12,512 Oklahoma 13,905 Texas 61,918 New Mexico 5,948     GREAT PLAINS   Iowa 15,342 Missouri 29,116 Nebraska 7,598 Kansas 12,829     ROCKY MOUNTAIN   Colorado 18,082 Montana 4,584 North Dakota 4,012 South Dakota 6,536 Utah 4,246 Wyoming 2,466     PACIFIC   California 114,579 Nevada 4,267 Arizona 9,872 Hawaii 3,971     NORTHWEST   Washington 19,072 Oregon 11,296 Idaho 4,284 Alaska 1,656

Figure 3: Number of Tenant-Based Section 8 Units by State - 1999 NEW ENGLAND   Maine 10,297 New Hampshire 6,892 Vermont 4,509 Massachusetts 56,080 Rhode Island 7,122 Connecticut 25,765     NEW YORK/NEW JERSEY   New York 160,087 New Jersey 50,670     MID ATLANTIC   Pennsylvania 61,701 Delaware 3,699 Maryland 28,612 District of Columbia 5,995 West Virginia 12,579 Virginia 31,570     SOUTHEAST   North Carolina 42,546 South Carolina 18,502 Georgia 33,365 Florida 68,253 Alabama 21,228 Mississippi 14,260 Tennessee 23,483 Kentucky 25,520     MIDWEST   Illinois 60,525 Indiana 28,906 Ohio 60,138 Michigan 31,970 Minnesota 26,198 Wisconsin 23,782     SOUTHWEST   Louisiana 31,027 Arkansas 20,004 Oklahoma 17,943 Texas 101,630 New Mexico 10,855     GREAT PLAINS   Iowa 17,627 Missouri 33,830 Nebraska 10,432 Kansas 8,670     ROCKY MOUNTAIN   Colorado 20,015 Montana 4,147 North Dakota 6,369 South Dakota 4,405 Utah 7,320 Wyoming 1,769     PACIFIC   California 229,495 Nevada 7,086 Arizona 15,739 Hawaii 8,993     NORTHWEST   Washington 27,115 Oregon 24,143 Idaho 5,209 Alaska 2,597

Because Section 8 housing is everywhere, it provides better opportunities for poor families:

• Section 8 housing helps the poor get access to better neighborhoods. Although the vast majority of Section 8 residents are extremely-low-income-less than 30 percent of area median income- surprisingly few properties are located in low-income neighborhoods. Only half of project-based Section 8 properties are in census tracts with median incomes less than 80 percent of area median. Similarly, Section 8 properties are often in higher rent neighborhoods-about one-half of project-based properties are located in tracts where local rents are higher than 90 percent of area median.

• Vouchers and project-based Section 8 reduce concentrated poverty. Over half of families using project-based Section 8 or vouchers live in low-poverty neighborhoods-census tracts with poverty rates below 20 percent. HUD research shows that 54 percent of project-based units are in low-poverty neighborhoods, and an even higher 61 percent of vouchers are used in low-poverty neighborhoods. By comparison, 65 percent of public housing families live in concentrated poverty neighborhoods-census tracts with poverty rates of 30 percent or higher. This compares to 27 percent of project-based households and 19 percent of voucher users. Because they gain access to neighborhoods with lower poverty, families receiving Section 8 subsidies benefit from improved opportunities-more jobs, better schools, and lower crime.

II. Communities at a Crossroad: The Challenge Facing Project-Based Section 8

Starting in 1975, HUD signed 20-year contracts with private owners to subsidize their properties with project-based Section 8 funds. The expiration of the contracts creates widespread uncertainty about whether the properties will continue as affordable housing or opt out of the project-based Section 8 program. Although the contracts began expiring a number of years ago, the number of opt-outs to date has been limited. Many owners have renewed their contracts on a short-term basis to consider the options and see what course Congress and HUD will follow. The situation, however, is growing more urgent.

• Expirations are increasing. During the next 5 years, two-thirds of all project-based Section 8 contracts will expire, totaling almost 14,000 properties containing 1 million subsidized housing units and 300,000 more unsubsidized units. As expirations increase, so does the risk of losing affordable housing. Last year, more than 17,000 subsidized units in over 300 properties left the project-based Section 8 program, more than 3 times the total from the year before.

• Contracts are expiring everywhere. Forty-four states in the country have more than 50 percent of their units expiring in the next 5 years, and even in the remaining 6 States more than one-third will expire during the same period. Over the next five years, 89,000 units will expire in California, 81,000 in New York, 69,000 in Ohio, 46,000 in Texas, 41,000 in Illinois, 40,000 in Pennsylvania, 35,000 in Florida and Michigan, 34,000 in Massachusetts, and 29,000 in Indiana. Every state in the country has more than 1,000 units expiring in the next 5 years. (See Figure 4.)

• One year renewals compound the problem. Unlike the original long-term contracts, budget constraints have limited contract renewals to 1 year, multiplying the number of contracts that face expiration each year. Only recently did Congress reauthorize longer-term contracts, but these are still subject to yearly appropriations, giving residents, owners, and lenders little security that funds will continue to be available even though Congress has consistently provided money for all renewals. This magnifies the fears of residents and communities, while increasing the administrative burden of renewing contracts for HUD employees and giving owners one more reason to opt out.

• Shortage of affordable housing leaves limited options. Even if HUD could preserve every project-based Section 8 property in the country, this would not serve the more than 5 million households with worst case housing needs. According to a recently released HUD study, "Despite 6 years of unprecedented economic growth, millions of families still struggle to secure decent affordable housing. Ironically, the strong economy is a key factor pushing rent levels to new record highs. Rather than benefiting from the surging economy, low-income renters are left to compete for the dwindling supply of affordable rental housing available on the private market. Many of the most vulnerable low-income renters spend years waiting in vain to obtain needed rental housing assistance." With few places to turn, residents' fears about displacement from project-based Section 8 housing are magnified.

Figure 4:
Number of Project-Based Section 8 Units Expiring by 2004

NEW ENGLAND
Maine	3,772 (43.5%)
New Hampshire	3,825 (59%)
Vermont	1,337 (38.4%)
Massachusetts	34,025 (56.2%)
Rhode Island	9,781 (59.3%)
Connecticut	14,025 (58.1%)
NEW YORK/NEW JERSEY
New York	80,955 (61.8%)
New Jersey	23,144 (44.1%)
MID ATLANTIC
Pennsylvania	40,154 (60.8%)
Delaware	1,973 (38.6%)
Maryland	22,622 (75.3%)
District of Columbia	9,931 (88.7%)
West Virginia	9,871 (87.5%)
Virginia	19,293 (56.1%)
SOUTHEAST
North Carolina	21,556 (75%)
South Carolina	16,387 (82.7%)
Georgia	26,007 (81.9%)
Florida	35,173 (72.5%)
Alabama	15,071 (79.2%)
Mississippi	15,576 (82.2%)
Tennessee	25,463 (75%)
Kentucky	21,808 (88%)
MIDWEST
Illinois	41,437 (61.7%)
Indiana	29,432 (86.5%)
Ohio	68,600 (83.5%)
Michigan	34,851 (54%)
Minnesota	16,287 (49.6%)
Wisconsin	18,861 (54.3%)
SOUTHWEST
Louisiana	15,125 (77.2%)
Arkansas	9,538 (76.2%)
Oklahoma	9,837 (70.7%)
Texas	46,309 (74.8%)
New Mexico	4,922 (82.8%)
GREAT PLAINS
Iowa	12,935 (84.3%)
Missouri	23,385 (80.3%)
Nebraska	6,373 (83.9%)
Kansas	9,997 (77.9%)
ROCKY MOUNTAIN
Colorado	13,584 (75.1%)
Montana	4,272 (93.2%)
North Dakota	3,732 (93%)
South Dakota	3,541 (54.2%)
Utah	3,688 (86.9%)
Wyoming	2,189 (88.8%)
PACIFIC
California	89,350 (78%)
Nevada	3,293 (72.2%)
Arizona	7,409 (75.1%)
Hawaii	3,181 (80.1%)
NORTHWEST
Washington	15,660 (82.1%)
Oregon	5,794 (51.3%)
Idaho	1,963 (45.8%)
Alaska	1,235 (74.6%)

Using the latest data, HUD research shows that the growing wave of project-based Section 8 expirations is cause for concern:

• Expirations lead to the loss of project-based Section 8 housing. When contracts expire, either HUD or the owner can choose not to renew. While most properties remain in the project-based Section 8 program, the latest evidence shows that about 10 percent "opt out" and convert to unsubsidized housing. Of over 900 contracts set to expire in the coming months, about 110 have indicated they are likely to opt out. Overall, the problem has reached substantial proportions-each month, more than a thousand project-based Section 8 units opt out. Since October 1996, more than 30,000 subsidized units in over 500 project-based Section 8 properties have left the program. Because project-based Section 8 contracts often cover only a portion of the total units in a property, this total does not include more than 20,000 additional subsidized and unsubsidized units in these same properties.

• Opt-outs can place residents at risk. HUD protects residents in properties that opt out by providing vouchers, which can be used successfully by residents in most areas to remain in their current units or move to other housing. Yet while vouchers are a critical tool, they do not effectively protect residents everywhere. The maximum subsidy provided by a voucher is based on an area payment standard called the "fair market rent," a name which can be misleading. In higher rent neighborhoods where opt-outs are more likely, the "fair market rent" can be lower than the true market rent for the unit where the resident lives. In these cases, residents using vouchers are faced with paying more than the standard "affordable" level (30 percent of their income). These increases come even though residents remain in the very same unit. Hefty hikes in their portion of the rent can force residents to move and compete for a dwindling supply of affordable housing. A recent case in Iowa highlights the dilemma: an opt-out pushed up the average portion of rent paid by elderly residents by two-thirds. In a rural area with little rental housing, these seniors may be forced to move long distances to find decent affordable housing.

• Opt-outs threaten the best affordable housing. The owners who are most likely to opt out are those whose properties can best compete in the open market and are located in high-rent areas. High rents are a sign that neighborhoods offer what people want. This means opt-outs are likely to claim the best of project-based housing-properties in good condition located in good neighborhoods. The latest data confirm this claim. While 49 percent of all project-based units are located in neighborhoods with rents above 90 percent of area median rent, 79 percent of units in properties whose owners indicate they will opt out are in these same moderate- or high-rent neighborhoods. Even more striking is the data on poverty; while 54 percent of all project-based units are located in neighborhoods with poverty rates below 20 percent, 89 percent of units in properties whose owners indicate they will opt out are in these low-poverty neighborhoods.

• Opt-outs are occurring everywhere. Just as Section 8 housing is located throughout the country, so are the properties that leave the project-based program. The latest data show that opt-outs have occurred in 47 States. Since October of 1996, 4,000 units have opted out in California, 3,500 in Texas, 1,800 in New York, 1,500 in Florida and Pennsylvania, 1,100 in Washington and Ohio, 1,000 in North Carolina, 900 in Massachusetts and Michigan, and 700 in Colorado and Indiana. (See Figure 5.) These totals likely underestimate the ultimate loss of affordable housing in these properties-they reflect only the units covered by Section 8 contracts that have ended, not additional units in the properties that may be covered by Section 8 contracts that have yet to expire.

Despite the challenge presented by the growing wave of contract expirations, it also offers the opportunity to remake the Section 8 program. Each time a contract expires, HUD can reevaluate its commitment of taxpayer money to a property. To ensure the continued success of Section 8 housing, three principles must guide the future of the program. First, HUD must subsidize only good housing. Second, HUD must pay a fair price for the housing. Finally, Congress and HUD must recognize that preservation is not enough-potential displacement of residents and the growing affordable housing crisis demand adjustments and the expansion of Section 8. The remainder of this report discusses these principles and their implications for the program's future.

Figure 5:
Units That Have Left The Section 8 Project-Based Program, 1997 to 1999.

NEW ENGLAND
Maine	0
New Hampshire	305
Vermont	0
Massachusetts	876
Rhode Island	0
Connecticut	563
NEW YORK/NEW JERSEY
New York	1,756
New Jersey	435
MID ATLANTIC
Pennsylvania	1,535
Delaware	0
Maryland	439
District of Columbia	0
West Virginia	8
Virginia	629
SOUTHEAST
North Carolina	990
South Carolina	641
Georgia	289
Florida	1,460
Alabama	45
Mississippi	663
Tennessee	569
Kentucky	164
MIDWEST
Illinois	733
Indiana	447
Ohio	1,109
Michigan	903
Minnesota	411
Wisconsin	557
SOUTHWEST
Louisiana	272
Arkansas	253
Oklahoma	230
Texas	3,509
New Mexico	416
GREAT PLAINS
Iowa	318
Missouri	446
Nebraska	114
Kansas	76
ROCKY MOUNTAIN
Colorado	690
Montana	192
North Dakota	55
South Dakota	98
Utah	72
Wyoming	245
PACIFIC
California	3,986
Nevada	311
Arizona	378
Hawaii	18
NORTHWEST
Washington	1,062
Oregon	396
Idaho	86
Alaska	21

III. Principle 1: Subsidize Only Good Properties

For too many years, HUD betrayed the public trust by mismanaging taxpayer funds. Under the leadership of Secretary Cuomo, however, HUD developed a groundbreaking management reform plan called HUD 2020 and is making the plan real. Four critical innovations in particular will ensure that HUD continues to subsidize good properties while ending subsidies to those owners that don't provide decent housing or are unwilling to play by the rules.

• Separate the good from the bad. While news reports have highlighted the worst of subsidized housing, HUD has always claimed that these few bad apples were spoiling the rest. HUD's monitoring was so poor, however, that the agency couldn't tell the good from the bad. Under HUD 2020, that has changed-this year for the first time in history, the new Real Estate Assessment Center will enable HUD to inspect and score all 44,000 HUD-assisted properties. Already more than 10,000 public housing and Section 8 properties have been inspected since October 1998.

• Take action against the bad properties and bad owners. The new Enforcement Center helps HUD stop subsidizing bad buildings and bad owners. As a result of better enforcement, HUD dramatically increased the number of debarment actions against bad landlords to an average of almost 90 per year in 1997 and 1998 from 30 in 1996-an increase of 200 percent. HUD and the Justice Department recovered nearly $40 million in money owed to HUD by landlords as a result of civil cases and settlements in 1997 and 1998 combined.

  These efforts do more, however, than end the waste of precious resources-they also improve living conditions and neighborhoods for residents. Since October 1996, over 6,000 vouchers have been issued to replace project-based subsidies in HUD-foreclosed properties, with thousands more given to residents where HUD terminated a Section 8 contract due to owner violations. HUD research shows that this approach helps residents because vouchers give them the ability to move from bad buildings and bad neighborhoods to better buildings and better neighborhoods. While 67 percent of properties where HUD terminates a project-based contract are in concentrated poverty neighborhoods-census tracts with poverty rates of 30 percent or higher-only 19 percent of voucher holders end up in concentrated poverty areas.

• Reward the good properties. Confirming the claim that the highly visible properties in poor condition represent a small fraction of all HUD-subsidized housing, inspections performed by the Real Estate Assessment Center show that more than 80 percent of project-based Section 8 housing is in good or excellent condition. Previously, without the ability to tell the good apples from the bad, HUD monitored all properties as if they were the same. By using the REAC scoring to shift its oversight and monitoring away from these good buildings and onto the poor performers, however, HUD can do more with less-decreasing the burden on its staff and encouraging owners of good buildings to remain in the Section 8 program. One example of this type of innovation is the inspections themselves-if a property is maintained in good condition, HUD can inspect it less often. Those in poor condition, on the other hand, will get closer scrutiny.

• Better manage Section 8 contracts. As envisioned in the HUD 2020 Management Reform Plan, HUD must find partners to effectively oversee and monitor project-based Section 8 contracts. HUD is already doing this effectively with about 20 percent of its 25,000 Section 8 contracts. Relying on these partners to administer the remaining contracts will improve the quality of the housing while allowing HUD staff to focus on other critical tasks.