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entitled 'Rental Housing Assistance: Policy Decisions and Market 
Factors Explain Changes in the Costs of the Section of the Section 8 
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Report to the Chairman, Subcommittee on Housing and Community 
Opportunity, Committee on Financial Services, House of Representatives: 

April 2006: 

Rental Housing Assistance: 

Policy Decisions and Market Factors Explain Changes in the Costs of the 
Section 8 Programs: 

GAO-06-405: 

GAO Highlights: 

Highlights of GAO-06-405, a report to the Chairman, Subcommittee on 
Housing and Community Opportunity, Committee on Financial Services, 
House of Representatives. 

Why GAO Did This Study: 

Annual appropriations for the Department of Housing and Urban 
Development’s (HUD) Section 8 programs—a key federal tool for 
subsidizing rents of low-income households—have increased sharply in 
recent years, raising concerns about their cost. Section 8 pays the 
difference between a unit’s rent and the household’s payment (generally 
30 percent of adjusted income). Section 8 includes a voucher program 
administered by public housing agencies (PHA) that allows eligible 
households to use vouchers to rent units in the private market and a 
project-based program administered by property owners who receive 
subsidies to rent specific units to eligible households. In both 
programs, contracts between HUD and the administrators specify the 
duration and amount of the subsidy. 

GAO assessed Section 8 trends from fiscal years 1998 through 2004 and 
examined (1) annual budget authority and outlays for each program; (2) 
factors that have affected outlays; and (3) the estimated impact of 
factors, such as market rents, on the average rental subsidy per 
voucher household. 

What GAO Found: 

From 1998 through 2004, annual budget authority for Section 8 grew from 
$9.4 billion to $19.3 billion (105 percent, or 82 percent after 
adjusting for inflation), while outlays grew from $14.8 billion to 
$22.2 billion (50 percent, or 33 percent after inflation adjustment). 
The steep rise in budget authority was partly due to the additional 
funding needed to cover the cost of renewing long-term contracts. GAO 
estimates that voucher outlays grew by 93 percent from 1998 through 
2004 (71 percent after inflation adjustment), accounting for almost all 
of the growth in total Section 8 outlays. Estimated project-based 
outlays grew by 6 percent (and actually declined after inflation 
adjustment) over this period. 

GAO estimates that about 43 percent of the growth in voucher outlays 
from 1998 through 2004 stemmed from policy decisions that increased the 
number (from 1.6 million to 2.1 million) and use of vouchers, while 
over half of this growth was due to an increase in the average rental 
subsidy per household. For the project-based program, a modest increase 
in the average rental subsidy per household drove the growth in outlays 
but was partly offset by a reduction of 62,000 in the number of units. 

On the basis of statistical analysis of cost data, GAO estimates that 
growth in the average annual rental subsidy per voucher household from 
1999 through 2004 is primarily explained by changes in market rents 
(about one-half of the growth), PHAs’ decisions to increase the maximum 
subsidized rents (about one-quarter), and lagging growth in assisted 
household incomes (about 16 percent.) Household and neighborhood 
characteristics, while important cost determinants, did not vary enough 
to cause a substantial change in the average rental subsidy per 
household. 

Figure: Annual Budget Authority and Outlays for Section 8, 1998-2004: 

[See PDF for Image] 

[End of Figure] 

[End of Section] 

Contents: 

Letter: 

Results in Brief: 

Background: 

Increases in the Number of Vouchers Drove Growth in the Size of Section 
8 from 1998 through 2004: 

Section 8 New Budget Authority Increased at a Faster Rate than Outlays 
from 1998 through 2004: 

Policy Decisions and Market Factors Drove Increases in Section 8 
Outlays, but HUD and Congress Have Acted to Limit Further Growth: 

Policy Changes and Trends in Market Rents and Household Incomes 
Increased the Average Subsidy per Voucher Household: 

Observations: 

Agency Comments: 

Appendixes: 

Appendix I: Objectives, Scope, and Methodology: 

Appendix II: Information on the Section 8 Moderate Rehabilitation 
Program: 

Appendix III: Description of the Section 8 Rental Housing Assistance 
Programs: 

Appendix IV: Data on Budgetary Costs for the Voucher and Project-Based 
Programs: 

Appendix V: Description of the Econometric Analysis of Rental Subsidy 
Costs per Household for the Voucher Program: 

Appendix VI: Trends in Rents and Household Payments for the Voucher and 
Project-Based Programs: 

Annual Increases in Voucher Rents and Fair Market Rents Were Similar: 

Appendix VII: Comments from the Department of Housing and Urban 
Development: 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

Tables: 

Table 1: Number of New Vouchers Awarded by Major Voucher Type, 1998-
2004: 

Table 2: Estimated Impact of Policy Decisions and Other Factors on the 
Change in Outlays for the Voucher and Project-Based Programs from 1998 
through 2004: 

Table 3: Number of Authorized Units under the Section 8 Moderate 
Rehabilitation Program, 1998-2004: 

Table 4: Estimated Outlays for the Section 8 Moderate Rehabilitation 
Program, 1998-2004: 

Table 5: HUD Programs with Section 8 Rental Assistance, in Order of 
Year Authorized: 

Table 6: Total Available Budget Authority in Nominal Dollars, 1998-
2004: 

Table 7: Total Available Budget Authority in Inflation-Adjusted 
Dollars, 1998-2004: 

Table 8: Outlays for the Section 8 Programs, 1998-2004: 

Table 9: Outlays for the Voucher and Project-Based Programs, 1998-2004: 

Table 10: Estimated Impact of Policy Decisions and Other Factors on the 
Change in Outlays for the Voucher and Project-Based Programs in 
Inflation-Adjusted Dollars from 1998 through 2004: 

Table 11: Average Values of Voucher Household Groups from 1999 through 
2004: 

Table 12: Regression Results: 

Table 13: Averages for Selected Variables, 1998-2004: 

Figures: 

Figure 1: About 59 Percent of Very-Low Income Renter Households Did Not 
Receive Housing Assistance and Had Housing Needs in 2003: 

Figure 2: The Total Number of Authorized Section 8 Vouchers and Units 
Increased from 1998 through 2004: 

Figure 3: New Budget Authority for Section 8 More than Doubled from 
1998 through 2004, while Outlays Grew by 50 Percent: 

Figure 4: Renewals of Expiring Vouchers and Project-Based Units Have 
Grown Significantly since 1998: 

Figure 5: Total Available Budget Authority for Section 8 Grew, although 
Carryover Declined from 1998 through 2004: 

Figure 6: Estimated Outlays Grew Faster for Vouchers than for the 
Project-Based Program from 1998 through 2004: 

Figure 7: Factors Affecting Section 8 Outlays: 

Figure 8: The Average Annual Rental Subsidy per Household Grew by 42 
Percent for Vouchers and 12 Percent for the Project-Based Program from 
1998 through 2004: 

Figure 9: Growth in Market Rents Had a Significant Impact on the 
Estimated Average Rental Subsidy per Household: 

Figure 10: Estimated Growth in the Average Rental Subsidy per Household 
Would Have Been Less Had the Average Payment Standard Remained at the 
1999 Level: 

Figure 11: Had Household Income Grown as Fast as Market Rents, Growth 
in the Estimated Average Rental Subsidy per Household Would Have Been 
Less: 

Figure 12: Average Annual Rents for the Voucher and Project-Based 
Programs, 1998-2004: 

Figure 13: Average Annual Household Payment for the Voucher and 
Project- Based Programs, 1998-2004: 

Figure 14: Average Voucher Rents and Fair Market Rents, 1999-2004: 

Abbreviations: 

AMI: area median income: 

CBO: Congressional Budget Office: 

CRS: Congressional Research Service: 

FMR: fair market rent: 

GDP: gross domestic product: 

HAP: housing assistance payment: 

HUD: U.S. Department of Housing and Urban Development: 

HUDCAPS: HUD Central Accounting and Program System: 

Mod Rehab: Section 8 Moderate Rehabilitation: 

PAS: Program Accounting System: 

PHA: public housing agency: 

PIC: Public and Indian Housing Information System: 

QCT: qualified census tract: 

TRACS: Tenant Rental Certification System: 

Letter: 
April 28, 2006: 

The Honorable Robert W. Ney: 
Chairman: 
Subcommittee on Housing and Community Opportunity: 
Committee on Financial Services: 
House of Representatives: 

Dear Mr. Chairman: 

Annual appropriations for the Department of Housing and Urban 
Development's (HUD) Section 8 rental housing programs have grown 
significantly in recent years, climbing to nearly $21 billion in 
2006.[Footnote 1] Authorized by the Housing and Community Development 
Act of 1974 (P.L. 93-383), as amended, Section 8 currently comprises 
the Housing Choice Voucher (voucher) and project-based programs. While 
these programs are the federal government's primary tool for making 
rental housing units affordable to low-income households, they are not 
entitlements--that is, not all eligible households receive assistance. 
HUD and Congress have recently supported changes to the voucher program 
designed to limit further growth in appropriations without reducing the 
number of households that receive assistance. However, analysis of 
factors driving the growth in the budgetary costs of Section 8--which 
could assist in such efforts--has been limited, in part because HUD has 
not separately reported budget authority or outlays for each 
program.[Footnote 2] 

The voucher and project-based programs share the common mission of 
making housing affordable to low-income households by paying subsidies 
that make up the difference between a unit's rent and the household's 
payment, which is generally 30 percent of monthly income after 
adjustments. Despite their shared goals, the two programs operate 
differently. The voucher program, administered by state and local 
public housing agencies (PHA), provides vouchers that eligible 
households can use to rent houses or apartments in the private market. 
The subsidies in the voucher program are tied to the household, rather 
than to any particular dwelling unit (i.e., they are tenant-based). In 
contrast to vouchers, the project-based program is administered by 
property owners who have agreed to rent specific dwelling units to 
eligible households. The subsidies in the project-based program are 
tied to the rental unit rather than to any specific tenant. Under both 
programs, the program administrators enter into contracts with HUD that 
specify the number of vouchers or units authorized to receive rental 
subsidies and the duration of the subsidy payments. For the voucher 
program, PHAs have flexibility to determine the maximum amount of 
rental subsidy they can pay for assisted households within limits set 
by HUD. For example, HUD establishes "fair market rents" for each 
geographic area, based on actual market rents for standard-quality 
rental units, but PHAs may choose a "payment standard" that is up to 10 
percent lower or higher. 

Each year, Congress appropriates budget authority to cover the cost of 
Section 8 contracts. HUD uses its budget authority to incur obligations 
(e.g., enter into contracts) that result in expenditures, or outlays, 
of federal funds. Unlike budget authority, outlays occur when payments 
are made and thus reflect the programs' actual annual cost of providing 
rental assistance. Originally, Section 8 contracts were written with 5- 
to 40-year terms, and Congress appropriated all of the budget authority 
needed to cover the projected costs of these contracts up front. Under 
this approach, further appropriations were generally not needed; HUD 
could make outlays to provide the subsidy in each year, using the 
budget authority already appropriated, until the contract expired. 
However, for expiring contracts that are renewed, appropriations of new 
budget authority are needed to cover the renewed contract term. Today, 
contracts are renewed and funded in 1-year increments for vouchers and 
either 1-or 5-year increments for the project-based program. 

In response to your request, this report provides information on trends 
in the size and the cost of the Section 8 programs from 1998 through 
2004 (the last year for which data were available at the time of our 
analysis). Specifically, the report discusses (1) the annual numbers of 
vouchers in the voucher program and units in the project-based program, 
(2) the annual new budget authority and outlays for each program, and 
(3) the factors that have affected outlays.[Footnote 3] In addition, 
for the voucher program--the larger of the Section 8 programs and the 
focus of recent efforts to limit costs--the report discusses factors, 
such as changes in market rents, that have affected the annual average 
rental subsidy cost per household. 

To determine the annual number of vouchers and project-based units and 
the annual amounts of new budget authority and outlays for each 
program, we obtained and analyzed data from HUD's budget office, annual 
budget requests and other budget documents, and audited financial 
statements. HUD's budget office was not able to report data on budget 
authority and outlays for the voucher and project-based programs 
separately. We estimated outlays using data from HUD's accounting 
systems, which showed the rental assistance payments paid to PHAs and 
property owners under each program from 1998 through 2004. Our report 
generally presents budget authority and outlay amounts in nominal 
dollars; amounts adjusted for inflation are shown in appendix IV. To 
identify the factors that have affected outlays, we analyzed data on 
rents and household incomes from HUD's administrative databases and 
reviewed reports by HUD, Congressional Budget Office (CBO), and 
Congressional Research Service (CRS). To assess the impact of different 
factors on the average rental subsidy cost per household for the 
voucher program, we developed a statistical model using data from HUD 
and the Census Bureau. Our model allowed us to estimate the effect of 
each of several variables--market rents, household incomes, household 
and neighborhood characteristics, and a measure of the relationship 
between program policies and market rents--on the average rental 
subsidy per voucher household while controlling for the effects of 
other variables. Because data on certain variables used in our 
statistical model were not available for 1998, our analysis of average 
rental subsidy costs in the voucher program covers the period from 1999 
through 2004. We assessed the reliability of the data from HUD's 
accounting systems and administrative databases by reviewing related 
documentation and interviewing agency officials who work with the 
systems. In addition, we performed internal checks to determine the 
extent to which the data fields were populated and the reasonableness 
of the values contained in the fields. We concluded that the data were 
sufficiently reliable for the purposes of this report. To address all 
of the objectives, we interviewed officials from HUD's Offices of the 
Chief Financial Officer, Public and Indian Housing, Housing, and Policy 
Development and Research. We also met with CBO and CRS officials and 
representatives of various industry and research groups. We conducted 
our work in Washington, D.C., and Chicago, Illinois, from April 2005 
through March 2006 in accordance with generally accepted government 
auditing standards. Appendix I provides additional details on our scope 
and methodology. 

Results in Brief: 

Overall, the size of the Section 8 program--that is, the combined 
number of authorized vouchers and project-based units--increased 
annually, from 2.93 million in 1998 to 3.36 million in 2004, or 15 
percent during the period. This growth resulted exclusively from the 
authorization of additional vouchers; the number of project-based units 
actually declined. Specifically, the number of authorized vouchers rose 
from about 1.60 million in 1998 to 2.09 million in 2004, a 31 percent 
increase. At the same time, the number of authorized project-based 
units fell from 1.33 million to 1.27 million, a 5 percent decrease, 
primarily because property owners and HUD decided not to renew some 
project-based contracts. HUD generally provided vouchers to households 
in project-based units for which contracts were not renewed so that 
these households could continue receiving rental assistance. These 
"tenant protection" vouchers, including those provided to households no 
longer receiving assistance under other HUD programs, accounted for 42 
percent of the increase in the number of vouchers from 1998 through 
2004. 

Both annual new budget authority and outlays for the Section 8 programs 
increased significantly from 1998 through 2004. Appropriations of new 
budget authority grew from $9.4 billion to $19.3 billion (from $10.6 
billion to $19.3 billion after adjusting for inflation). This new 
budget authority was primarily needed to renew expiring contracts 
covering 818,095 vouchers and 373,310 project-based units. Annual 
outlays rose from $14.8 billion to $22.2 billion (from $16.8 billion to 
$22.4 billion after adjusting for inflation). On an annual basis, total 
Section 8 outlays typically exceeded new budget authority appropriated 
during this period because HUD was making rental assistance payments 
under long-term contracts for which Congress had appropriated budget 
authority in previous years. Although HUD did not separately track 
outlays for the voucher and project-based programs during this period, 
we estimate that outlays for vouchers increased from $7.5 billion in 
1998 to $14.5 billion in 2004, and accounted for nearly all of the 
growth in total Section 8 outlays. Outlays for the project-based 
program rose from an estimated $7.3 billion to $7.7 billion. 

A number of policy decisions and market factors contributed to the 
growth in outlays for the voucher and project-based programs from 1998 
through 2004. These include increases in the total number of assisted 
households, the average rental subsidy cost per household, and other 
program expenses. Specifically, about 43 percent of the growth in 
voucher outlays was the result of policy decisions that increased the 
number of assisted households--for example, the decision to offer 
tenant protection vouchers--while over half was the result of an 
increase in the average annual rental subsidy cost per voucher 
household from $4,420 to $6,262 (a 42 percent increase, or 25 percent 
after adjusting for inflation). In contrast, most of the growth in 
project-based outlays resulted from a 12-percent increase in the 
average annual rental subsidy per household ($5,305 to $5,948)--an 
increase that was partially offset by the declining number of project- 
based units. Congress and HUD have taken steps to limit further growth 
in the budgetary costs of the Section 8 programs. For example, in 2003, 
Congress authorized changes to the method for calculating the amounts 
of voucher funding in order to slow the growth in both new budget 
authority and outlays. In addition, for the project-based program, 
Congress and HUD continued steps begun in 1997 to reduce above-market 
rents at some properties and to limit annual rent increases. 

On the basis of our statistical analysis of cost data for the voucher 
program, we found that three factors primarily accounted for the growth 
in the average annual rental subsidy per voucher household from 1999 
through 2004:[Footnote 4] 

* Over one-half of the total increase was explained by changes in 
market rents. 

* About one-quarter of the total increase was due to overall higher 
payment standards--that is, by PHAs' exercising their flexibility to 
increase the maximum amount of rental subsidy they can pay for assisted 
households. 

* About 16 percent of the increase was due to the fact that the incomes 
of assisted households grew modestly during this period and did not 
keep up with increases in market rents. 

We also found that although household and neighborhood characteristics 
were important determinants of per household rental subsidies, on 
average, they did not vary enough from 1999 through 2004 to cause a 
substantial change in the average per household rental subsidy. 

In written comments on a draft of this report, HUD suggested that the 
report include a description of its proposed legislation for reforming 
the voucher program and provide additional explanations of the 
differences between the average per household costs for the project- 
based and voucher programs. We revised our final report in response to 
HUD's comments where appropriate. 

Background: 

Prior to the 1970s, the federal government made housing affordable to 
low-and moderate-income households by subsidizing the production of 
privately and government-owned properties with below-market interest 
rate mortgages, direct loans, and other development subsidies. Under 
these production programs, the rent subsidies were project based, and 
tenants received assistance only while living in the subsidized units. 
In the early 1970s, concerns were raised about the effectiveness of 
these programs: Many moderate-income tenants benefited from federal 
assistance, while lower-income families did not; federal costs for 
producing the housing exceeded the private sector costs to produce the 
same services; and allegations of waste surfaced. Interest in a more 
cost-effective approach led Congress to explore options for using 
existing housing to shelter low-income tenants. Section 8 of the 
Housing and Community Development Act of 1974, as amended, authorized 
programs that reflected both approaches--a tenant-based rental 
certificate program (now called the voucher program) for use in 
existing housing and a project-based program. The project-based program 
comprises multiple subprograms, including Section 8 New Construction/ 
Substantial Rehabilitation, Loan Management Set-Aside, and Property 
Disposition. Appendix III contains detailed descriptions of these 
subprograms. 

The voucher program provides vouchers to eligible households to rent 
houses or apartments in the private market from landlords who are 
willing to accept the vouchers. Voucher holders are responsible for 
finding suitable housing that complies with HUD's housing quality 
standards. The voucher program pays the difference between the lesser 
of the unit's gross rent or a local "payment standard," and the 
household's payment, which is generally 30 percent of monthly income, 
after certain adjustments.[Footnote 5] To be eligible to apply for 
assistance, households must have very low incomes--less than or equal 
to 50 percent of area median income (AMI) as determined by HUD. Under 
the provisions of the Quality Housing and Work Responsibility Act of 
1998 (P.L. 105-276), at least 75 percent of new participants in the 
voucher program must be households with extremely low incomes--at or 
below 30 percent of AMI.[Footnote 6] Households already participating 
in the voucher program remain eligible for assistance as long as their 
incomes do not rise above 80 percent of AMI. The voucher program is 
administered by over 2,500 state and local PHAs that are responsible 
for inspecting dwelling units, ensuring that rents are reasonable, 
determining households' eligibility, calculating households' payments, 
and making payments to landlords. HUD provides funding to PHAs for 
administrative expenses as well as rental subsidies. 

The project-based program subsidizes rents at properties whose owners 
have entered into contracts with HUD to make rents affordable to low- 
income households. Often these properties were financed with mortgages 
insured or subsidized by HUD or with bonds issued by state and local 
housing finance agencies. Property owners and managers are responsible 
for administering the program at about 22,000 properties nationwide. 
The project-based program operates much like the voucher program, 
paying the difference between a HUD-approved unit rent and the 
household's payment, which is generally equal to 30 percent of adjusted 
monthly income.[Footnote 7] In general, only households with low 
incomes (i.e., at or below 80 percent of AMI) are eligible for 
assistance, and since 1998 at least 40 percent of new residents must 
have extremely low incomes. Private property owners and managers have 
requirements similar to those for PHAs for administering the project- 
based program--they must ensure that households meet program 
eligibility requirements and must calculate households' payments. HUD 
pays rent subsidies directly to the property owners but does not pay 
them a separate administrative fee, as the owners' administrative costs 
are reflected in the HUD-approved rents. However, because of limited 
staff resources and the large number of project-based Section 8 
contracts, HUD pays contract administrators (state and local PHAs) 
administrative fees to oversee most of the contracts, a task that 
requires processing monthly payment vouchers, reviewing property 
owners' tenant information files, and addressing health and safety 
issues. 

Each year, Congress appropriates budget authority to cover the costs of 
new Section 8 contracts, renewals of expiring contracts, amendments to 
existing project-based contracts, and administrative fees.[Footnote 8] 
For the period covered by our review (1998 through 2004), Congress 
appropriated funds for the Section 8 programs in HUD's Housing 
Certificate Fund account.[Footnote 9] Over time, Congress has changed 
the way it funds the Section 8 programs. From 1974 to 1983, Congress 
made large up-front appropriations to cover the projected costs of 
multiyear Section 8 contracts. Initially, voucher contracts were 
written for 5 years and were renewable, at HUD's discretion, for up to 
15 years, while the terms for project-based contracts ranged from 15 to 
40 years. When these initial contracts began to expire in 1989, HUD 
required new budget authority to renew them. Owing to budget 
constraints, Congress funded Section 8 contracts with amounts that led 
to shorter contract terms. HUD initially renewed expiring contracts 
generally for 5-year terms but starting in the mid-1990s switched to 1- 
year terms for the voucher program and either 1-or 5-year terms for the 
project-based program. 

The Section 8 programs are not entitlements, and as a result, the 
amount of budget authority HUD requests and Congress provides through 
the annual appropriations process limits the number of households that 
Section 8 can assist. Historically, appropriations for the Section 8 
programs (as well as for other federal housing programs) have not been 
sufficient to assist all households that HUD has identified as having 
housing needs--that is, households with very low incomes that pay more 
than 30 percent of their income for housing, live in substandard 
housing, or both. According to HUD data for calendar year 2003, Section 
8 and other federal housing programs assisted an estimated 4.3 million 
households, or 27 percent of all renter households with very low 
incomes (see fig. 1).[Footnote 10] HUD estimated that over 9 million 
very low income households (about 59 percent) did not receive 
assistance and had housing needs. Of these 9 million households with 
housing needs, over 5 million had what HUD terms "worst case" needs-- 
that is, they paid over half of their income in rent, lived in severely 
substandard housing, or both. 

Figure 1: About 59 Percent of Very-Low Income Renter Households Did Not 
Receive Housing Assistance and Had Housing Needs in 2003: 

[See PDF for image] 

Note: Total = 15.7 million households that rented and had very low 
incomes. 

[End of figure] 

Increases in the Number of Vouchers Drove Growth in the Size of Section 
8 from 1998 through 2004: 

The combined number of authorized vouchers and project-based units grew 
from about 2.93 million to 3.36 million from 1998 through 2004--an 
overall increase of about 15 percent and an average annual increase of 
about 2 percent (see fig. 2). Most of this increase occurred from 1998 
to 2001, when about 327,000 vouchers were added. However, as figure 2 
shows, this overall trend masked a difference in the trends for the 
individual programs: The number of vouchers grew by 31 percent during 
this period, while the number of project-based units declined by 5 
percent. 

Figure 2: The Total Number of Authorized Section 8 Vouchers and Units 
Increased from 1998 through 2004: 

[See PDF for image] 

Note: Totals may not add because of rounding. 

[End of figure] 

It is important to note that at any given time the actual number of 
households assisted with Section 8 programs is likely to be less than 
the number of authorized vouchers and project-based units, because some 
authorized vouchers and units may not be in use. For example, vouchers 
may go unused because households may not be able to find units that 
meet the program's affordability requirements and quality standards. 
(As discussed subsequently in this report, the extent to which 
authorized vouchers are actually used to rent units--and thus incur 
subsidy costs--is called the voucher utilization rate.) Project-based 
units may not be in use during the period when landlords are seeking 
new occupants for units that have been vacated. 

The Number of Vouchers Increased by 31 Percent: 

From 1998 through 2004, the number of authorized vouchers grew from 
about 1.60 million to almost 2.09 million, an increase of 490,944 
vouchers (see fig. 2). This increase represents an average annual 
growth rate of almost 5 percent. The new vouchers were composed of both 
"incremental vouchers" and tenant protection vouchers. Incremental 
vouchers are those that resulted from Congress' decision to expand the 
program to serve more households. Notices published in the Federal 
Register and HUD data indicate that the agency awarded 276,981 
incremental vouchers and 205,853 tenant protection vouchers from 1998 
through 2004 (see table 1). 

Incremental vouchers consist of three major types: fair share, welfare- 
to-work, and special purpose. Fair share vouchers are those that HUD 
allocates to PHAs on a competitive basis using a formula that accounts 
for poverty rates, renter populations, vacancies, overcrowding, and 
other measures, in each county and independent city throughout the 
country. Welfare-to-work vouchers are designated for households for 
which a lack of stable, affordable housing is a barrier to employment 
and that are making the transition to economic self- 
sufficiency.[Footnote 11] Finally, special purpose vouchers include 
those designated for a variety of special needs populations, such as 
persons with disabilities. Fair share vouchers accounted for about 56 
percent of the total, while welfare-to-work and special purpose 
vouchers represented 18 percent and 26 percent, respectively. 

From 1998 through 2002, Congress provided new funding each year for a 
large number of incremental vouchers to help address the unmet housing 
needs of very low-income households, and fair share vouchers were the 
key type of incremental vouchers used to increase the number of 
assisted households. Starting in 2003, Congress provided no new funding 
for fair share vouchers, but did provide new funding for a smaller 
number of special purpose vouchers. By 2004, however, no new funding 
was provided for any type of incremental voucher. 

Unlike incremental vouchers, tenant protection vouchers do not add to 
the total number of authorized units under Section 8 (and other HUD 
programs for which they are used) because they replace one form of HUD 
assistance with another. Tenant protection vouchers are offered to 
eligible households that had received housing assistance under various 
HUD programs (including the project-based program, certain HUD mortgage 
insurance programs, and public housing) before the assistance was 
terminated. As part of its annual budget request, HUD estimates the 
number of tenant protection vouchers it will need and the amount of 
funding required for these vouchers. As table 1 shows, the number of 
tenant protection vouchers awarded from 1998 through 2004 remained 
relatively stable, from a low of 22,839 in 2002 to a high of 36,000 in 
2001. 

Table 1: Number of New Vouchers Awarded by Major Voucher Type, 1998- 
2004: 

Year: Voucher type: Incremental; 
Year: 1998: 32,358; 
Year: 1999: 52,540; 
Year: 2000: 76,934; 
Year: 2001: 90,493; 
Year: 2002: 22,856; 
Year: 2003: 1,800; 
Year: 2004: 0; 
Year: Total: 276,981. 

Year: Voucher type: Fair share; 
Year: 1998: 0; 
Year: 1999: 0; 
Year: 2000: 60,801; 
Year: 2001: 78,475; 
Year: 2002: 16,460; 
Year: 2003: 0; 
Year: 2004: 0; 
Year: Total: 155,736. 

Year: Voucher type: Welfare-to-work; 
Year: 1998: 0; 
Year: 1999: 50,000; 
Year: 2000: 0; 
Year: 2001: 0; 
Year: 2002: 0; 
Year: 2003: 0; 
Year: 2004: 0; 
Year: Total: 50,000. 

Year: Voucher type: Special purpose[A]; 
Year: 1998: 32,358; 
Year: 1999: 2,540; 
Year: 2000: 16,133; 
Year: 2001: 12,018; 
Year: 2002: 6,396; 
Year: 2003: 1,800; 
Year: 2004: 0; 
Year: Total: 71,245. 

Year: Voucher type: Tenant protection; 
Year: 1998: 27,736; 
Year: 1999: 29,158; 
Year: 2000: 29,333; 
Year: 2001: 36,000; 
Year: 2002: 22,839; 
Year: 2003: 26,787; 
Year: 2004: 34,000; 
Year: Total: 205,853. 

Year: Voucher type: Subtotal; 
Year: 1998: [Empty]; 
Year: 1999: [Empty]; 
Year: 2000: [Empty]; 
Year: 2001: [Empty]; 
Year: 2002: [Empty]; 
Year: 2003: [Empty]; 
Year: 2004: [Empty]; 
Year: Total: 482,834. 

Year: Voucher type: Unknown[B]; 
Year: 1998: [Empty]; 
Year: 1999: [Empty]; 
Year: 2000: [Empty]; 
Year: 2001: [Empty]; 
Year: 2002: [Empty]; 
Year: 2003: [Empty]; 
Year: 2004: [Empty]; 
Year: Total: 8,110. 

Year: Voucher type: Total; 
Year: 1998: 60,094; 
Year: 1999: 81,698; 
Year: 2000: 106,267; 
Year: 2001: 126,493; 
Year: 2002: 45,695; 
Year: 2003: 28,587; 
Year: 2004: 34,000; 
Year: Total: 490,944. 

Source: GAO analysis of HUD data. 

[A] Special purpose vouchers include Mainstream vouchers, which are 
targeted to persons with disabilities, and other smaller voucher 
subprograms. 

[B] For 8,110 vouchers, or about 2 percent of the total, data 
indicating voucher type were not available. 

[End of table] 

The Number of Project-Based Units Declined by 5 Percent: 

The number of authorized project-based units fell from 1.33 million to 
1.27 million, a decline of approximately 62,000 units (see fig. 2). 
This represented an average annual decrease of less than 1 percent. The 
number of project-based Section 8 units declined primarily because 
either property owners or HUD decided not to renew Section 8 contracts. 
Owners may choose not to renew their contracts and to opt out of the 
program for a variety of reasons, including plans to convert the 
properties to market-rate rental units. HUD may decide not to renew 
some contracts if property owners have not complied with program 
requirements, such as maintaining the property in decent, safe, and 
sanitary condition. 

If a property owner or HUD decides not to renew a project-based Section 
8 contract, the property is no longer required to comply with program 
rules, including affordability requirements. To protect Section 8 
households from rent increases that may result when owners opt out of 
their contracts, HUD provides a special type of tenant protection 
voucher known as an enhanced voucher. Enhanced vouchers are designed to 
ensure that tenants can afford to remain in the properties that are no 
longer receiving project-based Section 8 assistance--even if the rents 
for these units exceed those for the regular voucher program (such 
vouchers are considered enhanced because they allow these higher 
subsidies). If HUD terminates a project-based Section 8 contract, the 
agency usually provides affected families with regular vouchers to 
allow them to find other housing. The substitution of tenant protection 
vouchers for subsidies previously paid for project-based units has 
helped minimize the net loss of Section 8 units. 

Section 8 New Budget Authority Increased at a Faster Rate than Outlays 
from 1998 through 2004: 

Although both budget authority and outlays for the Section 8 programs 
increased significantly from 1998 through 2004, the rates of growth 
differed. Appropriations of new budget authority grew more than twofold 
during this period (105 percent), partly because HUD needed more budget 
authority to cover the cost of renewing long-term contracts that began 
to expire in 1989. In comparison, from 1998 through 2004 total Section 
8 outlays rose at a slower rate (50 percent). However, this increase 
masks substantial differences in the rates of growth for the individual 
Section 8 programs. Although HUD did not separately track outlays for 
the voucher and project-based programs during this period, we estimate 
that outlays increased by 93 percent for the voucher program and by 6 
percent for the project-based program. 

Renewal of an Increasing Number of Expiring Contracts Contributed to 
Much of the Growth in Budget Authority: 

Appropriations of new budget authority for Section 8 grew from $9.4 
billion in 1998 to $19.3 billion in 2004, an overall increase of about 
105 percent and an average annual rate of 13 percent (see fig. 3). 
During 2001, new budget authority grew by 22 percent, the largest 
single-year increase during this period.[Footnote 12] For the other 
years, the annual increase in new budget authority ranged from 10 to 17 
percent. Over the same period, new budget authority for Section 8 
accounted for an increasing share of HUD's total annual appropriations, 
growing from 41 percent in 1998 to 54 percent in 2004.[Footnote 13] 
Part of the growth reflects the effects of inflation. After adjusting 
for inflation, new budget authority rose from $10.6 billion in 1998 to 
$19.3 billion in 2004 (82 percent).[Footnote 14] Appendix IV contains 
detailed information on budgetary costs in nominal and inflation- 
adjusted dollars. 

Figure 3: New Budget Authority for Section 8 More than Doubled from 
1998 through 2004, while Outlays Grew by 50 Percent: 

[See PDF for image] 

Notes: 

Because HUD does not report budget authority separately by subprograms, 
we were unable to exclude the Moderate Rehabilitation program from 
budget authority. 

New budget authority dropped in 2000 because it did not include a $4.2 
billion advance appropriation that was contained in the 2000 
appropriations but was not available for obligation until 2001. 

New budget authority reflects across-the-board reductions by Congress 
in 2001 (0.22 percent), 2003 (0.65 percent), and 2004 (0.59 percent). 

Outlays for the Section 8 programs are based on our estimate of outlays 
for rental assistance payments and certain administrative expenses 
under the voucher and project-based programs only. The Moderate 
Rehabilitation program, for example, is not included in our estimate of 
outlays. 

We adjusted outlays for 1999 to include an advance payment of $680 
million that was made in 1998 for the 1999 voucher program and reduced 
outlays for 1998 by the same amount. 

[End of figure] 

HUD did not separately track budget authority for the voucher and 
project-based programs for the period covered by our analysis. HUD 
budget officials told us they had no need to do so because Congress 
funded both programs under a single budget account, the Housing 
Certificate Fund. However, to provide better transparency and 
strengthen oversight of the programs, Congress directed HUD to create 
two new budget accounts--Tenant-Based Rental Assistance and Project- 
Based Rental Assistance--for all new Section 8 appropriations.[Footnote 
15] Beginning with its 2006 budget, HUD has provided separate 
information for each program. 

The substantial growth in new budget authority stemmed primarily from 
decisions to renew expiring long-term Section 8 contracts. From 1974 to 
1983, Congress made large up-front appropriations to cover the 
projected costs of multiyear Section 8 contracts that were written in 
those years. Because Congress and HUD funded these long-term contracts 
up front, they generally did not require new budget authority during 
the years specified in the contracts.[Footnote 16] During the early to 
mid-1990s, large numbers of these long-term contracts reached the end 
of their terms. Decisions to renew the contracts created the need for 
new budget authority. As figure 4 shows, the trend in the numbers of 
expiring contracts continued from 1998 through 2004. Specifically, the 
number of project-based units with expiring contracts that were renewed 
grew significantly--by 373,310 units from 1998 through 2004. (As noted 
previously, because some project-based contracts were not renewed, the 
total number of authorized project-based units declined during this 
period--even as the number needing new budget authority grew.) 
Additional new budget authority was required each year to cover the 
renewal of 818,095 vouchers from 1998 through 2004.[Footnote 17] 

Figure 4: Renewals of Expiring Vouchers and Project-Based Units Have 
Grown Significantly since 1998: 

[See PDF for image] 

[End of figure] 

A factor also contributing to the need for new budget authority was a 
declining amount of "carryover" budget authority. Carryover consists of 
unobligated budget authority (not yet committed to specific contracts), 
including funds that have been "recovered" (de-obligated from expired 
contracts that did not need all of the budget authority that had been 
obligated for them). Congress may rescind any portion of such unused 
budget authority and in fact enacted rescissions in the Section 8 
program during each of the years we examined.[Footnote 18] Total budget 
authority available to renew Section 8 contracts in any year thus 
consists of both the carryover, net of rescissions, as well as new 
budget authority, and represents all of the funds available to HUD for 
future obligations and outlays. 

Typically, HUD has had large amounts of carryover funds in the Section 
8 programs, and these carryover funds have helped offset the need for 
new budget authority. However, as shown in figure 5, the carryover 
amounts generally declined during the period we examined. For example, 
about $7.5 billion in carryover funds in 1998 lessened the need for new 
appropriations of budget authority in that year, whereas the decline in 
carryover funds in later years increased the need for new 
appropriations. Partly because of declining carryover amounts during 
this period, total available budget authority grew at a slower rate 
than new budget authority. More specifically, total available budget 
authority grew from $14.0 billion to $20.9 billion over this period 
(fig. 5), an average annual rate of about 7 percent. Congress rescinded 
between $1.6 billion and $2.9 billion each year during the period. 

Figure 5: Total Available Budget Authority for Section 8 Grew, although 
Carryover Declined from 1998 through 2004: 

[See PDF for image] 

Notes: 

Total available budget authority may not add because of rounding. 

New budget authority dropped in 2000 because it did not include a $4.2 
billion advance appropriation that was contained in the 2000 
appropriations but was not available for obligation until 2001. 

Appendix IV provides detailed information on total available budget 
authority in inflation-adjusted dollars. 

[End of figure] 

Total Section 8 Outlays Grew by 50 Percent: 

As figure 3 shows, annual outlays for Section 8 programs grew from 
$14.8 billion in 1998 to $22.2 billion in 2004, an overall increase of 
about 50 percent and an average annual increase of 7 percent.[Footnote 
19] About 78 percent of this growth occurred from 2002 to 2004, with 
2003 representing the largest annual increase ($2.5 billion). Despite 
this growth, total Section 8 outlays accounted for a relatively stable 
share of HUD's total outlays over this period, ranging from 45 percent 
in 1998 to 52 percent in 2004.[Footnote 20] 

Outlays for Section 8 generally exceeded new budget authority for the 
program each year from 1998 through 2004 (see fig. 3). This pattern 
resulted primarily from the way the program was originally funded. As 
noted previously, initial Section 8 contracts generally had long terms 
and received large up-front appropriations of budget authority to cover 
their projected costs. As a result, HUD has for many years--including 
the 1998 through 2004 period--made outlays for contracts that have not 
required new budget authority. During this period, the gap between 
outlays and new budget authority narrowed as the number of expiring 
vouchers and project-based units that required new budget authority 
grew and were renewed on an annual basis. If all Section 8 contracts 
had reached the end of their multiyear terms and were renewed annually, 
new budget authority requirements would more closely approximate the 
expected annual outlays. 

Estimated Outlays for Vouchers Rose by 93 Percent, while Those for the 
Project-Based Program Remained Relatively Stable: 

Since HUD did not separately track outlays for the voucher and project- 
based programs (for the same reasons it did not do so for budget 
authority), we developed our own estimates of outlays for both programs 
based on data from the accounting systems HUD uses to record Section 8 
rental subsidy payments.[Footnote 21] On the basis of these data, we 
estimated that from 1998 though 2004: 

* Outlays for the voucher program rose from $7.5 billion to $14.5 
billion (fig. 6)--an overall increase of 93 percent and an average 
annual rate of increase of 12 percent. The largest annual increases-- 
approximately 20 percent--occurred both in 2002 and 2003. About 56 
percent of the total increase in outlays also occurred in these 2 
years. As discussed in more detail in a subsequent section of this 
report, the growth in voucher program outlays resulted in large part 
from increases in the average rental subsidy per household and 
decisions by Congress to expand the number of vouchers. 

* In contrast, outlays for the project-based program remained 
relatively stable, rising from $7.3 billion to $7.7 billion, or about 6 
percent from 1998 through 2004--an average annual rate of about 1 
percent. 

Figure 6: Estimated Outlays Grew Faster for Vouchers than for the 
Project-Based Program from 1998 through 2004: 

[See PDF for image] 

Note: We adjusted voucher outlays for 1999 to include an advance 
payment of $680 million that was made in 1998 and reduced voucher 
outlays for 1998 by the same amount. 

[End of figure] 

Because of its much faster rate of growth, the voucher program 
accounted for nearly all of the growth in total Section 8 outlays from 
1998 through 2004. Specifically, the program accounted for about $7.0 
billion (94 percent) of the $7.4 billion increase in total Section 8 
outlays during this period. In contrast, the project-based program 
accounted for only $419 million (6 percent) of the overall increase in 
total Section 8 outlays. In 1998, the voucher and project-based 
programs each represented about half of the total outlays for the 
Section 8 programs. In a relatively short time span, voucher outlays 
surpassed those for the project-based program by a significant margin, 
and by 2004 the voucher program was responsible for about 65 percent of 
total Section 8 outlays. 

Outlays for the project-based program increased at a rate slower than 
inflation from 1998 through 2004. Specifically, after adjusting for 
inflation, outlays dropped from $8.3 billion to $7.8 billion, a 
decrease of 6 percent. The growth in voucher outlays, however, 
significantly outpaced the rate of inflation, increasing from $8.5 
billion to $14.6 billion (71 percent) in inflation-adjusted 
dollars.[Footnote 22] Additional information on outlays in nominal and 
inflation-adjusted dollars appears in appendix IV. 

Policy Decisions and Market Factors Drove Increases in Section 8 
Outlays, but HUD and Congress Have Acted to Limit Further Growth: 

A number of policy decisions and market factors contributed to the 
growth in total Section 8 outlays from 1998 through 2004, including 
decisions to expand the number of households receiving vouchers, 
increases in the average rental subsidy per household, and other 
program costs. Figure 7 shows the general relationship between these 
policy decisions and market factors and Section 8 outlays. Although 
these factors also affected budget authority, our analysis focuses on 
outlays because, unlike budget authority, outlays occur when payments 
are made and thus reflect the actual annual cost of providing rental 
assistance. Congress and HUD have taken steps to limit further growth 
in Section 8 program costs--for example, by changing the program's 
funding formula for vouchers. 

Figure 7: Factors Affecting Section 8 Outlays: 

[See PDF for image] 

[End of figure] 

Policies to Expand the Number of Assisted Households Resulted in an 
Increase in Voucher Outlays, while the Declining Number of Units 
Limited Growth in Project-Based Outlays: 

Decisions to increase the number of households receiving vouchers were 
a significant driver of growth in voucher outlays from 1998 through 
2004. As noted previously, between 1998 and 2004 Congress authorized 
funding for a total of 490,944 incremental and tenant protection 
vouchers. This trend, coupled with a rise in the percentage of 
authorized vouchers in use (the utilization rate) that started in 2001, 
increased the number of assisted households and, in turn, the amount of 
outlays for vouchers. We estimate that about $3.0 billion (43 percent) 
of the increase in voucher outlays from 1998 through 2004 was 
attributable to the additional assisted households resulting from the 
authorization of new vouchers and higher utilization rates (table 
2).[Footnote 23] 

Certain policy changes were designed to increase average voucher 
utilization rates. For example, starting in 2002, PHAs that applied for 
fair share vouchers had to maintain utilization rates of at least 97 
percent to be eligible to receive them. Also, according to HUD, 
Congress' decision in 2003 to limit the funding basis for voucher 
contracts to only vouchers that were actually in use effectively 
encouraged PHAs to increase their utilization rates in order to receive 
more funding. 

Table 2: Estimated Impact of Policy Decisions and Other Factors on the 
Change in Outlays for the Voucher and Project-Based Programs from 1998 
through 2004: 

Dollars in millions. 

Change in the number of assisted households/units; 
Estimated change in outlays: Vouchers: $3,028; 
Estimated change in outlays: Project- based: -$367[A]. 

Change in rental subsidy per household[B]; 
Estimated change in outlays: Vouchers: 3,569; 
Estimated change in outlays: Project-based: 616. 

Change in administrative costs[C]; 
Estimated change in outlays: Vouchers: 368; 
Estimated change in outlays: Project-based: 170. 

Total; 
Estimated change in outlays: Vouchers: $6,966; 
Estimated change in outlays: Project-based: $419. 

Source: GAO analysis of HUD data. 

[A] This amount represents the estimated outlays that did not occur in 
2004 because the number of project-based units declined. This amount 
partially offset the increase in outlays caused by growth in the 
average rental subsidy per household. Taken together, these two factors 
produced a net increase of $250 million (-$367 million plus $616 
million) in outlays, or about 60 percent of the total change in outlays 
for the project-based program. 

[B] For each program, these amounts were derived by taking the 
difference between the (1) change in total program outlays for this 
period and (2) individual changes in program outlays due to the other 
two factors. 

[C] These amounts comprise actual increases in the administrative fee 
for vouchers and the cost of Performance-Based Contract Administrators 
for the project-based program. Limitations in the data did not allow us 
to identify other program costs. 

[End of table] 

Using the average annual household subsidy in 2004 for the project- 
based program ($5,948), we estimate that the decline of about 62,000 
units reduced project-based outlays by roughly $367 million (see table 
2). However, this decrease was more than offset by the other factors, 
leading to an overall increase of $419 million. 

Although the decline in the number of project-based units caused 
outlays for the project-based program to be less than they would have 
been otherwise, its effect on total Section 8 outlays was offset to a 
large degree by the issuance of tenant protection vouchers to 
households displaced from their project-based units. As noted 
previously, under the project-based program (or other HUD programs), 
tenants in units receiving assistance that is terminated (e.g., because 
the unit owner decides not to renew an expiring contract) may face 
higher rental payments. To protect these tenants from potentially 
unaffordable rent increases and continue providing assistance, Congress 
made tenant protection vouchers available. In effect, outlays from the 
project-based program were shifted to the voucher program, although not 
on a one-for-one basis because the per household subsidy costs were 
different for project-based units and vouchers.[Footnote 24] 

Increases in the Average Rental Subsidy per Household Contributed to 
Higher Outlays for Both Programs: 

Increases in the average rental subsidy per household also contributed 
to the growth in outlays for the voucher and project-based programs, 
although the average subsidy increased more for vouchers than for 
project-based programs.[Footnote 25] As figure 8 shows, the average 
subsidy for vouchers grew from $4,420 to $6,262 from 1998 through 2004, 
an overall increase of 42 percent.[Footnote 26] The annual rate of 
increase in the average per household subsidy for vouchers was 6 
percent during the period, ranging from a low of 1 percent in 1999 to a 
high of 11 percent in both 2002 and 2003. The high rate of growth in 
2002 and 2003 coincided with the largest yearly increases in voucher 
outlays (see fig. 6). For 2004, the annual rate of increase slowed to 
over 2 percent after several years of substantial growth. The growth in 
the number of enhanced vouchers, which, as previously noted, allows for 
higher subsidies, may have contributed to the overall increase. As 
described in table 2, an estimated $3.6 billion (51 percent) of the 
increase in voucher outlays was due to growth in the average rental 
subsidy per household.[Footnote 27] 

Figure 8: The Average Annual Rental Subsidy per Household Grew by 42 
Percent for Vouchers and 12 Percent for the Project-Based Program from 
1998 through 2004: 

[See PDF for image] 

Note: These averages do not include an administrative fee for vouchers 
or the cost of Section 8 contract oversight for the project-based 
program. However, the costs to property owners for administering the 
project-based program, which are reflected in the units' rents, are 
accounted for in these averages. 

[End of figure] 

In comparison, the average rental subsidy per household for the project-
based program grew more modestly during the period--from $5,305 to 
$5,948, an overall increase of 12 percent and an average annual 
increase of 2 percent.[Footnote 28] The annual rate of increase in 
average per household subsidy did not exceed 1 percent from 1998 
through 2001 and remained at less than 4 percent from 2002 through 
2004. As described in table 2, we estimate that this raised outlays for 
the project-based program by about $616 million.[Footnote 29] The 
decline in the number of project-based units partially offset this 
increase in program outlays, however. 

As figure 8 shows, during the period we examined, the per household 
subsidy in the voucher program was initially less than the project- 
based per household subsidy but then became greater. However, this 
trend does not mean that the project-based program has become more cost-
effective. Any comparison of the cost-effectiveness of these programs 
should account for all subsidies received during the properties' life 
cycles, adjusted for any differences in unit and household 
characteristics, such as the number of bedrooms and family 
size.[Footnote 30] For example, the average project-based subsidy per 
household during the period we examined did not account for the effects 
of past subsidies or for potential future subsidies that may be needed 
to maintain properties in the program. Similarly, it is important to 
note that the nationwide trends we present do not reflect the 
considerable variation that exists across local rental housing markets. 
That is, even during the period we examined, in some markets the per 
household subsidy for vouchers may have remained below that for the 
project-based program. 

For both the voucher and project-based programs, many policy decisions 
and market factors influenced the average per household rental subsidy, 
such as HUD's fair market rent (FMR) determinations, housing market 
conditions, household incomes, and policies for limiting the cost of 
rental assistance. More detailed information on the trend in the 
average rental subsidy per household and the specific impact of these 
factors on per household rental subsidies for vouchers are discussed in 
a subsequent section of this report. 

Administrative and Special Program Costs Contributed Modestly to the 
Increase in Outlays for Both Programs: 

Other costs for program administration and special programs contributed 
to the change in outlays for the voucher and project-based program, 
although to a lesser extent than the other factors (see table 2). More 
specifically, according to data from HUD's accounting systems, 
administrative costs for vouchers increased by about $368 million from 
1998 through 2004. Although complete data on administrative costs for 
the project-based program were not available, a major administrative 
expense was HUD's Performance-Based Contract Administrator initiative, 
which started in 2000. This initiative, intended to augment HUD's 
oversight of project-based Section 8 contracts, added $170 million in 
outlays from 1998 through 2004. 

According to HUD, outlays for special programs increased but were 
relatively small during the period covered by our analysis. There have 
been multiple special programs, including the Family Self-Sufficiency 
program, which paid for service coordinators to help participating 
families achieve economic independence. The Family Self-Sufficiency 
program accounted for about $50 million in outlays in 2004. Since 
detailed data on the outlays for special programs were not readily 
available for this period, we were unable to comprehensively estimate 
their impact on outlays. 

HUD and Congress Have Taken Steps to Limit Growth in the Cost of Both 
Programs: 

HUD has implemented measures to limit increases in the cost of the 
Section 8 programs. For example, as noted previously, in 2003 Congress 
authorized changes to HUD's policies for funding vouchers to slow the 
growth in new budget authority and, in turn, outlays. Before 2003, 
Congress appropriated budget authority using a unit-based approach that 
covered all vouchers authorized in each contract, whether or not all of 
the vouchers had been utilized. Concerned that appropriations were 
exceeding actual program needs, Congress changed the formula for 
funding voucher contracts to a dollar-based approach, basing it on 
actual expenditures from the previous year plus an inflation factor. In 
addition, Congress authorized a contingency fund to cover increases in 
rental costs in excess of the inflation factor. 

In HUD's 2004 budget, Congress authorized the creation of a Quality 
Assurance Division within HUD to provide more oversight of the 
administration and cost of the voucher program. A key part of this 
effort involves monitoring and verifying program costs reported by 
PHAs. The division also audits PHAs' program records to ensure that 
voucher costs were reported accurately and monitors local rental market 
trends to determine whether HUD's FMRs were set too high or too low. In 
addition, quality assurance staff review PHAs' compliance with HUD's 
requirement that rents for voucher units be reasonable--that is, 
comparable to rents for similar unassisted units in the market. 

Congress and HUD have taken further steps since the period of our 
analysis to limit cost growth. For example, Congress made further 
changes to the voucher's dollar-based formula in 2005 that eliminated 
all contingency funding, so that PHAs were expected to absorb all 
additional cost increases during the year. To help PHAs keep their 
costs within their funding levels, HUD issued guidance in 2005 
concerning options PHAs could exercise to limit costs.[Footnote 31] 
These options included the following. 

* Reduce payments standards: Because PHAs may set their own payment 
standards--that is, the maximum rent that can be used to calculate 
rental subsidies--anywhere between 90 and 110 percent of the FMR for 
their area, reducing payment standards allow PHAs to limit growth in 
rental subsidy payments. 

* Ensure reasonable rents: Statute and HUD regulations require PHAs to 
compare rents for voucher units to those for comparable unassisted 
units and reduce rents for voucher units if warranted.[Footnote 32] To 
ensure that rents are reasonable, PHAs can conduct more frequent 
reviews of rents charged by landlords. Any rent reductions would reduce 
the rental subsidy payments that PHAs make. 

* Deny moves within and outside PHA jurisdiction: The voucher program 
allows households to move anywhere within and outside of a PHA's 
jurisdiction. However, if a PHA has insufficient funding, it can deny a 
voucher household's move to an area that would result in higher subsidy 
costs--for example, an area with a higher payment standard. 

* Not reissue vouchers or terminate assistance: Vouchers can become 
available to new households when assisted households leave the program 
(turnover). To limit costs, PHAs can choose not to reissue turnover 
vouchers or pull back outstanding vouchers for other unassisted 
households searching for housing. PHAs can also terminate assistance if 
they determine that the funding provided by HUD is insufficient, 
although according to HUD, the department is not aware of any instance 
in which a PHA has terminated voucher assistance. 

* Set higher minimum rents: HUD policy allows PHAs to set a minimum 
rent for households that can range from as low as $0 to as high as $50. 
Some PHAs currently allow certain households with very little income to 
pay rents that are below the minimum rent ceiling (i.e., less than 
$50). To reduce their costs, these PHAs can raise the minimum rent to 
$50. 

Furthermore, HUD supports proposed legislation--the State and Local 
Housing Flexibility Act of 2005--that would replace the existing 
voucher program with the "flexible voucher program."[Footnote 33] This 
proposed program would, among other things, allow individual PHAs to 
set (within broad federal guidelines) eligibility requirements, the 
maximum period that a household could receive assistance, and 
households' contributions toward rents. According to HUD, this proposed 
program, which would initially continue to fund vouchers using the 
dollar-based approach, would create incentives and provide 
flexibilities for PHAs to manage their funds in a cost-effective 
manner.[Footnote 34] 

For the project-based program, Congress has taken steps to control the 
cost of rental subsidies, and as our analysis shows, these steps have 
limited growth in the program's average rental subsidy per household 
and thus in outlays. In 1997, Congress passed the Multifamily Assisted 
Housing Reform and Affordability Act, which established the Mark-to- 
Market program. When properties entered the project-based program in 
the late 1970s through the mid-1980s, HUD often subsidized rents that 
were above local market levels to compensate for high construction 
costs and program-related administrative expenses. Thereafter, these 
rents were adjusted annually using an operating cost factor determined 
by HUD. In the early 1990s, HUD concluded that the continued growth in 
subsidy levels would be unsupportable within HUD's budget limitations. 
The Mark-to-Market program, which began in 1998, authorized HUD to 
reduce rents to market levels on project-based properties with HUD- 
insured mortgages.[Footnote 35] According to HUD, the program has 
reduced project-based rental subsidy costs at over 2,700 properties by 
an estimated $216 million per year since 2000.[Footnote 36] 

Policy Changes and Trends in Market Rents and Household Incomes 
Increased the Average Subsidy per Voucher Household: 

We developed a statistical model to assess the impact that certain 
variables--specifically, market rents, payment standards, household 
incomes, and household and neighborhood characteristics--had on the 
change in the average rental subsidy per household for the voucher 
program.[Footnote 37] Changes in market rents explained a significant 
part of the increase in the average rental subsidy per household. 
Specifically, we estimate that from 1999 through 2004, over one-half of 
the increase in the average per household subsidy was explained by 
higher market rents, all other things being equal.[Footnote 38] Higher 
payment standards and the relatively slow growth in household incomes 
also contributed to the increase. Although we found that household and 
neighborhood variables were important determinants of per household 
rental subsidies, their average values did not vary enough from 1999 
through 2004 to cause a significant change in the average per household 
rental subsidy over this period. 

Growth in Market Rents: 

Because voucher households rent units in the private market, trends in 
market rents have a major effect on per household rental subsidies. To 
assess the impact of market rents on per household rental subsidies, we 
used HUD's FMRs as indicators of local market rents.[Footnote 39] Our 
model estimated the average per household subsidy that HUD paid in each 
year (baseline estimate).[Footnote 40] We then used the model to 
estimate the average per household subsidy HUD would have paid in each 
year, had the average market rents remained at the 1999 level, adjusted 
for overall price level changes. Comparing this figure with the 
baseline estimate indicates the influence of changes in rents. We 
estimate that from 1999 through 2004 the average annual rental subsidy 
per household would have grown from $5,225 to $5,800 (an increase of 11 
percent), if the average market rents had remained at 1999 levels, 
compared with the 24 percent growth, from $5,225 to $6,478, in the 
baseline estimate (fig. 9).[Footnote 41] Expressed differently, the 
effect of market rents accounted for over half of the increase in the 
average per household subsidy, all other things being equal.[Footnote 
42] 

Figure 9: Growth in Market Rents Had a Significant Impact on the 
Estimated Average Rental Subsidy per Household: 

[See PDF for image] 

[End of figure] 

PHAs' Exercise of Flexibility in Setting Payment Standards: 

In 1998, the Quality Housing and Work Responsibility Act (P.L. 105-276) 
authorized PHAs to set local payment standards anywhere between 90 to 
110 percent of the FMR without the need for prior HUD approval. This 
flexibility was intended to make it easier for voucher households to 
find housing successfully, reduce concentrations of poverty by helping 
voucher households find housing in neighborhoods with higher incomes, 
and allow PHAs to respond to local market conditions. The result of 
this policy was that the average payment standard, as a percentage of 
the FMR, increased from about 96 percent in 1999 to 103 percent in 
2004. The average voucher rent as a percentage of the FMR also 
increased, rising from about 94 percent in 1999 to 97 percent in 2004 
(see app. VI for detailed discussion of the trends in voucher rents). 

To assess the impact of higher payment standards on the change in per 
household rental subsidies, we compared our baseline estimate with the 
average per household subsidy that our model predicted HUD would have 
paid in each year had the average payment standard, as a percentage of 
the FMR, remained at its 1999 value. As shown in figure 10, we estimate 
that over this period the average per household subsidy would have 
grown from $5,225 to $6,169 (an 18 percent increase) if the average 
payment standard as a percentage of the FMR had remained at the 1999 
level, compared with the 24 percent growth, from $5,225 to $6,478, in 
the baseline estimate. Further, we estimate that the impact of higher 
payment standards accounted for about one-quarter of the increase in 
the average per household subsidy from 1999 through 2004, all other 
things being equal.[Footnote 43] 

Figure 10: Estimated Growth in the Average Rental Subsidy per Household 
Would Have Been Less Had the Average Payment Standard Remained at the 
1999 Level: 

[See PDF for image] 

[End of figure] 

Slower Growth in the Average Income for Voucher Households: 

Slow growth in household incomes, which did not keep pace with the 
increases in market rents, also contributed to higher per household 
rental subsidies. Specifically, from 1999 through 2004, the average 
income of voucher households grew from $8,779 to $10,086, an overall 
increase of 15 percent and an average annual rate of about 3 percent. 
However, market rents, as measured by FMRs, increased by about 23 
percent over this period, or an average annual rate of over 4 percent. 
To determine the impact of household income on the change in per 
household rental subsidies, we compared the baseline estimate with the 
estimated amount that our model predicted HUD would have paid had the 
average household income grown at the same rate as the average market 
rent. As shown in figure 11, we estimate that over this period the 
average per household subsidy would have grown from $5,225 to $6,279 
(an increase of 20 percent) if the average income had grown as fast as 
the average market rent, compared with the 24 percent growth, from 
$5,225 to $6,478, in the baseline estimate. Further, we estimate that 
the effect of relatively slow growth in the average household income 
accounted for about 16 percent of the increase in the average per 
household subsidy, all other things being equal.[Footnote 44] 

Figure 11: Had Household Income Grown as Fast as Market Rents, Growth 
in the Estimated Average Rental Subsidy per Household Would Have Been 
Less: 

[See PDF for image] 

[End of figure] 

Household and Neighborhood Characteristics of Voucher Holders Did Not 
Have a Significant Effect on the Growth in the Average Rental Subsidy 
per Household: 

We analyzed certain household characteristics, such as family size, 
family types (for example, whether the household was headed by an 
elderly person or a person with a disability), and others, and found 
that, while they were major determinants of per household rental 
subsidies, they did not vary enough over this period to effect 
significant change in the average per household rental subsidy. Stated 
differently, these factors exhibited about the same influence on per 
household voucher subsidies throughout the period, and thus do not help 
explain the overall trend of increased rental subsidy. 

In addition, we analyzed the characteristics of the neighborhoods--also 
important determinants of per household subsidies--where voucher 
holders live.[Footnote 45] Specifically, given the significant 
increases in voucher rents and payment standards, we explored the 
extent to which the increase in the average per household subsidy was 
the result of voucher households moving to neighborhoods with less 
poverty and other favorable characteristics. However, just as with the 
household characteristics, the average values of these variables did 
not vary enough from 1999 through 2004 to cause a substantial change in 
the average per household rental subsidy over this period. Because we 
did not have comprehensive data on the quality of rental units in the 
voucher program, we could not explore whether the trends in higher 
voucher rents and payment standards were also accompanied by changes in 
the quality of units occupied by voucher holders. 

Observations: 

The cost of providing rental assistance has been a long-standing issue 
for policymakers and has led Congress, on different occasions, to 
reform various housing programs. Recent proposals for reform have 
focused on the voucher program, which experienced a significant growth 
in outlays and constituted nearly all of the increase in total Section 
8 outlays from 1998 through 2004. We found that the growth both in the 
number of assisted households--driven largely by policy decisions to 
expand this nonentitlement program--and in the average rental subsidy 
per household explain much of the increase in voucher outlays over this 
period. In turn, the average per household subsidy rose in large part 
because of changes in the rental market, use of higher payment 
standards by PHAs, and household incomes that grew more slowly than 
rents. 

To the extent that policymakers wish to stem the rising cost of the 
voucher program, our analysis suggests that future increases could be 
mitigated by reducing the number of assisted households, lowering 
payment standards, requiring households to pay a larger share of their 
incomes toward rent, subsidizing households with higher incomes, or a 
combination thereof. However, these actions require making difficult 
trade-offs between limiting program costs and achieving long-standing 
policy objectives, such as serving more needy households, having 
assisted households pay a relatively small share of their incomes in 
rents, making it easier for voucher holders to find housing (especially 
in tight rental markets), reducing the concentration of poverty, and 
giving PHAs the flexibility to respond to local rental market 
conditions. 

Congress and HUD have already responded to the increasing cost of 
vouchers by changing the way the program is funded. Specifically, HUD 
no longer provides funding to PHAs based on the number of authorized 
vouchers, but rather based on the prior year's level of voucher 
expenditures, adjusted by an inflation factor. While this approach 
allows HUD to limit the annual rate of increase in the program's cost, 
it does not directly address the policy decisions and market factors 
that we identified as contributing to the increase in program costs. 
Instead, it will be up to PHAs to exercise their flexibilities and make 
decisions regarding how to use the voucher funding that they receive 
from HUD. For example, some PHAs may choose to reduce their local 
payment standard, a course that, as our analysis suggests, would likely 
limit growth in voucher costs. The decisions that PHAs make will 
eventually influence trends in outlays, per household subsidies, and 
unit rents, and these trends will become more apparent in the years 
following the period covered by our analysis. 

Agency Comments: 

We provided HUD with a draft of this report for review and comment. In 
a letter from the Acting Deputy Chief Financial Officer (see app. VII), 
HUD suggested technical clarifications, which we incorporated where 
appropriate, and made the following comments: 

* HUD noted that the draft report's discussion of efforts to limit 
growth in program costs did not cite the department's recent 
legislative proposal--the State and Local Housing Flexibility Act--to 
reform the voucher program. The proposal's primary mechanism for 
limiting cost growth is the continued implementation of a dollar-based 
approach for funding the voucher program. Our draft report discussed 
the dollar-based approach and its intended impact on program costs. 
However, in response to HUD's comment, we added language to the final 
report describing the legislation's key provisions and objectives. 

* HUD indicated that the draft report was incorrect in stating that to 
be eligible for assistance under the voucher program, households must 
have very low incomes--less than or equal to 50 percent of AMI. HUD 
said that households must have low incomes--less than or equal to 80 
percent of AMI--to be eligible. The income limit that HUD referred to 
generally applies to households already participating in the voucher 
program. The income limit cited in our draft report referred to the 
eligibility criteria for new applicants. We revised the final report to 
make this distinction clearer. 

* HUD said that our draft report's discussion of the growth in 
appropriations from 1998 through 2004 that was due to expiring Section 
8 contracts may have inadvertently cited 1989 (rather than 1998) as the 
year in which contracts began to expire. Based on our analysis of prior 
studies on this issue, 1989 is generally regarded as the year in which 
Section 8 contracts started to expire. Contracts that expired, and were 
renewed with shorter terms in 1989 and afterwards, required new 
appropriations for renewals in subsequent years, including the years 
covered by our analysis. Accordingly, we made no changes to the final 
report. 

* Finally, HUD stated that the draft report did not mention a critical 
reason that the lower cost per unit in project-based programs did not 
imply greater cost effectiveness--specifically, that vouchers are used 
for units that, on average, have more bedrooms and serve larger 
households than project-based units. In response to HUD's comments, we 
revised the final report to reflect the fact that determining the cost- 
effectiveness of HUD's housing programs must account for not only all 
subsidies received over time but also unit and household 
characteristics. 

As agreed with your office, unless you publicly announce its contents 
earlier, we plan no further distribution of this report until 30 days 
from the report date. At that time, we will send copies to the 
Secretary of Housing and Urban Development and other interested 
congressional committees. We will also make copies available to others 
upon request. In addition, this report will be available at no charge 
on the GAO Web site at [Hyperlink, http://www.gao.gov].

If you have any questions about this report, please contact me at (202) 
512-8678 or WoodD@gao.gov. Contact points for our Office of 
Congressional Relations and Public Affairs may be found on the last 
page of this report. GAO staff who made major contributions to this 
report are listed in appendix VIII. 

Sincerely yours, 

Signed by:  

David G. Wood: 
Director, Financial Markets and Community Investment: 

[End of section] 

Appendix I: Objectives, Scope, and Methodology: 

This report provides information on trends in the size and cost of the 
Department of Housing and Urban Development's (HUD) Section 8 program 
from 1998 through 2004. Specifically, our report objectives were to 
determine (1) the annual numbers of vouchers in the voucher program and 
units in the project-based programs, (2) the annual new budget 
authority and outlays for each program, (3) the factors that have 
affected outlays, and (4) the impact of factors on the average rental 
subsidy cost per household for the voucher program. 

To determine the annual numbers of vouchers in the voucher program and 
units in the project-based program, we obtained and reviewed data on 
the numbers of authorized vouchers and project-based units from 1998 
through 2004 from HUD's budget office. We compared the annual numbers 
of vouchers and project-based units that HUD provided with information 
reported in the agency's annual budget requests to ensure that they 
were consistent. We obtained data on the number of units authorized 
under the Section 8 Moderate Rehabilitation program from HUD's program 
offices. We compiled and analyzed HUD notices of funding announcements 
and awards published in the Federal Register to determine the different 
types of new vouchers that were added to the program. 

To determine the annual amount of new budget authority and outlays for 
each program, we obtained and analyzed data from HUD's budget office, 
annual budget requests and other budget documents, and audited 
financial statements. We also reviewed relevant prior reports from HUD, 
HUD's Office of Inspector General (OIG), the Congressional Budget 
Office (CBO), and the Congressional Research Service (CRS). Because 
HUD's budget office was not able to report data on outlays for the 
voucher and project-based programs separately, we obtained data on 
rental assistance payments from HUD's accounting systems and estimated 
the amount of rental assistance payments paid to public housing 
agencies (PHA) and property owners under each program from fiscal years 
1998 through 2004. Specifically, from the HUD Central Accounting and 
Program System (HUDCAPS), we obtained information on rental assistance 
payments and other expenses for the voucher and the Section 8 Mod Rehab 
program, as well as for a limited number of contracts for the project- 
based program. From HUD's Program Accounting System (PAS), we obtained 
similar information for the remaining project-based Section 8 
contracts. In total, the data we used comprised approximately 3 million 
payment records. Our analysis included payment records associated with 
the voucher and project-based programs only and did not include payment 
records for other HUD rental assistance programs, such as the Section 
202 Supportive Housing for the Elderly and Section 811 Supportive 
Housing for Persons with Disabilities programs. We included payment 
records for certain administrative expenses, such as fees paid to PHAs 
for the voucher program and to Performance-Based Contract 
Administrators for the project-based program. 

We compared our estimate of outlays for the voucher, project-based, and 
Mod Rehab programs and other related expenses (total outlays) with 
published totals in HUD's annual budget requests. Our estimates using 
HUDCAPS and PAS were, on average, 0.7 percent less than the totals in 
HUD's annual budget requests. For 1998 and 1999, our estimate of total 
outlays varied from the published totals by -1.2 percent and -4.2 
percent, respectively. For 2000 through 2004, our estimates of total 
outlays were within 0.4 percent. One reason for the variation between 
our estimates and the published totals is that our analysis did not 
include certain nonrental assistance activities paid for with Section 8 
funds. 

In order to assess the reliability of the data from HUDCAPS and PAS, we 
reviewed related documentation and interviewed agency officials who 
work with these databases. In addition, we performed internal checks to 
determine the extent to which the data fields were populated and the 
reasonableness of the values contained in the fields. We concluded that 
the data were sufficiently reliable for the purposes of this report. 

To identify the factors that have affected outlays, we analyzed our 
reports and reports by HUD, CBO, CRS, transcripts of congressional 
committee hearings, and congressional committee reports. We also 
obtained and analyzed data on rental subsidies per household, a key 
factor affecting outlays, from two HUD databases--the Public and Indian 
Housing Information Center (PIC) for the voucher program and the Tenant 
Rental Assistance Certification System (TRACS) for the project-based 
program. Using these data, we analyzed trends in unit rents, household 
incomes, and household rental payments. In order to assess the 
reliability of the data from PIC and TRACS, we reviewed related 
documentation and interviewed agency officials who work with these 
databases. In addition, we performed internal checks to determine the 
extent to which the data fields were populated and the reasonableness 
of the values contained in the fields. We concluded that the data were 
sufficiently reliable for the purposes of this report. 

To assess the impact of different factors on the average rental subsidy 
cost per household for the voucher program, we developed a statistical 
model using data from HUD and the Census Bureau. Specifically, we 
obtained household-level data from PIC on the rental subsidies per 
household, unit rents, household incomes, various demographic 
characteristics, and geographic information about where households were 
located. We also incorporated information from the 2000 Decennial 
Census and HUD on neighborhood characteristics at the census tract 
level. Our model allowed us to estimate the effect of each variable-- 
market rents, household incomes, household and neighborhood 
characteristics, and a measure of the relationship between the payment 
standard and HUD's fair market rent--on the average rental subsidy per 
voucher household, while controlling for other variables. The PIC data 
for 1998 did not have complete information for certain fields (such as 
the fair market rent associated with an individual household), and 
consequently, we did not include data for 1998 in our model. Appendix V 
contains further information on the results of our statistical 
analysis. 

To address all of the objectives, we interviewed officials from HUD's 
Offices of the Chief Financial Officer, Public and Indian Housing, 
Housing, and Policy Development and Research. We also met with CBO and 
CRS officials and representatives of various industry and research 
groups: the Center for Budget and Policy Priorities, the Council of 
Large Public Housing Authorities, the National Leased Housing 
Association, and the National Low Income Housing Coalition. We 
conducted our work in Washington, D.C., and Chicago, Illinois, from 
April 2005 through March 2006 in accordance with generally accepted 
government auditing standards. 

[End of section] 

Appendix II: Information on the Section 8 Moderate Rehabilitation 
Program: 

This appendix provides information on the Section 8 Moderate 
Rehabilitation (Mod Rehab) program. The Mod Rehab program was created 
in 1978 to add to the existing stock of assisted housing. It did this 
by providing funding to upgrade a portion of the estimated 2.7 million 
then-unassisted rental housing units with deficiencies that required a 
moderate level of repair, and rental subsidies for low-income 
households to live in them. Congress funded no new contracts for the 
Mod Rehab program after 1989 and repealed the program in 1991. 

Under annual contracts with public housing agencies (PHA) that 
administer the Mod Rehab program, HUD provides the funding for rental 
subsidies as well as an administrative fee to the agencies. The 
administering agencies, in turn, enter into contracts with property 
owners. Under these contracts, property owners rehabilitate their 
housing units to meet HUD's standards for housing quality by completing 
repairs costing at least $1,000 and make the rehabilitated units 
available to eligible households. In exchange, PHAs screen applicants 
for eligibility and pay the difference between the approved contract 
rent and the household's portion of the rent. The Mod Rehab has 
features that are common to both the project-based and voucher 
programs. For example, similar to the voucher program, the Mod Rehab 
program is administered by PHAs and was intended to utilize the 
existing stock of privately owned rental housing. However, Mod Rehab is 
fundamentally a project-based program because the rental subsidy is 
tied to a specific unit, not the household. 

During the 11 years that Congress funded new contracts under the Mod 
Rehab program, the term for the Section 8 contracts was 15 years. When 
the oldest of these contracts began to expire in 1995 and 1996, HUD 
instructed PHAs to replace them with vouchers. Since fiscal year 1997, 
however, HUD has renewed expiring contracts on an annual basis if the 
owners opt to do so and the properties consist of more than four rental 
units. 

As shown in table 3, the Mod Rehab program has undergone significant 
reductions in the number of units--from 71,659 in 1998 to 34,141 in 
2004, a decline of about 52 percent. As with project-based Section 8, 
owners of Mod Rehab properties can choose to leave the program upon 
contract expiration, and in these cases, eligible households can 
receive enhanced vouchers. 

Table 3: Number of Authorized Units under the Section 8 Moderate 
Rehabilitation Program, 1998-2004: 

Year: 1998; 
Authorized units: 71,659. 

Year: 1999; 
Authorized units: 64,463. 

Year: 2000; 
Authorized units: 57,777. 

Year: 2001; 
Authorized units: 52,342. 

Year: 2002; 
Authorized units: 49,013. 

Year: 2003; 
Authorized units: 42,504. 

Year: 2004; 
Authorized units: 34,141. 

Source: HUD. 

[End of table] 

Data on budget authority for the Mod Rehab program were not available 
separately. From 1998 through 2004, HUD received budget authority for 
the Mod Rehab program as part of the overall appropriations for Section 
8 in the Housing Certificate Fund account. Starting in its 2006 budget 
request, HUD included renewal funding for the Mod Rehab program in its 
Project-Based Rental Assistance budgetary account. Similarly, data on 
Mod Rehab outlays were not available. However, as we did for the 
voucher and project-based programs, we estimated Mod Rehab outlays 
using data from HUD's accounting systems. As table 4 shows, from 1998 
through 2004, estimated Mod Rehab outlays decreased by over 50 percent, 
from $472 million to $246 million. The decrease in outlays was due to 
significant reductions in the number of units assisted under the 
program. 

Table 4: Estimated Outlays for the Section 8 Moderate Rehabilitation 
Program, 1998-2004: 

Dollars in millions. 

1998; 
Dollars in millions: Estimated outlays: Nominal dollars: $472; 
Dollars in millions: Estimated outlays: Inflation-adjusted dollars: 
$536. 

1999; 
Dollars in millions: Estimated outlays: Nominal dollars: 364; 
Dollars in millions: Estimated outlays: Inflation-adjusted dollars: 
408. 

2000; 
Dollars in millions: Estimated outlays: Nominal dollars: 351; 
Dollars in millions: Estimated outlays: Inflation-adjusted dollars: 
386. 

2001; 
Dollars in millions: Estimated outlays: Nominal dollars: 332; 
Dollars in millions: Estimated outlays: Inflation-adjusted dollars: 
358. 

2002; 
Dollars in millions: Estimated outlays: Nominal dollars: 305; 
Dollars in millions: Estimated outlays: Inflation-adjusted dollars: 
322. 

2003; 
Dollars in millions: Estimated outlays: Nominal dollars: 280; 
Dollars in millions: Estimated outlays: Inflation-adjusted dollars: 
289. 

2004; 
Dollars in millions: Estimated outlays: Nominal dollars: 246; 
Dollars in millions: Estimated outlays: Inflation-adjusted dollars: 
248. 

Source: GAO Analysis of HUD Central Accounting and Program System: 

[End of table] 

[End of section] 

Appendix III: Description of the Section 8 Rental Housing Assistance 
Programs: 

Federal rental housing assistance, which began with the enactment of 
the U.S. Housing Act of 1937, includes 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. Questions about the cost-effectiveness of new 
construction led Congress to explore options for using existing housing 
to shelter low-income families. In 1974, it added Section 8 to the U.S. 
Housing Act of 1937 and created the Existing Housing 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 two programs were consolidated into the Housing Choice 
Voucher program, which combined features of both earlier programs. This 
program is now the largest federal housing assistance program. Table 5 
summarizes the Section 8 rental housing assistance programs, including 
their authorization date and current status. 

Table 5: HUD Programs with Section 8 Rental Assistance, in Order of 
Year Authorized: 

Program: Section 202 Elderly and Disabled Housing Direct Loan Program; 
Type of subsidy: Project-based: direct loan with below-market interest 
rates,; rental assistance payments generally through Section 8; 
Year authorized: 1959; 
Status: No new commitments since 1991; 
Description: Provides direct loans at below-market rates for up to 40 
years to finance the construction of rental housing for the elderly and 
disabled. All projects built since 1974 also receive Section 8 rent 
subsidies. 

Program: Section 8 New Construction and Substantial Rehabilitation; 
Type of subsidy: Project-based: rental assistance payment, below- 
market interest rate loans[A]; 
Year authorized: 1974; 
Status: No new commitments since 1983, except for Section 202 program 
(see above); 
Description: Provides rent subsidies in new or substantially 
rehabilitated projects. Subsidy initially covered the difference 
between tenants' payment and fair market rent, determined by HUD. 
Subsidy contracts were for 20 to 40 years. Tax incentives and financing 
arrangements also may reduce owners' effective mortgage interest rates 
and project rents. Current restructuring of ongoing contracts will 
result in realignment of subsidy payments. 

Program: Section 8 Loan Management Set-aside and Property Disposition; 
Type of subsidy: Project-based: rental assistance payment; 
Year authorized: 1974; 
Status: No new commitments; 
Description: Provides subsidies to units in financially troubled 
projects in the FHA-insured inventory and on the sale of HUD-owned 
projects. Subsidies ensure improved cash flows and 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. 

Program: Section 8 Existing Housing Certificates; 
Type of subsidy: Tenant-based: rental assistance payment; 
Year authorized: 1974; 
Status: Merged in 1998 with the voucher program to become the Housing 
Choice Voucher program; 
Description: Aids low-income households to rent housing units in the 
market. Rent cannot exceed the HUD-established fair market rent for the 
geographical area. HUD pays the difference between the actual unit rent 
and the tenant payment. Administered by local public housing 
authorities, which enter into contracts with landlords. 

Program: Section 8 Moderate Rehabilitation; 
Type of subsidy: Project- based: rental assistance payment; 
Year authorized: 1978; 
Status: No new commitments since 1989; 
Description: Provides rental subsidies to units in privately owned 
properties where the owners agreed to make up to $1,000 per unit in 
repairs in order to receive rental assistance. Although the program was 
repealed in 1991, property owners may request 1-year renewals of 
existing contracts. Unlike project-based Section 8, Mod Rehab relied on 
existing private housing and was administered by public housing 
authorities. However, like project-based Section 8, rental assistance 
under Mod Rehab is tied to the unit, and a household can benefit from 
the subsidy only if it remains in the unit. 

Program: Section 8 Vouchers; 
Type of subsidy: Tenant-based: rental assistance payment; 
Year authorized: 1983; 
Status: Merged in 1998 with Existing Housing Certificates to become the 
Housing Choice Voucher program; 
Description: Similar to the Section 8 Certificate program in that 
assisted households could live in privately owned units, and public 
housing authorities administered the program. Unlike the certificate 
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). 

Program: Housing Choice Voucher Program; 
Type of subsidy: Tenant-based: rental assistance payment; 
Year authorized: 1998; 
Status: Active; 
Description: Aids low-income households to rent housing units in the 
market. Public housing authorities have discretion to set voucher 
payment standard anywhere between 90 and 110 percent of the 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). 

Source: GAO. 

[A] The subsidy is provided by another housing program. 

[End of table] 

[End of section] 

Appendix IV: Data on Budgetary Costs for the Voucher and Project-Based 
Programs: 

This appendix provides detailed data on total available budget 
authority and outlays for the Section 8 programs. Since we are 
evaluating budget trends over a 7-year period, we present the budgetary 
data in both nominal (current) and inflation-adjusted dollars. We use 
the gross domestic product (GDP) index to adjust for inflation and 2004 
as the reference year. 

Table 6: Total Available Budget Authority in Nominal Dollars, 1998- 
2004: 

Dollars in millions. 

Fiscal Year: 1998; 
Dollars in millions: New budget authority: $9,373; 
Dollars in millions: Carryover: $7,542; 
Dollars in millions: Rescission: -$2,897; 
Dollars in millions: Total available budget authority: $14,018. 

Fiscal Year: 1999; 
Dollars in millions: New budget authority: 10,327; 
Dollars in millions: Carryover: 6,366; 
Dollars in millions: Rescission: -2,000; 
Dollars in millions: Total available budget authority: 14,692. 

Fiscal Year: 2000; 
Dollars in millions: New budget authority: 7,177; 
Dollars in millions: Carryover: 7,721; 
Dollars in millions: Rescission: -2,243; 
Dollars in millions: Total available budget authority: 12,655. 

Fiscal Year: 2001; 
Dollars in millions: New budget authority: 18,110; 
Dollars in millions: Carryover: 5,375; 
Dollars in millions: Rescission: -1,947; 
Dollars in millions: Total available budget authority: 21,538. 

Fiscal Year: 2002; 
Dollars in millions: New budget authority: 16,281; 
Dollars in millions: Carryover: 4,093; 
Dollars in millions: Rescission: -1,589; 
Dollars in millions: Total available budget authority: 18,786. 

Fiscal Year: 2003; 
Dollars in millions: New budget authority: 17,112; 
Dollars in millions: Carryover: 3,549; 
Dollars in millions: Rescission: -1,600; 
Dollars in millions: Total available budget authority: 19,060. 

Fiscal Year: 2004; 
Dollars in millions: New budget authority: 19,257; 
Dollars in millions: Carryover: 4,439; 
Dollars in millions: Rescission: -2,844; 
Dollars in millions: Total available budget authority: 20,852. 

Source: HUD. 

Note: Totals may not add because of rounding. 

[End of table] 

Table 7: Total Available Budget Authority in Inflation-Adjusted 
Dollars, 1998-2004: 

Dollars in millions. 

1998; 
Dollars in millions: New budget authority: $10,552; 
Dollars in millions: Carryover: $8,491; 
Dollars in millions: Rescission: -$3,262; 
Dollars in millions: Total available budget authority: $15,782. 

1999; 
Dollars in millions: New budget authority: 11,476; 
Dollars in millions: Carryover: 7,075; 
Dollars in millions: Rescission: -2,223; 
Dollars in millions: Total available budget authority: 16,328. 

2000; 
Dollars in millions: New budget authority: 7,817; 
Dollars in millions: Carryover: 8,410; 
Dollars in millions: Rescission: -2,443; 
Dollars in millions: Total available budget authority: 13,784. 

2001; 
Dollars in millions: New budget authority: 19,272; 
Dollars in millions: Carryover: 5,720; 
Dollars in millions: Rescission: -2,072; 
Dollars in millions: Total available budget authority: 22,919. 

2002; 
Dollars in millions: New budget authority: 17,000; 
Dollars in millions: Carryover: 4,274; 
Dollars in millions: Rescission: -1,659; 
Dollars in millions: Total available budget authority: 19,616. 

2003; 
Dollars in millions: New budget authority: 17,521; 
Dollars in millions: Carryover: 3,633; 
Dollars in millions: Rescission: -1,638; 
Dollars in millions: Total available budget authority: 19,516. 

2004; 
Dollars in millions: New budget authority: 19,257; 
Dollars in millions: Carryover: 4,439; 
Dollars in millions: Rescission: -2,844; 
Dollars in millions: Total available budget authority: 20,852. 

Source: HUD. 

Note: Totals may not add because of rounding. 

[End of table] 

Table 8: Outlays for the Section 8 Programs, 1998-2004: 

Dollars in millions. 

1998; 
Dollars in millions: Nominal dollars: $14,773; 
Dollars in millions: Inflation-adjusted dollars: $16,794. 

1999; 
Dollars in millions: Nominal dollars: 15,306; 
Dollars in millions: Inflation-adjusted dollars: 17,148. 

2000; 
Dollars in millions: Nominal dollars: 15,681; 
Dollars in millions: Inflation-adjusted dollars: 17,267. 

2001; 
Dollars in millions: Nominal dollars: 16,488; 
Dollars in millions: Inflation-adjusted dollars: 17,734. 

2002; 
Dollars in millions: Nominal dollars: 18,235; 
Dollars in millions: Inflation-adjusted dollars: 19,225. 

2003; 
Dollars in millions: Nominal dollars: 20,715; 
Dollars in millions: Inflation-adjusted dollars: 21,414. 

2004; 
Dollars in millions: Nominal dollars: 22,159; 
Dollars in millions: Inflation-adjusted dollars: 22,372. 

Source: GAO analysis of data from the HUD Central Accounting and 
Program System (HUDCAPS) and Program Accounting System (PAS). 

[End of table] 

Table 9: Outlays for the Voucher and Project-Based Programs, 1998-2004: 

Dollars in millions. 

Dollars in millions: Fiscal year: Voucher: [Empty]. 

1998; 
Dollars in millions: Voucher: Nominal dollars: $7,513; 
Dollars in millions: Voucher: Inflation-adjusted dollars: $8,540; 
Dollars in millions: Project-based: Nominal dollars: $7,261; 
Dollars in millions: Project-based: Inflation-adjusted dollars: $8,254. 

1999; 
Dollars in millions: Voucher: Nominal dollars: 8,109; 
Dollars in millions: Voucher: Inflation-adjusted dollars: 9,101; 
Dollars in millions: Project-based: Nominal dollars: 7,197; 
Dollars in millions: Project-based: Inflation-adjusted dollars: 8,047. 

2000; 
Dollars in millions: Voucher: Nominal dollars: 8,641; 
Dollars in millions: Voucher: Inflation-adjusted dollars: 9,516; 
Dollars in millions: Project-based: Nominal dollars: 7,040; 
Dollars in millions: Project-based: Inflation-adjusted dollars: 7,750. 

2001; 
Dollars in millions: Voucher: Nominal dollars: 9,328; 
Dollars in millions: Voucher: Inflation-adjusted dollars: 10,037; 
Dollars in millions: Project-based: Nominal dollars: 7,160; 
Dollars in millions: Project-based: Inflation-adjusted dollars: 7,697. 

2002; 
Dollars in millions: Voucher: Nominal dollars: 11,083; 
Dollars in millions: Voucher: Inflation-adjusted dollars: 11,684; 
Dollars in millions: Project-based: Nominal dollars: 7,153; 
Dollars in millions: Project-based: Inflation-adjusted dollars: 7,541. 

2003; 
Dollars in millions: Voucher: Nominal dollars: 13,247; 
Dollars in millions: Voucher: Inflation-adjusted dollars: 13,694; 
Dollars in millions: Project-based: Nominal dollars: 7,468; 
Dollars in millions: Project-based: Inflation-adjusted dollars: 7,720. 

2004; 
Dollars in millions: Voucher: Nominal dollars: 14,479; 
Dollars in millions: Voucher: Inflation-adjusted dollars: 14,617; 
Dollars in millions: Project-based: Nominal dollars: 7,680; 
Dollars in millions: Project-based: Inflation-adjusted dollars: 7,755. 

Source: GAO analysis of data from HUDCAPS and PAS. 

[End of table] 

Table 10: Estimated Impact of Policy Decisions and Other Factors on the 
Change in Outlays for the Voucher and Project-Based Programs in 
Inflation-Adjusted Dollars from 1998 through 2004: 

Dollars in millions. 

Change in the number of assisted households/units; 
Estimated change in outlays: Vouchers: $3,053; 
Estimated change in outlays: Project-based: -$369. 

Change in rental subsidy per household[A]; 
Estimated change in outlays: Vouchers: 2,742; 
Estimated change in outlays: Project-based: -302. 

Change in other program costs[B]; 
Estimated change in outlays: Vouchers: 282; 
Estimated change in outlays: Project-based: 172. 

Total; 
Estimated change in outlays: Vouchers: $6,077; 
Estimated change in outlays: Project-based: -$499. 

Source: GAO analysis of HUD data. 

[A] This amount represents the difference between the (1) total outlays 
for the period and (2) individual changes in outlays due to the other 
two factors. 

[B] This amount comprises increases in the administrative fee for 
vouchers and the cost of Performance-Based Contract Administrators for 
the project-based program. Limitations in the data did not allow us to 
identify other program costs. 

[End of table] 

[End of section] 

Appendix V: Description of the Econometric Analysis of Rental Subsidy 
Costs per Household for the Voucher Program: 

This appendix provides an overview of the econometric analysis we used 
to investigate trends in Section 8 rental subsidies per household 
(housing assistance payments, or HAP) between 1999 and 2004 for the 
voucher program. These subsidies, which make up the difference between 
households' payments (usually 30 percent of adjusted income) and the 
actual unit rent, are limited by the payment standards set by local 
public housing agencies. PHAs set these payment standards based in part 
on fair market rents (FMR) that the Department of Housing and Urban 
Development (HUD) establishes for individual housing markets, generally 
at the 40th percentile (in some cases 50th percentile) of the 
distribution of rents. Raising the payment standard relative to the FMR 
can provide assisted households with a wider choice of housing, but 
renting more expensive units raises both the cost of the subsidies and 
thus of the Section 8 programs. 

Because of the potential influence on program costs, we wanted to 
investigate the role of HUD and PHA policies in setting payment 
standards. Since 1998, PHAs have had more leeway than they did 
previously to increase (or decrease) payment standards relative to the 
FMR. According to HUD, this authority has been exercised too generously 
and is a major cause of the recent increase in HAPs. 

Model and Data: 

We developed a pooled cross-section time-series model explaining 
monthly HAPs as depending on a variety of housing market, program, and 
household characteristics. The results and descriptive statistics are 
based on a 10 percent sample of voucher (and certificate) household 
records obtained from HUD's Public and Indian Housing Information 
Center files. These files provide snapshots of the program as of the 
end of each calendar year from 1998 through 2004 and provide 
information on HAPs, gross rents, FMRs, and payment standards as well 
as household income and other characteristics. The information in a 
file on a particular assisted household is current as of a point in 
time--for instance, the date of a program action, usually the date of 
an annual recertification for program eligibility. HUD's Office of 
Policy Development and Research worked with the underlying 
administrative files to (1) correct various coding errors and 
inconsistencies, (2) identify the census tract of each household based 
on tenants' addresses, and (3) add information of analytical interest 
that was not necessarily required for program administration.[Footnote 
46] The date of admission to the program and the date of the program 
action were used to measure how long the household had been in the 
program, and other fields were used to indicate any change in the 
household's rental unit and whether the household left the program. We 
used information on the household's census tract to identify 
neighborhood characteristics. We also used the census tract information 
to develop an indicator of neighborhood quality by determining whether 
the voucher household's census tract was a HUD-designated qualifying 
census tract (QCT).[Footnote 47] 

We excluded observations with extreme or missing values for key 
variables, and we excluded duplicate observations in the latest record 
and the record from the previous year. We also excluded households that 
appeared to have entered or left the program more than once. 

We placed each household in one of four categories, based on 
demographic and labor market characteristics: single female-headed 
households with children (nonelderly, nondisabled), elderly (including 
elderly disabled), nonelderly disabled, and all other.[Footnote 48] 
Because groups could face different housing and labor market conditions 
and the variables in our model could have different effects on the 
level of HAP in each group, we estimated the same model separately for 
each of the four categories. For instance, disabled households are 
typically smaller than other households but may require housing with 
features not commonly available in the general rental stock. Families 
with children may be larger than other families, and thus require 
larger units, and may also experience changes in labor market incomes. 

The purpose of the model is to explain monthly HAPs using an estimating 
equation that is based on a variety of household, housing, 
neighborhood, and policy factors. HAPs range from close to zero to the 
thousands of dollars, with variations in each cross section and over 
time. In the model, HAPs are explained by the general level of market 
rents, tenant incomes, a measure of neighborhood quality, time period, 
and a measure of PHA payment standard policy. We also included in our 
model a series of explanatory dummy variables for household size, 
duration in program, termination and moves, and metropolitan areas. All 
dollar amounts (e.g., HAP, market rents, adjusted income) are expressed 
in 2004:Q4 terms using the price index for Personal Consumption 
Expenditures from the Bureau of Economic Analysis. 

Because gross rents are important in defining the level of HAPs, we 
control for the general level of market rents in order to examine the 
effects of other variables. We use the FMR for this purpose because it 
provides considerable variation within cross sections and across 
time.[Footnote 49] The level of income is also important in determining 
the level of HAPs, and we used adjusted income as reported in the file. 
This choice is potentially problematic, as the level of HAPs may 
influence income by encouraging program participants to seek work or 
not. However, this problem is somewhat mitigated by the fact that 
adjusted income is a predetermined rather than an actual amount. 
Specifically, the adjusted income reported in the file is the PHA's 
projection of a household's income in the upcoming year based on income 
information from the previous year, taking into account expected 
changes in hours, wages, and labor force status. Finally, the file did 
not include information concerning household characteristics, such as 
occupation, education, and experience, that would help explain 
variations in assistance payments at the individual household level. 

The policy variable of interest relates to the way PHAs set payment 
standards (relative to the FMR). We define a ratio variable to measure 
this policy by calculating the average payment standard and average FMR 
by year and bedroom size for each PHA and then calculate the ratio (1 = 
100) of the year-specific, PHA-specific payment standard to the FMR. 
Missing payment standard information were set equal to the FMR for a 
value of 100.[Footnote 50] (To limit the effects of outliers, we 
excluded from the analysis those households with payment standard 
ratios of less than 75 and more than 120.) The baseline specification 
uses the year-specific, PHA-specific payment standard to FMR ratio as a 
continuous variable (also truncated at 75 and 120). 

Neighborhood quality is measured in two ways, both of them based on the 
household's census tract. Our base specifications use HUD-designated 
QCTs, which are in less desirable neighborhoods than other tracts. Thus 
rents and HAPs should be lower in those neighborhoods, given that the 
market rent variable distinguishes higher-rent markets from lower-rent 
markets. 

Because the same households are in the data set for many years, up to 
as many as six times, the error terms are not likely to be independent 
from each other to the extent that unobserved characteristics may make 
the error terms for each household correlated with each other. However, 
to the extent that this presents a problem with the confidence 
intervals around a coefficient estimate (rather than a point) estimate, 
we believe that this is mitigated to a large extent by the large sample 
sizes used in the estimation. Table 11 shows the mean values of the 
variables included in our statistical model for the whole period from 
1999 through 2004. 

Table 11: Average Values of Voucher Household Groups from 1999 through 
2004: 

Variable: Monthly HAP; 
Household group: Single female-headed with children: 552.871; 
Household group: Nonelderly disabled: 430.302; 
Household group: Elderly: 400.898; 
Household group: All others: 497.301. 

Variable: Qualified census tract; 
Household group: Single female-headed with children: 0.270; 
Household group: Nonelderly disabled: 0.248; 
Household group: Elderly: 0.219; 
Household group: All others: 0.268. 

Variable: Local market rent; 
Household group: Single female-headed with children: 857.948; 
Household group: Nonelderly disabled: 700.366; 
Household group: Elderly: 690.228; 
Household group: All others: 822.026. 

Variable: Adjusted income; 
Household group: Single female-headed with children: 9980.614; 
Household group: Nonelderly disabled: 9360.595; 
Household group: Elderly: 9690.530; 
Household group: All others: 10819.378. 

Variable: Payment standard ratio; 
Household group: Single female-headed with children: 99.109; 
Household group: Nonelderly disabled: 99.385; 
Household group: Elderly: 99.168; 
Household group: All others: 99.324. 

Duration dummy variables: Variable: 1 year; 
Household group: Single female-headed with children: 0.218; 
Household group: Nonelderly disabled: 0.190; 
Household group: Elderly: 0.122; 
Household group: All others: 0.258. 

Duration dummy variables: Variable: 2 years; 
Household group: Single female-headed with children: 0.191; 
Household group: Nonelderly disabled: 0.167; 
Household group: Elderly: 0.116; 
Household group: All others: 0.189. 

Duration dummy variables: Variable: 3 years; 
Household group: Single female-headed with children: 0.144; 
Household group: Nonelderly disabled: 0.135; 
Household group: Elderly: 0.106; 
Household group: All others: 0.128. 

Duration dummy variables: Variable: 4 years; 
Household group: Single female-headed with children: 0.103; 
Household group: Nonelderly disabled: 0.102; 
Household group: Elderly: 0.086; 
Household group: All others: 0.083. 

Duration dummy variables: Variable: 5 years; 
Household group: Single female-headed with children: 0.073; 
Household group: Nonelderly disabled: 0.076; 
Household group: Elderly: 0.070; 
Household group: All others: 0.058. 

Duration dummy variables: Variable: 6 years; 
Household group: Single female-headed with children: 0.056; 
Household group: Nonelderly disabled: 0.059; 
Household group: Elderly: 0.062; 
Household group: All others: 0.047. 

Duration dummy variables: Variable: 7 years; 
Household group: Single female-headed with children: 0.043; 
Household group: Nonelderly disabled: 0.046; 
Household group: Elderly: 0.052; 
Household group: All others: 0.039. 

Duration dummy variables: Variable: 8 years; 
Household group: Single female-headed with children: 0.033; 
Household group: Nonelderly disabled: 0.038; 
Household group: Elderly: 0.044; 
Household group: All others: 0.031. 

Duration dummy variables: Variable: 9 years; 
Household group: Single female-headed with children: 0.028; 
Household group: Nonelderly disabled: 0.031; 
Household group: Elderly: 0.040; 
Household group: All others: 0.026. 

Duration dummy variables: Variable: 10 years; 
Household group: Single female-headed with children: 0.023; 
Household group: Nonelderly disabled: 0.027; 
Household group: Elderly: 0.038; 
Household group: All others: 0.023. 

Duration dummy variables: Variable: 11 years; 
Household group: Single female-headed with children: 0.019; 
Household group: Nonelderly disabled: 0.022; 
Household group: Elderly: 0.034; 
Household group: All others: 0.020. 

Duration dummy variables: Variable: 12 or more years; 
Household group: Single female-headed with children: 0.015; 
Household group: Nonelderly disabled: 0.019; 
Household group: Elderly: 0.032; 
Household group: All others: 0.017. 


Participation status dummy variables: Mover household; 
Household group: Single female-headed with children: 0.059; 
Household group: Nonelderly disabled: 0.058; 
Household group: Elderly: 0.033; 
Household group: All others: 0.045. 

Participation status dummy variables: Household assistance terminated; 
Household group: Single female-headed with children: 0.097; 
Household group: Nonelderly disabled: 0.076; 
Household group: Elderly: 0.075; 
Household group: All others: 0.115. 

Household size dummy variables: 1 person; 
Household group: Single female-headed with children: N/A; 
Household group: Nonelderly disabled: 0.558; 
Household group: Elderly: 0.751; 
Household group: All others: 0.415. 

Household size dummy variables: 2 persons; 
Household group: Single female-headed with children: 0.299; 
Household group: Nonelderly disabled: 0.209; 
Household group: Elderly: 0.187; 
Household group: All others: 0.068. 

Household size dummy variables: 3 persons; 
Household group: Single female-headed with children: 0.336; 
Household group: Nonelderly disabled: 0.113; 
Household group: Elderly: 0.036; 
Household group: All others: 0.111. 

Household size dummy variables: 4 persons; 
Household group: Single female-headed with children: 0.218; 
Household group: Nonelderly disabled: 0.065; 
Household group: Elderly: 0.015; 
Household group: All others: 0.149. 

Household size dummy variables: 5 or more persons; 
Household group: Single female-headed with children: 0.095; 
Household group: Nonelderly disabled: 0.032; 
Household group: Elderly: 0.007; 
Household group: All others: 0.123. 

Year and quarter dummy variables: 1999:2; 
Household group: Single female-headed with children: 0.031; 
Household group: Nonelderly disabled: 0.029; 
Household group: Elderly: 0.034; 
Household group: All others: 0.031. 

Year and quarter dummy variables: 1999:3; 
Household group: Single female-headed with children: 0.042; 
Household group: Nonelderly disabled: 0.035; 
Household group: Elderly: 0.038; 
Household group: All others: 0.039. 

Year and quarter dummy variables: 1999:4; 
Household group: Single female-headed with children: 0.040; 
Household group: Nonelderly disabled: 0.033; 
Household group: Elderly: 0.035; 
Household group: All others: 0.037. 

Year and quarter dummy variables: 2000:1; 
Household group: Single female-headed with children: 0.026; 
Household group: Nonelderly disabled: 0.025; 
Household group: Elderly: 0.030; 
Household group: All others: 0.025. 

Year and quarter dummy variables: 2000:2; 
Household group: Single female-headed with children: 0.034; 
Household group: Nonelderly disabled: 0.033; 
Household group: Elderly: 0.040; 
Household group: All others: 0.033. 

Year and quarter dummy variables: 2000:3; 
Household group: Single female-headed with children: 0.046; 
Household group: Nonelderly disabled: 0.042; 
Household group: Elderly: 0.044; 
Household group: All others: 0.042. 

Year and quarter dummy variables: 2000:4; 
Household group: Single female-headed with children: 0.057; 
Household group: Nonelderly disabled: 0.048; 
Household group: Elderly: 0.047; 
Household group: All others: 0.053. 

Year and quarter dummy variables: 2001:1; 
Household group: Single female-headed with children: 0.041; 
Household group: Nonelderly disabled: 0.038; 
Household group: Elderly: 0.042; 
Household group: All others: 0.041. 

Year and quarter dummy variables: 2001:2; 
Household group: Single female-headed with children: 0.041; 
Household group: Nonelderly disabled: 0.038; 
Household group: Elderly: 0.042; 
Household group: All others: 0.040. 

Year and quarter dummy variables: 2001:3; 
Household group: Single female-headed with children: 0.030; 
Household group: Nonelderly disabled: 0.031; 
Household group: Elderly: 0.031; 
Household group: All others: 0.028. 

Year and quarter dummy variables: 2001:4; 
Household group: Single female-headed with children: 0.038; 
Household group: Nonelderly disabled: 0.037; 
Household group: Elderly: 0.033; 
Household group: All others: 0.036. 

Year and quarter dummy variables: 2002:1; 
Household group: Single female-headed with children: 0.020; 
Household group: Nonelderly disabled: 0.021; 
Household group: Elderly: 0.021; 
Household group: All others: 0.021. 

Year and quarter dummy variables: 2002:2; 
Household group: Single female-headed with children: 0.037; 
Household group: Nonelderly disabled: 0.042; 
Household group: Elderly: 0.043; 
Household group: All others: 0.039. 

Year and quarter dummy variables: 2002:3; 
Household group: Single female-headed with children: 0.044; 
Household group: Nonelderly disabled: 0.047; 
Household group: Elderly: 0.045; 
Household group: All others: 0.045. 

Year and quarter dummy variables: 2002:4; 
Household group: Single female-headed with children: 0.061; 
Household group: Nonelderly disabled: 0.058; 
Household group: Elderly: 0.052; 
Household group: All others: 0.060. 

Year and quarter dummy variables: 2003:1; 
Household group: Single female-headed with children: 0.029; 
Household group: Nonelderly disabled: 0.034; 
Household group: Elderly: 0.034; 
Household group: All others: 0.031. 

Year and quarter dummy variables: 2003:2; 
Household group: Single female-headed with children: 0.044; 
Household group: Nonelderly disabled: 0.051; 
Household group: Elderly: 0.051; 
Household group: All others: 0.049. 

Year and quarter dummy variables: 2003:3; 
Household group: Single female-headed with children: 0.058; 
Household group: Nonelderly disabled: 0.061; 
Household group: Elderly: 0.056; 
Household group: All others: 0.060. 

Year and quarter dummy variables: 2003:4; 
Household group: Single female-headed with children: 0.069; 
Household group: Nonelderly disabled: 0.065; 
Household group: Elderly: 0.059; 
Household group: All others: 0.071. 

Year and quarter dummy variables: 2004:1; 
Household group: Single female-headed with children: 0.029; 
Household group: Nonelderly disabled: 0.034; 
Household group: Elderly: 0.033; 
Household group: All others: 0.030. 

Year and quarter dummy variables: 2004:2; 
Household group: Single female-headed with children: 0.043; 
Household group: Nonelderly disabled: 0.051; 
Household group: Elderly: 0.051; 
Household group: All others: 0.046. 

Year and quarter dummy variables: 2004:3; 
Household group: Single female-headed with children: 0.055; 
Household group: Nonelderly disabled: 0.061; 
Household group: Elderly: 0.056; 
Household group: All others: 0.059. 

Year and quarter dummy variables: 2004:4; 
Household group: Single female-headed with children: 0.066; 
Household group: Nonelderly disabled: 0.067; 
Household group: Elderly: 0.059; 
Household group: All others: 0.068. 

Source: GAO analysis of data from PIC. 

[End of table] 

[See PDF for Image] 

Source: GAO analysis of data from PIC. 

[End of table] 

In general, the results are consistent with our general expectations. 
For example, 

* HAPs increase with market rent levels and decrease with adjusted 
incomes. 

* Households in less desirable neighborhoods, as measured by the QCT 
variable, are about $20 to $30 per month less ($240 to $360 annually), 
depending on the group. 

* Smaller households receive smaller HAPs, and those in the program 
longer receive smaller HAPs. 

* Those that ultimately leave the program receive smaller HAPs, in some 
cases because incomes may have increased to the point that the 
households are no longer eligible. 

* Households that move to a new unit tend to receive higher HAPs. 

* HAPs increase as the payment standard increases relative to the FMR. 

The time period dummy variables used in our model suggest that, at 
least for households that are neither elderly nor disabled, HAPs were 
approximately $40 to $50 per month ($480 to $600 annually) higher in 
2004 than in 1999, even after controlling for changes in market rent 
levels and payment standards. 

To present the results in terms of trends, we focused on those 
variables for which the average values changed significantly over the 
time period. Table 13 presents averages of selected variables--HAP, 
market rents, adjusted income, and payment standard ratio--for the 
largest group (single female-headed households with children). 

Table 13: Averages for Selected Variables, 1998-2004: 

Variable: Monthly HAP; 
Year: 1999: $487.0; 
Year: 2000: $492.5; 
Year: 2001: $509.7; 
Year: 2002: $558.7; 
Year: 2003: $612.9; 
Year: 2004: $615.8. 

Variable: Market rents; 
Year: 1999: $803.4; 
Year: 2000: $805.0; 
Year: 2001: $824.4; 
Year: 2002: $880.1; 
Year: 2003: $907.1; 
Year: 2004: $896.9. 

Variable: Adjusted income; 
Year: 1999: $9,619; 
Year: 2000: $10,064; 
Year: 2001: $10,136; 
Year: 2002: $10,002; 
Year: 2003: $9,970; 
Year: 2004: $10,031. 

Variable: Payment standard ratio; 
Year: 1999: 96.1; 
Year: 2000: 94.3; 
Year: 2001: 95.9; 
Year: 2002: 100.4; 
Year: 2003: 102.5; 
Year: 2004: 103.1. 

Source: GAO analysis of data from PIC. 

[End of table] 

[End of section] 

Appendix VI: Trends in Rents and Household Payments for the Voucher and 
Project-Based Programs: 

The rental subsidy per household of both Section 8 programs is the 
difference between a household's payment and the lesser of either the 
payment standard or the unit's gross rent. Trends in rents and 
household payments, therefore, drive changes in the rental subsidy per 
household. For the voucher program, average rents grew by 35 percent 
from 1998 through 2004 (fig. 12). The average annual increase in 
voucher rents was 5 percent during this period, ranging from a low of 3 
percent in 2004 to 8 percent in 2002. Average project-based rents grew 
by 12 percent over this period, an average annual rate of 2 percent. 
Rents in the voucher program grew almost three times faster than those 
in the project-based program (35 percent versus 12 percent) over this 
period. A major reason for this difference is that voucher rents are 
determined by the private market, while project-based rents are 
adjusted annually using a HUD-determined operating cost factor. 

Figure 12: Average Annual Rents for the Voucher and Project-Based 
Programs, 1998-2004: 

[See PDF for image] 

[End of figure] 

Annual increases in household payments did not keep pace with the 
increases in voucher rents. Specifically, the average household payment 
by voucher households rose by 24 percent over this period and grew at 
an average annual rate of 4 percent (fig. 13). The disparity in the 
rates of increase between rents and household payments accelerated the 
growth in the average per household subsidy for vouchers. In contrast, 
the annual rate of increase in the average project-based rent was 
similar to that of household payments. As a result, growth in the 
average per household subsidy kept pace with rents and household 
payments in the project-based program. 

Figure 13: Average Annual Household Payment for the Voucher and Project-
Based Programs, 1998-2004: 

[See PDF for image] 

[End of figure] 

Annual Increases in Voucher Rents and Fair Market Rents Were Similar: 

Although the average voucher rent grew dramatically from 1998 through 
2004, our analysis found that this increase was consistent with the 
growth in the average fair market rent. Fair market rents, which HUD 
sets for each locality, reflect the cost of modest, standard-quality 
housing.[Footnote 51] We created a fair market rent index, weighted by 
the proportion of voucher households in each locality, and compared it 
to the average rent for vouchers, which was similarly weighted, in 
order to assess the change in the average rent for vouchers over time. 
From 1999 through 2004 (the only years for which complete data on fair 
market rents and voucher holders were available), the average rent in 
the voucher program grew by 27 percent, while the average fair market 
rent grew by 23 percent (fig. 14). Starting in 2003, the average 
voucher rent increased at a faster rate than the average fair market 
rent--5 percent versus 4 percent, respectively, in 2003, and 3 percent 
versus 1 percent, respectively, in 2004--thus narrowing the gap between 
them. 

Figure 14: Average Voucher Rents and Fair Market Rents, 1999-2004: 

[See PDF for image] 

Note: Data on the fair market rent associated with the individual 
household were not available for 1998. 

[End of figure] 

A major reason for the trend in the growth in the average voucher rent 
was PHAs' authority to set their payment standard above the applicable 
fair market rent. As previously noted, each PHA sets a local payment 
standard up to 110 percent of the fair market rent for their area. The 
average payment standard as a percentage of the fair market rent has 
steadily increased, from about 96 percent in 1999 to 103 percent in 
2004. Accordingly, the average voucher rent as a percentage of the fair 
market rent also increased, from about 94 percent in 1999 to 97 percent 
in 2004. 

[End of section] 

Appendix VII: Comments from the Department of Housing and Urban 
Development: 

U.S. Department Of Housing And Urban Development Washington, DC 20410- 
3000: 
Office Of The Chief Financial Officer: 

April 10: 

David G. Wood, Director: 
Financial Markets and Community Investment Team: 
Government Accountability Office: 
441 G Street, NW, Room 2440B Washington, DC 20548: 

Dear Director Wood, 

I want to thank you for the opportunity to provide comments on the 
draft GAO report, "Rental Housing Assistance: Policy Decisions and 
Market Factors Explain Changes in the Costs of the Section 8 Programs". 
The cost of the Section 8 programs is a very high priority for the 
Department and the Congress. We are pleased that you cite recent HUD 
and Congressional efforts to control costs on page 1 of your letter to 
Chairman Ney; however, we would further recommend a specific reference 
to the Department's very significant legislative proposal in this area, 
the "State and Local Housing Flexibility Act." We also believe that a 
reference to this legislation is appropriate in the bottom paragraph 
discussion on page 36 that references how Congress and HUD are 
responding to cost issues in the Section 8 program. In addition, we 
suggest the following comments to improve the clarity of the report: 

Page 4, Results in Brief. We suggest a rewrite of this section. As 
currently written, the reader could be led to believe that the full 
increase in authorized vouchers-from about 1.60 million in 1998 to 2.09 
million in 2004-was due to "tenant protection" vouchers, i.e., vouchers 
issued to households in project-based units for which contracts were 
not renewed to allow the households to continue receiving rental 
assistance. Table 1 on page 13 makes it clear that among the total 
490,944 new vouchers, there were actually 276,981 incremental vouchers 
and only 205,853 tenant protection vouchers (information on voucher 
type was not available for 8,110 vouchers). 

* Page 7: The statement, "To be eligible for assistance, households 
must have very low incomes-less than or equal to 50 percent of area 
median income (AMI) as determined by HUD" is incorrect. It should read 
". households must have low incomes-less than or equal to 80 percent of 
area median income. 

Page 12: The text should note that the Welfare to Work Vouchers were 
issued as a one-time demonstration program. 

* Page 14: The report cites that "During 2001, new budget authority 
grew by 22 percent, the largest single-year increase during this 
period". This increase is somewhat explained by footnote 2 on page 15, 
but probably deserves to be explained in the text itself. 

* Page 14: "1989" appears to be a typo for "1998". 

* Page 26, First paragraph: The report currently omits mention of the 
single most important reason that the lower cost per unit in project- 
based programs does not imply greater cost effectiveness. The report 
should be revised to reflect the fact that tenant-based units, on 
average, have more bedrooms and serve larger households. 

Again, we appreciate this opportunity to comment on the draft report 
and are available for any further discussions that might be warranted. 

Sincerely, 

Signed by: 

James M. Martin: 
Acting Deputy Chief: 

[End of section] 

Appendix VIII: GAO Contact and Staff Acknowledgments: 

GAO Contact: 

David G. Wood, (202) 512-8678 or WoodD@gao.gov: 

Acknowledgments: 

In addition to the contact named above, Steve Westley, Assistant 
Director; Stephen Brown; Emily Chalmers; Mark Egger; Daniel Garcia- 
Diaz; John T. McGrail; Marc W. Molino; Rose Schuville; and William 
Sparling made key contributions to this report. 

(250243): 

FOOTNOTES 

[1] Unless otherwise noted, all years cited in this report are federal 
fiscal years, which run from October 1 through September 30, and all 
dollars are nominal. 

[2] Budget authority is enacted by law and gives federal agencies the 
legal authority to incur obligations. Outlays (i.e., payments that 
liquidate obligations), minus budget receipts, contribute to federal 
budget deficits or surpluses. 

[3] We excluded the Section 8 Moderate Rehabilitation program from our 
analysis of units and outlays because, while it is a project-based 
program, it is administered differently and evolved independently from 
the other project-based programs. The program accounts for a small and 
declining portion of the overall project-based program (about 34,000 
units as of 2004). We could not exclude the program from our analysis 
of budget authority because HUD's budget office was not able to break 
out budget authority by individual program. Information on the Moderate 
Rehabilitation program is included in appendix II. 

[4] Our analysis covers the period from 1999 through 2004 because data 
on certain variables used in our statistical model were not available 
for 1998. 

[5] The payment standard is based on the HUD-determined fair market 
rent for the locality. HUD sets fair market rents generally equal to 
the 40th percentile of the market rents (including utilities) paid by 
recent movers for standard-quality units. PHAs may set local payment 
standards at 90 to 110 percent of the fair market rent for their area 
and, with HUD's approval, above 110 percent of the fair market rent. 

[6] See 42 U.S.C. 1437n (b)(1). 

[7] Under current HUD policies, as expiring contracts are renewed, HUD 
generally sets rents for project-based Section 8 units based on market 
rents for comparable units. These rents are adjusted annually using a 
HUD-determined operating cost factor. 

[8] Amendments fund existing project-based Section 8 contracts that 
have depleted their budget authority before the end of the contract 
term. HUD does not amend voucher contracts. 

[9] Prior to this account, funds for Section 8 were appropriated in the 
Annual Contributions for Assisted Housing account. Beginning in 2005, 
Congress directed the agency to create two new Section 8 budget 
accounts--a tenant-based account and a project-based account. New 
budget authority is appropriated into these two accounts. 

[10] U.S. Department of Housing and Urban Development, Office of Policy 
Development and Research, Affordable Housing Needs: A Report to 
Congress on the Significant Need for Housing (Washington, D.C.: 
December 2005). 

[11] HUD awarded approximately 50,000 additional vouchers to PHAs 
through the Welfare-to-Work program demonstration in 1999. While HUD 
continued to renew the vouchers issued in 1999, no new welfare-to-work 
vouchers have been awarded since that time. HUD began phasing out the 
demonstration program in March 2004. 

[12] We adjusted the percent growth in new budget authority from 2000 
to 2001 to include the $4.2 billion advance appropriation in 2000. 
Without the adjustment, new budget authority increased by 94 percent. 

[13] To calculate these percentages, we divided total budget authority 
for Section 8 by the total gross discretionary budget authority for the 
entire agency. 

[14] We used the gross domestic product (GDP) price index to adjust for 
inflation and 2004 as the reference year. 

[15] U.S. House of Representatives, Committee on Appropriations, 
Committee Report on the Departments of Veterans Affairs and Housing and 
Urban Development, and Independent Agencies Appropriations Bill, 2005, 
Rpt. 108-674 (Washington, D.C.: 2005). 

[16] For some contracts, insufficient budget authority was appropriated 
to cover the costs of rental assistance before the contract expired. As 
a result, Congress appropriated additional budget authority to fund 
contract amendments. 

[17] Despite these increases, budget authority for rental assistance 
programs was still lower from 1998 through 2004 than from 1977 through 
1981, when Congress appropriated around $30 billion annually (in 
nominal dollars). 

[18] A rescission is legislation enacted by Congress that cancels 
budgetary authority that has already been provided before that 
authority would otherwise lapse. 

[19] After adjusting for inflation, total outlays for Section 8 
increased from $16.8 billion in 1998 to $22.4 billion in 2004, an 
increase of 33 percent. 

[20] To calculate these percentages, we divided outlays for both the 
voucher and project-based programs by total gross discretionary outlays 
for the entire agency. 

[21] We analyzed data from HUD's Program Accounting System, which 
contained payment information for project-based Section 8 contracts, 
and HUD Central Accounting and Program System, which contained payment 
information for both a limited number of project-based Section 8 
contracts and all voucher contracts. The estimated total outlays for 
the Section 8 programs cited in this report are also based on data from 
these systems. 

[22] Outlays for 2004 in inflation-adjusted dollars differ from those 
in nominal dollars because any payment made in the first three quarters 
of 2004 has been adjusted to reflect inflation occurring prior to the 
last quarter. 

[23] We estimated this amount by multiplying the number of new vouchers 
authorized from 1998 through 2004 (490,944) by the percentage of 
authorized vouchers in use in 2004 (98.5 percent). We then multiplied 
the result by the average per household subsidy in 2004 ($6,262). 

[24] Since HUD did not maintain separate outlay data for tenant 
protection vouchers for the entire period of our analysis, we could not 
estimate the impact of this shift on total Section 8 outlays. 

[25] The data for this analysis were based on extracts taken in each 
December from 1998 through 2004. For each year, the data contained 
household and rent information that were updated throughout the 
calendar year. We multiplied all figures by 12 to annualize them. These 
per household costs exclude administrative fees. 

[26] After adjusting for inflation, the average rental subsidy per 
voucher household rose from $5,031 to $6,313, an increase of 25 percent 
over this period. The average for 2004 ($6,313) in inflation-adjusted 
dollars differs from the average in nominal dollars ($6,262) because 
subsidies from the first three quarters of 2004 have been adjusted to 
reflect inflation occurring prior to the last quarter. 

[27] We estimated this amount by subtracting the increase in voucher 
outlays due to (1) the change in the number of assisted households 
($3,028 million) and (2) the change in administrative costs ($368 
million) from the total increase in outlays ($6,966 million). 

[28] After adjusting for inflation, the average subsidy per project- 
based household fell from $6,038 to $5,990, a decrease of 1 percent. 

[29] We estimated this amount by subtracting the increase in project- 
based outlays due to (1) the change in the number of assisted units ($- 
367 million) and (2) the change in administrative costs ($170 million) 
from the total increase in outlays ($419 million). 

[30] In a 2002 report, we estimated the costs of vouchers relative to 
housing programs that were actively developing low-income housing at 
the time. Since Section 8's project-based program no longer developed 
new housing, it was not part of the scope of our report. Nonetheless, 
we estimated that the average 30-year federal cost of the production 
programs was from 16 percent to 43 percent more than the costs for 
vouchers. See GAO, Federal Housing Assistance: Comparing the 
Characteristics and Costs of Housing Programs, GAO-02-76 (Washington, 
D.C.: Jan. 31, 2002). Other studies have also found that vouchers cost 
less than other housing programs. For a listing of these studies, see 
HUD, Targeting Rental Production Subsidies--Literature Review 
(Washington, D.C.: December 2003). 

[31] Public and Indian Housing Notice 2005-9. 

[32] See 42 U.S.C. § 1437f(o)(10) and 24 C.F.R. 982.507(b). 

[33] See S. 771 and H.R. 1999. 

[34] The legislation would require HUD to establish a final funding 
formula through a negotiated rulemaking process no later than 24 months 
after enactment. 

[35] If the reduced rents affected a property's financial viability, 
HUD could restructure the mortgage and reduce the monthly mortgage 
payment so that the adjusted rents cover project expenses, including 
mortgage payments. 

[36] U.S. Department of Housing and Urban Development, Performance and 
Accountability Report for Fiscal Year 2005 (Washington, D.C.: Nov. 15, 
2005). 

[37] See appendix V for a detailed discussion of our model. All 
estimates from the model are expressed in 2004 dollars. 

[38] Our analysis covers the period from 1999 through 2004 because data 
on certain variables used in our statistical model were not available 
for 1998. 

[39] FMRs are generally equal to the 40th percentile of the market 
rents (including utilities) paid by recent movers for standard-quality 
units. For those markets where the FMR is equal to the 50th percentile, 
we adjusted these FMRs to the 40th percentile level. Our 2005 report 
(GAO-05-342) found that the FMRs for fiscal year 2000 were generally 
accurate when compared with 2000 census data. Specifically, the report 
found that 88 percent of the 2000 FMRs (weighted by population) that 
HUD estimated in 1999 were within 10 percent of the census figure. 
About 7 percent (weighted by population) were lower than census rents 
by at least 10 percent, and about 6 percent were greater by at least 10 
percent. 

[40] Even though we had data showing the actual amount HUD paid in 
rental subsidy for each household, we estimated the amounts in order to 
compare consistent values. Each estimated value contained an error term 
that captured the effects of omitted variables unavailable for the 
modeling process. By comparing two estimated values, we removed the 
influence of the omitted variables from our comparison. Appendix V 
provides additional information about our model. 

[41] As a result of the weighting procedures used in our statistical 
model and the differences in time periods, the growth in our baseline 
estimate of the average subsidy per voucher household varies somewhat 
from those cited earlier in this report. 

[42] We calculated this amount by dividing the difference between the 
two estimates in 2004 ($6,478-$5,800 = $678) by the growth in the 
baseline estimate from 1999 through 2004 ($6,478-$5,225 = $1,253). 

[43] We calculated this amount by dividing the difference between the 
two estimates in 2004 ($6,478 - $6,169 = $309) by the growth in the 
baseline estimate from 1999 through 2004 ($6,478 - $5,225 = $1,253). 

[44] We calculated this amount by dividing the difference between the 
two estimates in 2004 ($6,478 - $6,279 = $199) by the growth in the 
baseline estimate from 1999 through 2004 ($6,478 - $5,225 = $1,253). 

[45] We ran statistical models using different variables to measure 
neighborhood quality. In the model cited above, we used a single 
measure of neighborhood quality indicating whether the associated 
census tract was designated by HUD as a qualified census tract, meaning 
that at least 50 percent of households had incomes that were less than 
60 percent of the AMI or there was a poverty rate of at least 25 
percent. In a second model, we used a number of census variables 
describing the socioeconomic and housing conditions of the associated 
census tracts. Both models yielded similar results. 

[46] We did not have access to individual addresses or other 
identifying information. 

[47] QCTs are census tracts in which at least 50 percent of households 
have incomes at or below 60 percent of the area median income or which 
have a poverty rate of at least 25 percent. 

[48] Elderly households are those with a head of household or spouse 
who is 62 years or older. Disabled households are those with a head of 
household or spouse who is disabled but not elderly. 

[49] We use the bedroom-specific FMR and do not use a further bedroom 
size control. While for most housing market areas, the FMR is 
calculated to represent the 40th percentile rent, for some areas in 
some years, the FMR is calculated to represent the 50th percentile 
rent. For those areas and years, HUD provided an estimate of the 40th 
percentile FMR as well, and we use that measure for this purpose. 

[50] Missing information on payment standards was applicable mainly to 
households that received assistance under the certificate program, a 
predecessor to the current voucher program (see app. III), because 
payment standards were not used to compute HAP under the older program. 

[51] More specifically, fair market rents are generally equal to the 
40th percentile of the market rents (including utilities) paid by 
recent movers for standard-quality units. However, in 39 localities, 
the fair market rents are equal to the 50th percentile. In March 2005, 
we reported on the accuracy of HUD's fair market rents. See GAO, Rental 
Housing: HUD Can Improve Its Process for Estimating Fair Market Rents, 
GAO-05-342 (Washington, D.C.: Mar. 31, 2005). 

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