Subsidized housing is a government system that provides housing assistance to low-income tenants.
Before you can call yourself a real estate pro, you must know how subsidized housing works. To understand the role of subsidized housing in real estate, we recommend getting insight from trusted experts. Luckily, we’re here to shed light on this need-to-know topic.
In this post, we’ll define subsidized housing, give examples of subsidized housing programs, and discuss the various pros and cons. Keep reading for all the details!
What Is Subsidized Housing?
Subsidized housing provides government-sponsored housing assistance to low-income tenants. Another popular term for subsidized housing in the United States is “affordable housing.”
Subsidized housing programs provide renters with subsidies so they can afford a place to live. Real estate professionals must understand how housing subsidies work and what kinds are available to renters.
What Are Subsidies?
First off, a subsidy is money granted by the government to help families afford rental housing. The most common forms of subsidies include:
- Direct subsidies
- Public housing subsidies
- Nonprofit housing subsidies
- Rent vouchers
- Private housing subsidies
Each type of subsidy provides renters with access to different affordable housing options.
Who Qualifies for Subsidized Housing?
The purpose of subsidized housing is to help renters struggling with the cost of living. That’s why, according to HUD, the following groups qualify for public housing assistance:
- Individuals who earn below a specified annual gross income
- Low-income families
- Elderly persons
- Renters with disabilities
The History Behind Subsidized Housing
To fully grasp the importance of subsidized housing, we should take a look at the history behind its creation.
It all started when Franklin D. Roosevelt became President of the United States in 1932. One of his goals was to tackle the housing crisis and help citizens find decent housing in urban areas. This led to Roosevelt passing the Housing Act of 1937.
What Is the Housing Act of 1937?
The Housing Act of 1937 paved the way for subsidized housing programs. This act provided that the federal government would give housing subsidies to local agencies. In turn, the local agencies would provide citizens with housing assistance.
The Department of Housing and Urban Development (HUD)
An entire two decades later, the federal government was still making efforts to promote affordable housing. For example, in 1965, President Lyndon B. Johnson created the Department of Housing and Urban Development, also known as HUD.
HUD is a federal agency responsible for administering housing and urban development laws. This department plays a significant role in promoting decent housing and combatting discrimination in real estate.
Not long after its creation, the government began implementing various HUD programs to provide subsidized housing for renters in need.
Different Types of Subsidized Housing Programs
Many subsidized housing programs exist to assist low-income families, some of which include:
- Housing Choice Voucher Program (Section 8)
- Low-Income Housing Tax Credit Program
- Low-Income Public Housing Program
Let’s discuss each program to understand its role in promoting affordable housing.
Housing Choice Voucher Program (Section 8)
The Housing Choice Voucher Program, or Section 8, provides housing choice vouchers to low-income residents. This housing program is among the most influential, as it has provided assistance to over 2.3 million families in the United States.
Housing choice vouchers help low-income families, people with disabilities, and senior citizens find affordable housing. But how do they work?
Local public housing agencies (PHA) decide which citizens in their communities require housing assistance. The federal government provides PHAs with the funds necessary to provide families in need with vouchers.
Families who receive housing choice vouchers must find a home that meets the program requirements. After they do, the PHA pays a housing subsidy to the landlord. Then, the family is responsible for paying the difference between the rent and the housing subsidy. Without the subsidy, the family would not have been able to afford the full cost of rent.
So how much is a housing subsidy? According to HUD, the subsidy amount varies depending on the family’s income. Families are only eligible for housing choice vouchers if their income does not exceed 50% of the median income in their area.
Low-Income Housing Tax Credit (LIHTC)
Another important player in the rental housing world is the Low-Income Housing Tax Credit Program (LIHTC). The LIHTC program aids in the development of affordable housing.
This program funds state housing agencies, which, in turn, provide tax credits to property developers building affordable housing units. These tax credits give developers an incentive to create more subsidized housing. As a result, subsidized tenants have more options when it comes to choosing a place to live.
Low Income Public Housing (LIPH)
The LIPH is another program under HUD designed to provide decent housing for low-income tenants, elderly people, and citizens with disabilities. Housing authorities, also known as public housing agencies, own and control LIPH properties. Renters who live in LIPH properties only have to pay for a portion of their rent, usually around 30%.
Example of Subsidized Housing
Say that Mr. and Mrs. Robinson have two young children and are searching for housing. Even with their combined income, their total earnings fall below the poverty line.
The Robinsons decided to contact their local housing agency to discuss options. They learn that they are eligible candidates for renting a subsidized house. The local housing agency provides them with a housing choice voucher and the Robinsons use it to pick out a home.
Per the agreement, their housing program will cover a portion of their monthly rent payments. The Robinsons will only be responsible for paying a small amount of rent. Without subsidized housing, the Robinsons may have ended up homeless or living in unsanitary conditions.
Pros and Cons of Subsidized Housing
Pros of subsidized housing include affordable living, on-time rent payments, and lower eviction rates. Cons include lower profits for landlords, long waiting lists, and unsafe communities.
Let’s delve deeper into the advantages and disadvantages of public housing programs.
Pros for Landlords
One of the pros of subsidized housing units for landlords is guaranteed rent payments. Because the federal government pays for the tenant’s rent, payments will never be late or missing.
Another benefit is that all tenants are pre-screened by local housing agencies. This means landlords do not have to worry about vetting prospective renters.
Landlords also benefit from subsidized housing because there are fewer evictions and lower vacancy rates. Landlords will likely not have to kick out tenants or worry about the property being empty for long periods.
Cons for Landlords
One of the cons of renting to tenants in a public housing program is that landlords are limited in what they can charge for rent. They must adhere to rental pricing regulations.
Another issue is the risk of renting out property in low-income areas. Neighborhoods with high poverty rates often also have high crime rates.
In low-income communities, tenants may also be more difficult or damage the property. It is challenging for landlords to evict tenants in subsidized units, so they have less power when dealing with bad renters.
Pros for Tenants
The most significant advantage of subsidized units is that low-income renters can access housing opportunities. Without subsidized options, many families would be unable to find a place to live in metropolitan cities.
Another benefit of public housing is that it protects vulnerable groups from housing discrimination. Examples of vulnerable groups include the elderly and renters with physical or mental disabilities.
Renters who qualify for assistance have the added benefit of a long-term tenancy. Unless their familial or financial circumstances change dramatically, they can likely live in their rental property for a long time.
Cons for Tenants
One of the cons for tenants is that they have limited options when looking for a place to live. Many public housing programs have requirements that tenants must adhere to when choosing a property.
Another negative is that tenants needing assistance must endure long waiting periods. The demand for housing assistance is high, so families are often put on a waiting list before receiving help.
Some critics of subsidized housing also argue that it leads to unsafe neighborhoods. Because crime is more common in low-income communities, tenants who live in subsidized units may be less safe.
See the table below for a quick visual of the pros and cons of subsidized housing:
How to Apply for Housing Assistance
The application process for public housing is relatively simple. To learn about subsidized housing programs near you, we recommend contacting your local housing authority or nearest HUD office. From there, the application process will begin.
A written application must include the following information:
- Names of tenants who would live in the subsidized unit
- Current address and contact information
- Family composition and characteristics (i.e., veteran status, current living conditions)
- Names, addresses, and contact information of current and previous landlords
- Name and address of employer
- Name and address of banks
Your local housing authority will review your application and determine if you are eligible. Eligibility is based on income, characteristics, and immigration status. If approved for assistance, you will need to provide the requested documentation. You will also need to sign a form releasing relevant information to your local public housing agency.
How to Calculate Rent for Low-Income Families
Calculating monthly rent varies depending on the tenant’s housing program. For example, some programs stipulate that rent is a certain percentage of a family’s income. Other programs set the rent at a fixed rate based on the number of bedrooms within a home.
According to HUD, the formula for families in many public housing programs looks like this:
- 30% of the adjusted monthly income
- 10% of the monthly income
- Welfare rent, or
- $25 minimum rent or higher amount set by a housing agency
However, certain groups may be eligible for deductions from their monthly rent payments. For example, tenants can deduct $480 from their rent for each dependent living in the household. They can also deduct $400 for any elderly person or person with a disability. Additional deductions may also be made for specific medical conditions.
Frequently Asked Questions
Let’s clear up some frequently asked questions real estate students have about subsidized housing.
What Do Housing Authorities Do?
A housing authority is a government body that governs certain aspects of housing.
Housing authorities are qualified to perform the following functions:
- Ensure that landlords and tenants are complying with leases
- Control other aspects of the rental process (ie., security deposits, utilities, property damages)
- Periodically examine the income of families and individual renters
- Transfer families from one rental unit to another
- Ensure that the living conditions of a property are safe and sanitary
- Terminate leases when necessary
Subsidized Housing vs. Public Housing: What’s the Difference?
The difference between subsidized housing and public housing is who owns the property. For tenants who live in subsidized units, the landlord is the private owner, not the housing agency. The owner can be an individual or a nonprofit corporation.
For tenants who live in public housing, the housing authority owns the property and is the landlord. In some cases, a private owner may own the property, but the housing authority still controls the property.
However, people often use these terms interchangeably, as they serve a similar purpose.
What Are Tenant-Based vs. Project-Based Housing Vouchers?
Tenant-based vouchers are given to families or individuals for assistance, while project-based vouchers are attached to a specific property.
What to Know Before the Real Estate Exam
Subsidized housing is government-sponsored assistance that helps low-income tenants find rental housing.
HUD has a variety of programs dedicated to helping renters find decent places to live. These programs promote affordable housing and combat real estate issues like housing discrimination.
You’ll need to understand the importance of subsidized housing before the day of your real estate exam. After reading this post, we feel confident you have all the information necessary for success.
Of course, subsidized housing is only one of the concepts that will be featured on the real estate test. Study other important terms using our Real Estate Flashcards, and you’ll be an expert in no time!