How Renters' Aid Is Helping the Housing Market

Evictions: America's housing crisis

Fights, hospitalizations, and all-around chaos--was it a reenactment of the infamous Rolling Stones Altamont concert, or a political protest gone awry? No, in a suburb of Atlanta last week, the near-riot took place in a very, very long line, estimated at 30,000 people or more, for a government rent-aid program.

The prize: an application to get on a waiting list for Housing Choice Vouchers, known as "Section 8" for the federal law that created them. The applicants converged at a shopping plaza in East Point, just south of Atlanta, in the hope of obtaining a copy of the coveted form. East Point is a quick train ride from Atlanta, where voucher waiting lists have been closed for years. Wednesday's release of applications for East Point's 455 available vouchers drew a crowd from all over the region and even out of state, a mass of people almost the size of the entire population of East Point itself. Those at the head of the line had begun to gather days earlier.

The deal those in line were vying for was available exclusively to families with low incomes; how low depends on the city and family size, but in Atlanta most Section 8 vouchers go to families earning less than $15,000 a year. Housing Choice Vouchers are administered by the U.S. Department of Housing and Urban Development and guarantee that more than 2 million poor households spend no more than 30 percent of their income on a place to live—in Atlanta, that works out to an average of about $360 a month. The U.S. Treasury pays the rest, at a cost of $16 billion last year. HUD inspects the homes to make sure they're in tip-top shape.

Compounding the rush for the vouchers was the fact that any month now, Atlanta will become the first U.S. city to demolish all of its public housing projects, which a decade ago housed more than 14,000 families. (Other cities, including Las Vegas and Newark, are not far behind.) The former residents have been sent off to live in private houses and apartments, and most pay their rent with vouchers. But poor Atlantans who didn't start out in public housing must now compete for a very small number of remaining vouchers—just one for every six or so families below the poverty line. It could be even worse. Many cities have been forced to cut the number of vouchers they hand out, because the recession has made their poor tenants even poorer, increasing the government's share of the rent bill and decimating program budgets. All this is happening just as the number of people in need of aid rises.

One aspect that makes the voucher program so appealing is that, unlike in public housing, Section 8 tenants get to choose where they live. Rather than isolating the poor in segregated high-rise towers, it disperses them, many throughout mixed-income communities with lower crime, better schools, and all the other amenities that middle-class Americans take for granted. Recipients don't have to live in the city that issued the voucher.

That means that Section 8 is more than a gateway to an affordable home—it can be a ticket to live anywhere in the country. This is especially potent at a time when many cities, particularly in the Sun Belt, are filled with fancy new homes that were built in the boom and that have gone unsold in the bust. As The Wall Street Journal recently reported, Las Vegas landlords have been renting out brand-new luxury condos to voucher holders who have relocated from points east and who pay a few hundred dollars a month out of pocket for condos that were formerly on the market for several hundred thousand.

While millions of homeowners with mortgages are under a kind of house arrest, unable to move because they owe more than their homes are worth, Section 8 renters can strike out in search of better economic prospects or neighborhoods. Indeed, poverty experts have for years closely studied the progress of poor voucher holders who move out of public housing and into prosperous areas, a story chronicled in the new book Moving to Opportunity. "If 'bad' neighborhoods are truly bad for children and families, especially the minority poor, can moving to better neighborhoods lead to better lives?" asked the authors.

What they and other researchers have found is that while those who move out of poor, crime-ridden areas see some impressive gains, such as diminished depression and anxiety, they also tend to stay close to the social networks—family, churches—in their old neighborhoods. Those connections bring obvious benefits but also hold many voucher holders back from finding better job and educational opportunities.
In the end, for every voucher family that leaves Atlanta, many others will either stay in the city or close to it. That's not necessarily bad news, and Atlanta's recovery from the foreclosure crisis could depend on it. Neighborhoods south of downtown Atlanta have been decimated by foreclosures, with abandoned houses sprouting kudzu on virtually every block. Real-estate investors are buying these homes in bulk from lenders or at courthouse auctions for pennies on the dollar and fixing them up, hoping to rent them out to Section 8 voucher families.

In Atlanta, investors can potentially get an annual Section 8 income of $10,000 or $15,000 a year for houses that currently sell for little more than that. Voucher holders can browse on to look at current listings, like an attractively renovated two-bedroom house that an investor bought at a foreclosure auction for $17,000 in May and is now trying to rent at $895 a month. These real-estate investors are counting on a steady supply of customers.

Americans irked by the idea of tenants getting a free ride from taxpayers would do well to remember that renters overall receive far less in federal aid than homeowners, who benefit from generous help like the home-mortgage interest deduction. And far from being a big government program, the vouchers were championed by the Nixon and Reagan administrations as a way to redirect public housing funds to stimulate the private real-estate market. That's exactly what's happening now in Atlanta. Even just the prospect of a flood of Section 8 tenants is filling Atlanta's most foreclosure-scarred neighborhoods with the sounds of hammers and saws as construction crews remove steel window shields and turn decrepit foreclosures back into occupied homes.

Since bank loans are now particularly tough to come by, Atlanta investor Richard Maslia pulled his money out of the stock market and put it into dozens of foreclosed homes in Atlanta. Section 8 tenants now live in most of them, and the income is so good that Maslia will often buy the foreclosures sight unseen, even though he knows that they'll likely be stripped of plumbing, appliances, and fixtures. "As long as we know the street is OK," says Maslia, "we'll make an offer."

Alyssa Katz is the author of Our Lot: How Real Estate Came to Own Us and a senior fellow at the Pratt Center for Community Development.