Rent caps for Section 8 program successfully challenged

It would seem the U.S. Department of Housing and Urban Development (HUD) would be the last agency that needs convincing rents have risen sharply in Santa Cruz County. Yet that is what the Housing Authority of the County of Santa Cruz needed to do- prove the HUD-imposed rent caps for the Section 8 Housing Choice Voucher Program were simply  too low for the program to be successful.
The Section 8 Housing Choice Voucher Program is the largest single source of affordable housing in the County- subsidizing the rents of more than 4,700 low-income households in privately-owned, more-or-less “market rate” housing county-wide.
It is the determination of “fair market rents” that is the issue.  As a guard against subsidizing rents in high-priced, luxury housing, HUD issues annual rent caps on the units that can qualify for the Section 8 Housing Choice program, called Fair Market Rents (FMR’s). These rent caps are calculated annually by HUD not to exceed the “40th percentile” of the entire range of rents on the market, or about 10 percent less than the prevailing median rent.  
According to Jenny Panetta, executive director of the Housing Authority of the County of Santa Cruz, the HUD-calculated FMR’s last year not only failed to keep pace with sharp rent increases, but she was “shocked” last fall when HUD issued FMR’s that were actually lower than the year before.
For the first time, the Housing Authority formally challenged the decrease in the HUD determined FMR’s and commissioned their own rent study,  adhering to HUD methodology, to appeal HUD’s calculation. This effort was successful in raising the FMR rent cap with locally calculated rental rates, and the Housing Authority won a 7.5 percent increase in the FMR cap over the previous year.
“When FMRs go up, we receive additional funding, allowing us to provide more assistance to each family on our program, and allowing us to add new families to our program. When FMRs go down, we have to reduce the amount of rental assistance we can provide, and the number of families we can serve,” Panetta wrote in a letter to Scotts Valley.
After successfully challenging HUD’s decrease in FMR’s last year, the Housing Authority’s payment standard for the Section 8 program was determined to be $2,161 a month for a two-bedroom unit in most zip codes in Santa Cruz County, and was slightly less at $2,063 for Watsonville zip codes. According to the U.C. Santa Cruz Community Rentals Office, which keeps a close eye on listings and rental rates, the average “real market” rent for a two-bedroom apartment last year was $2,444.     
 The cost of this local rent study last year was money well spent. The Housing Authority contracted with U.C. Santa Barbara, which had recent and successful experience challenging the HUD FMR’s in Santa Barbara County, at a cost of $25,000.  According to Panetta, the higher rent cap increased the federal funding for the Section 8 Housing Choice Voucher Program in Santa Cruz County by roughly $1.25 million.
The Section 8 voucher program requires participants to pay 30 percent of their household income on rent, and the landlord is guaranteed a check each month from the Housing Authority for the difference between the tenant payment and the current “payment standard” of the Housing Authority, adjusted for number of bedrooms.
The average household income of participants in the Section 8 voucher program was $20, 437 last year, which means the average tenant paid portion of the rent was about $510 per month, with an average monthly subsidy of $1,097 paid by the Housing Authority. About 24 percent of assisted households are elderly or disabled and about 74 percent are households with earned income.  Each month, the Housing Authority pays out about $5.3 million in rent subsidies to about 1,850 landlords participating in the Section 8 voucher program county-wide.   
“We hope to attract more landlords into the program with these more reasonable payment standards, and we are continuing to work on getting our FMR’s closer to real market rents,” Panetta said.  The higher FMR’s “allow us to help more people, and to help people more,” Panetta added.
In May, Panetta went on a small-scale funding raising tour asking local jurisdictions to help pay for another local rent survey in anticipation of low FMR’s from HUD for next year. With 58 households on the Section 8 program in Scotts Valley, the Scotts Valley City Council approved a $1,000 donation to this effort, with the City of Santa Cruz and City of Watsonville contributing $2,000 each. While the current rent study is yet to be finalized, Panetta is “very optimistic about appropriate, closer to market rate FMR’s for next year,” she said.
“With our landlord incentive program, including a loss mitigation guarantee that will pay for any damages or loss in excess of the security deposit, we’re trying to make the Section 8 program a smart business decision for landlords,” Panetta said. 
Panetta explained that with the increasing shortage of affordable apartments on the market, and a resistance of many landlords to rent to Section 8 voucher holders, the Housing Authority used to encounter problems with clients unable to find a qualifying apartment within the “lease-up” deadline of 120 days. Because finding a qualifying unit in Santa Cruz County was so difficult, this deadline has been extended to a full six months, which has eased the “search anxiety” of new clients, according to Panetta.
New Section 8 program participants have generally waited an average of eight years to reach the top of the program’s waiting list, maintained by the Housing Authority, which is currently closed with about 2,000 households that continue to wait.