Paul: Section 8 Housing Loophole Costing Taxpayer $3 Million a Year

WASHINGTON – An oversight in Section 8 affordable housing regulations is costing U.S. taxpayers at least $3 million a year, Sen. Rand Paul (R-Ky.) announced Wednesday in his latest report regarding federal government waste.

Paul, citing findings from the Inspector General for the Department of Housing and Urban Development, described what appears to be a loophole in Section 8 of the Housing Act of 1937. A conservative estimate for the losses is around $3 million a year, but because analysis only accounts for 28 percent of the Section 8 housing stock in question the cost could be as high as $10 million a year, Paul said.

Under Section 8, the federal government subsidizes rent for low-income individuals, with the government picking up the difference between what the individuals can afford and the free-market rate. If the rental rate increases, the government covers the cost, while fees that individuals pay remain flat.

The loophole concerns cooperative properties, or resident-owned buildings. Members of co-ops pitch in to cover the monthly costs of the property. This setup allows the owners to exploit Section 8 and charge different amounts of rent to tenants. Section 8 tenants could be charged significantly more, with the government picking up the difference, which in turn can be passed off as savings to tenants not participating in Section 8.

“It can be frustrating when you pay for something only to find out other people got the same thing for a cheaper price,” Paul wrote in his latest Waste Report on Wednesday. “Well, if you pay taxes, get ready to be frustrated!”

HUD has regulations in place to prevent public housing authorities and private owners from charging different rental rates for comparable units in the same area, but the rules do not account for cooperative settings, which has allowed the Section 8 loophole. According to the report, the difference in rent could be as low as $2 a month for each unit or as high as $2,900 per month.

“Somehow in the course of establishing (Section 8) rules, co-ops were overlooked, and it is costing you at least $3.1 million a year,” Paul wrote.

Vanessa Brown Calder, a policy analyst at the Cato Institute who has documented public housing abuses, said in an interview Wednesday that it looks like it should be an easy fix for HUD to plug the loophole.

“I doubt that this was anything anyone intended. This seems to be something that was more or less an accident,” she said. “I doubt that anybody is trying to subsidize non-housing-voucher units through the use of vouchers.”

While there could be a straightforward fix for this issue, she said that it won’t stamp out more egregious abuses found within affordable housing. In 2015, Calder detailed how authorities in New York and Chicago are running amok with housing programs.

In New York City, the housing authority defended practices that allow the government to subsidize renters with income levels that far exceed affordable housing earnings qualifications. The housing authority placed one household with an income of about $500,000 in public housing restricted for households making about $67,000. The housing authority said it’s “beneficial” to integrate different incomes and races into the housing program.

“There’s this kind of idea in public housing or in HUD generally or different housing authorities, that there needs to be some kind of integration of incomes, and so some of the rules they’ve created have tried to promote that,” Calder said.

In Chicago, housing authorities were spending taxpayer money to place low-income individuals in luxury apartments. Some of the voucher holders were placed in what was recognized then as the most expensive complex in downtown Chicago, with one-bedroom rents running as high as $3,000 a month.

“(Section 8) looks egregious, but I would say there are probably even worse examples of housing subsidies that are just not being carefully overseen,” Calder said.