Subsidized Rental Housing

A range of programs exists to address the lack of affordable housing. These programs are not nearly enough to meet the demand from those who are housing cost burdened. They encourage the preservation of existing subsidized housing units, as well as the construction of new units. One key challenge is that many subsidized rental housing units are at risk of being converted to more expensive market-rate housing. Rising property values, especially in areas with proximity to community amenities, give building owners an incentive to shift out of the affordable housing market. As contracts expire, owners often charge market rents or sell their buildings. This can leave people with low and moderate incomes without access to affordable housing.

Federal, state, and local governments all play important roles in financing and implementing subsidized housing programs that result in affordable housing that is accessible and provides safety from hazards, such as crime and disasters.

The largest source of funding for subsidized housing comes from the federal government. These subsidies are aimed at people with low incomes. Those earning up to 80 percent of the area median income (AMI) are considered low income. Those who earn between 30-50 percent of AMI are considered very low income. And those who earn less than 30 percent of AMI are considered extremely low income. Federal programs, however, are limited. Not everyone who qualifies receives a subsidy. In many communities, people with moderate incomes also face housing affordability challenges. Thus, many who need assistance cannot receive it. Another key challenge is the lack of coordination among the various programs.

The following is an overview of key federal subsidized housing programs.

Public housing units: Built decades ago, these units are managed by state or local housing agencies and receive funding from the Department of Housing and Urban Development. A key focus has been to preserve these units or to ensure one-to-one replacement of affordable units when older public housing complexes are torn down.

Housing Choice Voucher Program: This program, formerly known as Section 8, reimburses private building proprietors the difference between what the renter can afford and the cost of the housing up to a maximum. Demand for these vouchers greatly surpasses their supply.

Even among those who receive vouchers, securing appropriate housing that will accept the voucher can prove challenging. Roadblocks can include the refusal to rent to a tenant who uses a voucher. Policymakers can address this by banning so-called source-of-income discrimination. Another obstacle for renters in high-cost neighborhoods is how the Department of Housing and Urban Development calculates fair-market rent. This figure is the maximum rent that a voucher will cover. Generally, fair-market rents are set at the metropolitan area. This can make it difficult for people to be able to use a housing voucher in relatively high-rent neighborhoods in a community. By using a small-area fair-market rent, the maximum amount the voucher will cover better reflects rents in a given neighborhood. Finally, housing counseling programs can help voucher holders secure housing in high-opportunity neighborhoods near good jobs and amenities. They can also help pay for a security deposit or other costs.

Section 8 project-based rental-assistance contracts: These contracts allow private owners to rent some or all of their housing units to families with low incomes. Tenants pay 30 percent of their income toward rent, with the government covering the remainder (up to a maximum). Section 8 project-based housing subsidies differ from “tenant-based” Housing Choice Vouchers. Tenant-based voucher recipients may rent any private residence that meets program guidelines. Fifty-three percent of the families living in Section 8 project-based rental-assistance units are headed by people age 62 and older. Those who obtain subsidized housing through these contracts risk losing their homes as contracts expire. This is especially the case in areas where rents have been rising. Building owners may prefer to move units to market-rate rentals. They are then not obligated to accept below-market rents, and households with low incomes lose affordable housing options.

The Low-Income Housing Tax Credit (LIHTC): This provides tax incentives for developers to offer affordable rental housing units at below-market rates. LIHTC has produced approximately 3.65 million affordable rental units between 1987 and 2022.

Program participants may earn no more than 60 percent of the area median income. They pay no more than 30 percent of their monthly income toward rent. Older adults and people with disabilities are among those households that have benefited the most from this program. In theory, buildings can include services for residents, but those services must be included in the rent. As such, services are generally not offered in these units.

Typically, LIHTC properties remain affordable to tenants for 30 years. After that period, rents rise to market rate. This can make it unaffordable for residents to continue living there. Providing a transition period for rents to rise can help avoid a sudden steep rent increase. In addition, longer terms extend the time that units remain affordable. Some jurisdictions have extended the loan term to even 50 years. Unfortunately, a loophole exists to reduce the affordability term from 30 years to just 15 years. This is called the qualified contract loophole.

Section 202, Supportive Housing for the Elderly Program: This program provides funding to nonprofits that develop and operate housing for people age 62 and older across a wide range of abilities and needs with very low incomes. It serves approximately 400,000 older adult households making under 50 percent of the area median income. The program serves both frail and non-frail populations in an integrated community. Long wait lists reflect the immense need for affordable housing with supportive services for older adults with very low incomes.

The Department of Housing and Urban Development currently funds rental-assistance contracts and support-service coordinators (who help connect residents with health providers). In Fiscal Year (FY) 2023, $1.075 billion was allocated to the Section 202 program. In FY 2024, funding for the program decreased to $913 million. Nevertheless, many projects lack the staff and supportive features needed to serve the growing number of frail residents who reside in Section 202 housing.

Section 811, Supportive Housing for People with Disabilities Program: This is similar to Section 202 but targets people with disabilities of all ages.

The National Housing Trust Fund: Funds to build or preserve rental housing for people with extremely low incomes are available through this program.

The HOME Investment Partnerships Program: States and localities can use this flexible block grant to address affordable housing shortages.

Community Development Block Grants (CDBG): This program provides funding flexibility and can be used for a number of community development needs. CDBG funds cannot be used for new construction. However, they can be used to rehabilitate housing or to develop infrastructure in low-income neighborhoods. In some cases, CDBG funds can be combined with the HOME program to support affordable housing units.

Choice Neighborhoods Initiative (CNI): The successor to the HOPE VI program that was eliminated in 2012, CNI is designed to create housing and livable communities in distressed neighborhoods. CNI requires a one-for-one replacement of units. Each community receiving a CNI grant must submit a comprehensive plan to detail how it will redesign its community according to the program’s primary goals.

Section 515, Rural Rental Housing: Run by the Department of Agriculture’s Rural Housing Service (RHS), this program provides low-interest loans to fund the construction of rental housing for renters with very low incomes, low incomes, and moderate incomes in rural areas. However, when the mortgage used to fund the construction is paid off, the affordability obligation expires, and renters can experience a substantial increase in the cost of housing. As such, much of the existing affordable housing provided through the Section 515 program is also at risk of being lost. As assistance contracts expire, owners convert their units to market-rate rentals. Displacement can have serious consequences for existing residents. Although they are given priority on the waiting list for Section 515 housing elsewhere, residents may find that alternative units are unavailable. No new Section 515 housing units have been developed since 2011. Since then, funding appropriated to the program has been used to preserve existing Section 515 housing units. In FY 2023, 67 percent of residents of Section 515 housing units were 62 years or older or had a disability.

Section 521, Multifamily Housing Rental Assistance: This RHS program is sometimes paired with the Section 515 program to offer additional subsidies to renters in rural areas who are low and very low income. However, when a property exits the Section 515 program because the mortgage has been paid off, the additional rental assistance via Section 521 that is offered to renters who are low or very low income expires. When this happens, renters who previously received this additional assistance are at high risk of displacement. Without a housing subsidy, they are unlikely to be able to find suitable housing that they can afford. 

Section 538, Multifamily Housing Loan Guarantees: This RHS program supports the development or preservation of subsidized multifamily housing for renters with low and moderate incomes in rural areas. It helps ensure access to financing through partial loan guarantees.

Section 542, Rural Development Vouchers: This RHS program provides vouchers to residents of Section 515 properties when properties exit the program early due to prepayment of the loan or foreclosure.

Section 504 Home Repair Loans and Grants: This RHS program provides home-repair assistance to homeowners in rural areas. The program offers loans to homeowners with very low incomes to repair or improve their homes. It also provides grants to homeowners 62 and older with very low incomes. These grants can be for removing health and safety hazards or making their homes accessible for household members with disabilities. Additionally, the Section 504 Home Repair Loans and Grants in Presidentially Declared Disaster Areas Pilot Program helps homeowners age 62 and older who have very low incomes. This program funds repairs to homes damaged in natural disasters.

Self-help housing programs: These programs are run by organizations such as Habitat for Humanity. They enable low-income people who otherwise would not be able to own a home to become homeowners by helping to build homes through “sweat equity.” This is the value of the labor they put into a project. Future homeowners work alongside volunteers to construct their houses. In this way, construction costs are lowered and stability and growth in communities are fostered.

State and local roles: State and local governments also play essential roles in expanding and preserving affordable housing options for older adults and protecting their rights. They coordinate policy and administer federal housing programs. In addition, all states and the District of Columbia have housing finance agencies. These agencies help fund the construction of affordable single-family and multifamily housing. Almost all states and over a half-million localities have housing trust funds. These trusts support new construction, home repair, and rental rehabilitation.

In addition, states and localities can promote the development of subsidized rental housing through laws and regulations (see also Land Use and Zoning). Mandate and incentive programs increase the number of affordable housing units, ensuring that people from a broader range of income levels can benefit from a community’s amenities, employment opportunities, and education. For instance, inclusionary zoning programs require developers of market-rate housing to include affordable housing units for people with low and moderate incomes. Incentive programs allow developers to build more or larger units in exchange for the construction of affordable housing. For example, so-called density bonuses enable the construction of larger buildings when developers also construct subsidized rental units.