Nearly 46,000 Units of Project-Based Section 8 Housing Lost Since 2005

A study prepared for HUD titled Opting In, Opting Out a Decade Later found that nearly 46,000 housing units subsidized by project-based Section 8 rental contracts were lost between 2005 and 2014 because their owners opted out of the program. Properties more likely to be lost to the assisted stock were those designated for family occupancy, built before 1975, owned by for-profit organizations, with lowers rents, or located in strong housing markets.

The study, conducted by the Shimberg Center for Housing Studies of the University of Florida, shows the loss of 45,763 affordable housing units between 2005 and 2014 from owners opting out of Section 8 rental contract renewals. This figure is 3% of units with a rental contract in 2005. An additional 13,156 units were in properties where the owner prepaid a below-market interest rate (BMIR) mortgage. As shown in the table below, opt-outs or prepayments of BMIR mortgages were more likely among properties designated for family occupancy, built before 1975, owned by for-profits, with low rent-to-FMR ratios, and located in strong housing markets. 

Source: Opting In, Opting Out, a Decade Later

Section 8 properties that were also part of the Section 202 Housing for the Elderly Direct Loan program were the most stable. Ninety-six percent of Section 202 Direct Loan properties opted in with a renewed rental assistance contract during the study period. However, the Section 202 Direct Loan was terminated for half of these properties when they were refinanced through other housing programs. Prepayment of a Section 202 Direct Loan requires an extension of affordability requirements for 20 years beyond the loan’s original maturity date. The small number of Section 202 properties that opted out of Section 8 were more likely to be serving those with chronic mental illness or developmental disabilities.

The study, which updates a 2006 report, draws on HUD data for a baseline dataset from 2005 with records for more than 18,000 properties having nearly 1.5 million housing units. The properties included those with active project-based rental assistance contracts and Section 236 and Section 221(d)(3) Below Market Interest Rate (BMIR) mortgages. The data also included the location, ownership type, and tenant, physical, and financial characteristics of each property. Each property was then categorized based on its status in 2014 as opt-in (owner made an active decision to renew a rental contract), opt-out/prepay (owner made an active decision to not renew a contract or pay off a BMIR mortgage), foreclosure/abatement (HUD took action to foreclose on an insured mortgage or terminate assistance), no choice (owner had no option to opt out), active (owner of property kept an active BMIR mortgage), or other (mixed outcome, such as an owner who opted out of Section 8, but kept an active BMIR mortgage).

There were fewer opts-outs reported in the 2015 study than the 2006 study. Potential reasons for the slow-down of opt-outs include:

• a more stable Section 8 housing stock,
• the volatility of the housing market after 2007 discouraged owners from making changes to their properties’ status,
• the affordable housing preservation infrastructure improved, including state allocations of the Low Income Housing Tax Credit for preservation,
• the existence of preservation databases to alert stakeholders of properties at risk of opting out, and
• a variety of state and local initiatives.

Opting In, Opting Out, a Decade Later is at http://www.huduser.org/portal/publications/mdrt/opting_in_opting_out.html

To visit NLIHC’s Preservation Database, go to http://nlihc.org/library/preservation.