The Real Voucher Challenge Is Segregation, Not Lake Views

By Marisa Novara

In Chicago, “exception rents” have allowed families with housing choice vouchers to access apartments with higher rents than the metropolitan area’s fair market rent (FMR)—a practice that can make more housing and neighborhoods available for lower-income households. But the policy, which is being reduced from three times the FMR to just 1.5 times the FMR, became fodder for an exposé of sorts by the Chicago Sun-Times and the Better Government Association on voucher holders renting high-priced units with their government subsidy.

Rather than a rebuttal, which others such as Daniel Hertz of City Observatory and Amanda Kass of the Center for Tax and Budget Accountability have written, I’d like to explore a question: if we agree that the point of housing choice vouchers is to allow for more choice, how do we deal with the systemic barriers to that?

The answer to that question is not about a tiny and dwindling number of voucher holders with lake views. It’s really not even about the private prejudice of landlords who turn down voucher holders, although I’ll get to that in a moment. The question gets to the heart of a system that perpetuates segregation through the economics of fair market rent.

Fair market rent is the amount of money a property in a given area would rent for if available. The U.S. Department of Housing and Urban Development establishes FMRs to determine how much rent should be covered through a housing choice voucher.

Traditionally, FMRs have been set by metro area. For Chicago, this includes everything from Joliet to Lincoln Park, Naperville to Austin. With such a wide geography, it should be immediately obvious why former U.S. Department of Housing and Urban Development (HUD) secretary Shaun Donovan referred to fair market rent as akin to the Holy Roman Empire: just as that was neither holy nor Roman, fair market rent is neither fair nor market for the vast majority of its geography.

Here’s how this plays out on the ground: consider that a scan of the first dozen two-bedroom apartments on Craigslist for the North Side Lakeview neighborhood yielded an average asking rent of $1,880. The same scan for the South Side Auburn Gresham community found an average rent of $855.

Given that the 2016 HUD-approved fair market rent for a two-bedroom residence in the Chicago metro area is $1,176, it’s clear why a landlord in Auburn Gresham would seek out housing choice voucher tenants (in fact, many listings stated “Section 8 approved”) and why the Lakeview landlord would reject them.

Where rents are high, there is no economic incentive to rent to a voucher holder if you can command a higher rent without it (not to mention without paperwork and inspections). Conversely, where rents are low, there is every incentive to do so.

This is how supply and demand in a market system works. This is the system we created, folks. It’s working exactly as it should, unfortunately.

How Did We Get Here?

The federal government has moved to absolve itself from a great deal of the responsibility it previously held to solve this problem. After 50 years of the government directly building public housing units, in 1974 Congress passed a law that allowed the government to get out of the business of providing housing. Section 8 of the act created a voucher program in which residents could take their public vouchers and use them in the private market.

With the rise of the HOPE VI plan to revitalize public housing and the Chicago Housing Authority’s Plan for Transformation, dense high rises were demolished starting in the 1990s. Section 8 vouchers, later dubbed housing choice vouchers, became an increasingly important part of public housing. In fact, by 2015 they were the dominant form of federal housing assistance. The nonprofit Center on Budget and Policy Priorities notes that more than 5 million people in 2.1 million low-income families use vouchers.

In a review of ongoing stigma associated with vouchers, Emily Badger at the Washington Post points out that there are now about twice as many families receiving vouchers as there are living in traditional public housing. This trend holds true in Chicago, where by the end of 2015, 17,689 households resided in public housing units and more than 44,000 households used vouchers for their subsidy.

What to Do?

Recognizing the challenges with one rent standard for an entire metropolitan area, the HUD has piloted a different system known as Small Area Fair Market Rents. Under this system, rents are determined by ZIP code, with the hope that more locally determined rents will provide the flexibility needed to encourage landlords in hot markets to rent to voucher holders. The Housing Authority of Cook County has participated since 2013 in a demonstration program to try out this more tailored approach to setting rents.

The Chicago Housing Authority is not piloting Small Area FMR and instead is exercising its ability to cover up to one-and-a-half times the fair market rent. With the sharp lines drawn by neighborhood and the resulting impact on rents, even ZIP codes—while an improvement—are too large a geography to solve voucher/rent mismatches.

Case in point: take the rents discussed earlier in Lakeview and Auburn Gresham. Recall that the metro-area FMR for a two-bedroom residence is $1,176; under Small Area FMR, the allowable two-bedroom rent in Lakeview would adjust upward to $1,280, and downward in Auburn Gresham to $970. The adjustment is clearly still a far cry from the $1,880 asking rents in Lakeview.

One-and-a-half times the fair market rent, in contrast, brings the allowable two-bedroom rent as high as $1,764 if market rents are comparable or higher, as is the case in Lakeview. Exercising this option is allowing the Chicago Housing Authority to offer more choices to more of its voucher holders. Funding designated to help with higher security deposits and a “hold fee” to encourage landlords to hold a unit while necessary inspections take place are steps that would help voucher recipients compete in the private market.

I have heard some argue that housing authorities should only pay the lowest rent possible in order to serve as many people as possible. With 44,000 people on the waiting list to receive a voucher, I understand that argument; I just don’t agree with it.

The number of families served is one important part of the picture, but so is where those families are served and what kind of reasonable options people have to build the healthiest version of their family possible. If we are cranking out units according only to where rents are lowest, then we are simply perpetuating segregation and all its associated challenges.

It is important to recognize that none of our options is inexpensive. Public housing authorities can build more hard units and thus lessen the role of individual landlords in deciding where people can live, but units built with public subsidies are running well over $300,000 each. Not cheap.

Or, we can pay rents that are higher than the lowest-rent areas and thereby allow households with vouchers more options, and that will cost more than if we didn’t. Not cheap.

Or, we can designate that people with vouchers should use them almost exclusively in the lowest-rent areas, and that will seem cheap, except that the outcomes for them as individuals and the impact on our economy will end up being anything but cheap for everyone, not only voucher holders. We know this because the 42-year voucher experiment has taught us as much.

So there’s really no way to house people well on the cheap. If the federal government wants an increasingly indirect role in providing housing, then local housing authorities need funding to mitigate the challenges that come with housing through the private market. Many have said that it’s the government’s role to step in where the market fails. Assuming our goal is not to perpetuate segregation, this market system is failing voucher holders and, by extension, all of us.

Marisa Novara is a director with the Metropolitan Planning Council in Chicago.

A longer version of this article was published on the Metropolitan Planning Council blog.