HOMEfires - Vol. 3 No. 10, November 2001

Q: For the purpose of determining the rent applicable to a HOME unit, are enhanced Section 8 vouchers, sometimes referred to as "sticky" vouchers, considered project-based rental assistance or tenant-based rental assistance?

A: For the purposes of determining the rent applicable to a HOME unit, enhanced vouchers are considered tenant-based rental assistance.

Any project that is assisted with HOME funds must adhere to the HOME program's statutory rent requirements. The HOME rent requirements were established in Title II, §214 and §215 of the Cranston-Gonzalez National Affordable Housing Act, as amended 1994. Additional explanation is found 24 CFR 92.252 (http://edocket.access.gpo.gov/cfr_2004/aprqtr/24cfr92.252.htm). HOME rents are divided into two categories - High HOME rents and Low HOME rents. High HOME rents are defined as the lesser of Section 8 Fair Market Rents (FMRs) for existing housing OR 30% of the adjusted income of a family whose annual income equals 65% of the median income. Low HOME rents are defined as the following: for properties with five or more HOME units, at least 20% of the HOME units must have rents no greater than 30% of the tenant's monthly adjusted income or 30% of the annual income of a family whose income equals 50% of the median income. An exception is made for units that have federal or state project-based rental subsidy and are occupied by families who have incomes below 50% of area median income and pay no more than 30% of their adjusted income toward rent. In these circumstances, the maximum rent may be the rent allowable under the project-based rental subsidy program.

When HOME funds are used in a project that has project-based rental assistance, the project's underwriting reflects the higher rents that will be charged. Because the project-based subsidy results in greater rent receipts, the amount of HOME subsidy required to make the project financially viable is reduced.

This is not the case for projects that have no project-based assistance, but which may be occupied by families with tenant-based rental assistance. Because tenant-based assistance is portable and does not provide a guaranteed income stream to the project, the underwriting of these projects is based upon rents no higher than the maximum HOME rents. If the Department permitted higher rents to be charged in HOME-assisted units occupied by tenant-based rental assistance recipients, there would be a duplicative subsidy. The HOME program would have provided a capital subsidy to reduce rents to a certain level (High and Low HOME rents), but the owner would be charging rents higher than the HOME rents with the additional amount being paid to the owner from another governmental source. The result would be a publicly funded windfall to the project owner with no additional affordability achieved for the low-income tenant. Enhanced vouchers constitute tenant-based rather than project-based HOME assistance and are treated as such when determining the rent that may be charged in HOME-assisted units.

"Sticky" vouchers are formally known as enhanced vouchers or preservation vouchers. They are Section 8 tenant-based vouchers, subject to appropriations, administered by public housing authorities and available to all income-eligible tenants in the event of an owner or HUD housing conversion action. The Department defines housing conversion actions as owner opt-outs of Section 8 project-based contracts; owner prepayment of a federally assisted mortgage; HUD enforcement actions against an owner; and HUD property disposition activities. "Sticky" vouchers gained permanent statutory authority through Title V, §538 of the Department of Housing and Urban Development FY 2000 Appropriations Act that amends Section 8 of National Affordable Housing Act of 1937. Section 538 of the HUD FY 2000 Appropriations Act reads:

(Sec. 538) Amends Section 8 of the United States Housing Act of 1937 to provide for enhanced voucher assistance for certain families in projects where mortgages have been prepaid, mortgage insurance contracts have been terminated; Section 8 rental assistance contracts have expired or been terminated, or the transaction under which the project is preserved as affordable housing results in tenants being eligible for such assistance.

Amends the Multifamily Assisted Housing Reform and Affordability Act of 1997 to provide for Section 8 enhanced voucher assistance for certain tenants in housing where Section 8 assistance is not renewed.

Amends the Low-Income Housing Preservation and Resident Homeownership Act of 1990 to provide for Section 8 enhanced voucher assistance for certain tenants in housing where mortgages have been prepaid or insurance contracts have been terminated.

All provisions of this amendment are contained in a new subsection of the National Affordable Housing Act of 1937, as amended, Section 8(t). Section 8(t) clearly states that enhanced voucher assistance is available to families and tenants in projects that meet the criteria of being affected by an owner or HUD conversion action. While enhanced vouchers are issued to specific projects, they are portable and tenants may choose to use them in other units. Consequently, units occupied by tenants with enhanced vouchers do not qualify for the project-based assistance provisions with respect to low HOME rents.