Dating back to the Great Depression, Federal housing assistance programs have helped cost-burdened families pay rent. By the 1960s and 1970s, the federal government created subsidy programs to increase affordable housing production. Since 1974 the U.S. Department of Housing and Urban Development (HUD) has assisted low-income households obtain better rental housing and reduce the share of their income that goes toward rent through a program that relies on the private rental market. According to HUD.gov, the Section 8 voucher and certificate program helps over 1.4 million households in the U.S. by paying landlords the difference between what the household can afford and the rent for the unit. A key parameter in operating the certificate and voucher program is market rent. In this article, Matthews™ explains what market rent is, how it functions in this program, and how HUD calculates them.
The Role of Market Rent
The market rent sets the limit on what units can be rented and the household’s subsidy provided via in the certificate and voucher program. The official definition is the 40th percentile of gross rents for typical, non-substandard rental units occupied by recent movers in a local housing market. A Section 8 household cannot rent units with a gross rent that exceeds that of the market rent. Further, a Section 8 household receives a subsidy equal to the difference between the market rent and 30 percent of their incomes. Market rents primarily function to control costs. On average, a higher market rent would mean a higher cost per Section 8 household, and with a fixed budget, fewer households would be assisted. For the Section 8 program to work sufficiently, certificate and voucher holders must have an adequate supply of decent, safe, and sanitary rental units to choose from. Higher-quality units command higher rents, so the market rent must be sufficiently high to provide participants’ acceptable housing choices. The certificate and voucher programs were designed to allow assisted households to choose among different neighborhoods. Market rents are set for rental units of different bedroom sizes, and Section 8 rules based on household size and the age and gender of dependents determine what size unit a household can choose.
HUD Subsidized Housing: Also known as government-subsidized housing, this is a general term used to refer to any housing paid for in part by the local, state, or federal government. Subsidized housing allows the tenant to pay rent that is less than market rent – often based on a percentage of the tenant’s income.
HUD Subsidized Rent: The rent is based on income, and the local housing authority or HUD pays the remaining portion. A resident pays 30 percent of their monthly income on rent. Each resident in a subsidized unit must be re-certified annually to determine continued eligibility for the program. If a household’s income changes, they must let the proper authority know for the rent amount to adjust accordingly.
Market Rent: These apartments are the same as renting an apartment through a private landlord. The landlord sets the rents at market rate units based on how much the unit is worth in the market (i.e., units that are not subsidized or discounted).
Below-Market Rent: Housing where rents are lower than market rent. Rent is generally based on a specified percentage of the area’s median income, and a tenant may have to be within a specific income range to live there.