The number of households with worst-case housing needs rose slightly from 2001 to 2003, according to a Department of Housing and Urban Development (HUD) report to Congress, but the department says the increase wasn’t statistically significant.

Households with worst-case needs are defined as unassisted very low income renters (income no higher than 50% of area median income [AMI]) who pay more than half of their income for housing or live in severely substandard housing.

In 2003, 5.18 million households met that definition, up from 5.01 million in 2001, according to the recently released report. By comparison, there were 5.2 million households with worst-case housing needs in 1995, 5.38 million in 1997, and 4.86 million in 1999.

As a portion of all U.S. households, 4.89% had worst-case needs in 2003, compared with 4.73% in 1999 and 4.76% in 2001.

By race and ethnicity, the report says that 2.76 million of the 5.18 million households with worst-case needs were white non-Hispanic, 1.04 million were black non-Hispanic, and 1.04 million were Hispanic.

Severe rent burden was by far the dominant cause of worst-case needs, with 91.4% of worst-case households only paying more than 50% of income for rent, 5.1% only living in severely substandard housing, and 3.5% suffering from both problems.

Predictably, HUD found worst-case housing needs were concentrated at the bottom of the income ladder. “Because severe rent burden – not inadequate housing – is the predominant cause of worst-case needs among very low income renters, the importance of income for households seeking affordable housing cannot be overstated,” the report says.

Specifically, 77% of the families with worst-case housing needs in 2003 were extremely low income households, with incomes no higher than 30% of AMI. To put it another way, 65.7% of unassisted extremely low income renter households had worst-case needs, compared with 22.1% of households with incomes between 30% and 50% of AMI.

For families higher up the income scale, only 6.7% of those with incomes between 50% and 80% of AMI, 3.3% of those with incomes between 80% and 120% of AMI, and 2.5% of those with incomes more than 120% of AMI had severe rent burden or live in severely inadequate housing.

The report also found that a job is no guarantee of affordable housing. Of families with children with worst-case needs, 41% had earnings consistent with full-time yearlong work at low wages.

The report also looked at the availability of affordable rental housing for extremely low and very low income households. Units were considered affordable if target households could pay the rent with 30% of income. Affordable units were considered available if they were vacant or actually occupied by households in the target income range.

HUD issues Sec. 8 contract renewal rules

HUD has issued final regulations for renewal of project-based Sec. 8 contracts that make projects initially renewed outside of the Mark-to-Market (M2M) program eligible for M2M on a subsequent renewal.

The M2M program was established to deal with the problem of above-market rents on FHA-insured Sec. 8 projects, providing for debt restructuring if necessary to accommodate a reduction in rents.

Sec. 524 of the Multifamily Assisted Housing Reform and Affordability Act provides for the renewal of Sec. 8 contracts without debt restructuring either because the project is ineligible for a restructuring plan or because the owner requests renewal without such a plan.

The final regulations implement the “look-back” provision in the 2001 Mark-to-Market Extension Act extending eligibility for M2M restructuring plans to projects previously renewed without such a plan, provided that the projects would have been eligible for restructuring at the time of initial renewal.

HUD or the participating administrative entity (PAE) handling the renewal will determine whether a restructuring plan is necessary. A restructuring plan won’t be required if HUD or the PAE determines that rents after renewal will be sufficient to maintain adequate debt service coverage on the FHA-insured or HUD-held mortgage and replacement reserves to ensure the long-term physical viability of the project.

The regulations also implement a statutory change making clear that the operating cost adjustment factor (OCAF) used to adjust contract rents cannot be negative.

The rules have also been revised to clarify protections for tenants when a Sec. 8 contract isn’t renewed. An owner must provide one year’s notice to the tenants, HUD and the contract administrator of a decision not to renew the contract. If the notice isn’t given one year before expiration of the contract, the owner must allow the tenants to remain in their units until one year after the notice is given, with no increase in their rent, even if HUD doesn’t continue to provide rental assistance.

If, for example, a tenant receives a voucher, but the current unit does not meet housing quality standards, the tenant can stay in the unit with no increase in rent, but the owner can’t get the voucher subsidy.

Separately, HUD has issued proposed contract renewal regulations to make clear that an owner who gives a one-year notice of the expiration or termination of a contract and who subsequently decides not to undergo project restructuring, or whose restructuring request is rejected, would not be required to give a new one-year notice.

The owner would still be required to give 120 days’ notice of a final decision not to renew a contract.

The proposed rules would also implement statutory provisions on rent levels when contracts are renewed and make clear that subsequent adjustments will be budget-based, rather than OCAF-adjusted, only at the request of the owner and with HUD approval.

HUD recapturing remaining voucher reserves

HUD has notified public housing authorities (PHAs) that it will reduce to zero any unused Sec. 8 voucher reserves remaining in their annual contributions contract accounts after Dec. 31, 2005.

The department cut PHAs to one week of program reserves last year, and announced its intention to recapture any remaining reserves in Notice PIH 2006-3 (HA), issued Jan. 11.

In addition, any budget authority provided to PHAs in calendar 2005 that exceeded their actual program expenditures must be maintained in an undesignated fund balance account. These funds may only be used to assist additional families up to the number of units under contract.

The notice also advises PHAs of the importance of complying with requirements to report cost and leasing information through the voucher management system and to meet uniform financial reporting requirements. Failure to comply can result in the imposition of penalties of 10% of monthly administrative fees.

Guidance issued on 2006 voucher renewal funding

HUD has implemented the Sec. 8 voucher renewal provisions of the fiscal 2006 appropriations act, continuing the process of basing funding on May to July 2004 leasing and cost data.

Notice PIH 2006-5 (HA), issued Jan. 13, says that renewal funding for calendar 2006 will be based on PHAs’ 2005 funding allocations before pro rata reductions. This baseline amount will be adjusted to reflect the transfer of vouchers between PHAs, allocations of new tenant protection vouchers after the calendar 2005 baseline was established, and partial-year voucher allocations awarded in prior years.

The 2006 annual adjustment factors will be applied to the total allocations, and the adjusted allocations will be prorated as necessary to fit within the amount appropriated.

The appropriations act also provided $45 million to adjust calendar 2005 allocations where the May-July 2004 leasing levels were temporarily low, and to adjust allocations for PHAs with a significant increase in costs because of portability or unforeseen circumstances.

HUD will first process requests for additional funding because of low May to July 2004 leasing levels, then it will handle requests concerning significant cost increases.

Barry G. Jacobs is editor of Housing and Development Reporter, the nation’s premier source for in-depth, factual coverage of all aspects of affordable housing and community development. The two-part publication includes informed reports and insightful analyses in “HDR Current Developments,” and an always up-to-date compilation of essential documents in the “HDR Reference Files.” Jacobs is also the author of the annually updated HDR Handbook of Housing and Development Law. For more information, call (800) 723-8077.