Why I Will No Longer Rent To Section 8

Section 8 is the name of the HUD program that gives rent payment vouchers to low income tenants across the country.  The tenant’s portion of the rent is on a sliding scale based on their income and in many cases is $0 per month.  There are several problems with the program which I will address here.

Section 8 Facts:

• The “average” rent paid by Section 8 tenants is $347 per month.
• Section 8 tenants are required to pay 30% of their adjusted gross income for rent. (Many households adjust to $0)
• The average stay in assisted housing is 6 years.
• 5.23 Million people live in households that receive a Section 8 voucher (Approx. 1.5% of the US population)
• The cost of tenant based rental assistance to the federal budget is $36 billion per year.
• Project based rental assistance is an additional $17 billion per year on the federal budget.
• 43% of recipients are households with kids.
• 38% of Section 8 recipients are elderly.
• 22% of Section 8 recipients are disabled.
• Black households are 45% of recipients, White households are 35%, and Hispanic households are 16% of voucher recipients.
• Families must earn under 50% of the Area Median Income to qualify for a voucher.  This effectively means 49.9% of US households would qualify, but only 1.5% receive benefits. 50% of the AMI in Berrien County Michigan is $43,600 for a family of four and $34,900 for a family of two.
• The Section 8 program began in 1974, and the current voucher system began in 1983.
• Some states require landlords to accept Section 8.
• Section 8 did not have an asset test until 2024.  Section 8 recipients can have up to $103,200 in “countable assets”, plus up to an additional $51,600 in ABLE accounts, retirement accounts, or trusts. For reference, the median non home equity net worth of ALL households of all ages in the US is $57,900. Someone can receive Section 8 benefits and have 2.7X the wealth of the median household in the country.

Why Did I First Try Renting To Section 8?

My overall goal has been to provide affordable housing in one of the lowest income and highest crime areas of the country (Benton Harbor, MI).  By accepting Section 8 for rent payments we would be giving an opportunity for more families to have access to housing.  In many instances Section 8 pays comparable rent to what a market tenant would pay, and in a few very specific instances the rent for a Section 8 tenant could exceed that of a market tenant.  Every area is different.

A big advantage to me originally was the idea that the US Federal Government would always pay its rent.  There would not be a sob story on the 3rd of the month about hours getting cut, cars breaking down, etc. In general Section 8 tenants also stay much longer than market rate tenants.  I typically have market rate tenants move about every 2 to 3 years from our houses.  Having tenants stay longer term is usually better as it avoids costly flips with 1 to 2 months of lost rent.

Reason 1: The Audacity of The Inspection System:

I was very frustrated when we first entered the Section 8 program.  We finished rehabbing a house that no one else wanted and spent over $25,000 doing so.  We had the house inspected by the city and we were given a certificate of occupancy.  We found a tenant who had a Section 8 voucher and was currently homeless with her children.  We contacted Section 8 and despite having the certificate of occupancy from the city they would not allow move in to occur until after their inspection.

The inspection took place and I was given a laundry list of items that needed repaired before move in could occur.  This was absolutely ridiculous. The people who are not paying actual rent get a higher living standard than those who do? The city inspection isn’t good enough, there has to be another set of arbitrary rules?

In this list of items we had to do I had to paint a detached garage.  Seriously. The inspector also did not understand Section 8s actual rules.  He was adamant that in the dining room the giant picture windows that likely hadn’t been opened in 50 years had to be able to be opened. This room has 3 exits to it, and the actual section 8 guideline for non bedrooms is that a window in the room must open OR the room must have a ceiling fan, which this room did have.  We got through this process, but it was frustrating.

Every year they reinspect the property.  Following the reinspection, which occurred on a Friday evening we were given a 48 hour time frame to resolve an issue,  replacing the Co2 monitor that the tenant had removed.  As with any rental you can not enter without tenant permission.  We bought a new monitor and dropped it off to the tenant who stated she would install it and send the pictures to the inspector.  This did not happen and we were given a violation and told we would not receive payment for the month.  It took over a week to get resolved and we received our payment on the 15th.

Reason 2: Rent Limitations:

Section 8 works best for the landlord economically when renting apartments in buildings with a well and septic tank and other shared utility costs like trash and hot water.  This house is a 4 bedroom home.  The total of the chargeable rent and utility allowances make up the “Fair Market Rate, or FMR, which vary by area.  The utility allowances that are paid to the tenant if not covered by the landlord increase substantially as the home gets larger, this takes away from what can be charged for rent.  I am currently under market value by about $200 per month on this property due to this calculation.   Due to the utility allowances I can rent a 2 bedroom apartment on Section 8 in one of my apartment buildings and net roughly the same amount of money that I am getting from a 4 bedroom house.

Going one step further, on my 7 unit building even though it has city water and sewer, there is significant cost savings because a big chunk of any water bill is just being connected as a customer and the unit cost for additional water use is low.  I currently pay around $225 a month for this.  Divided by 7 units that is $32 per unit.  I also have 1 large gas water heater that serves the whole building. It averages $35 per month to operate.  Divided by 7 units costs the cost to $5 per month.  By providing water, sewer, and hot water I could charge $1,069 per month for the unit, with my true rent after providing those utilities being $1,032.  This is why I could earn more from a 2 bedroom apartments than a 4 bedroom house.

One of our goals with having rental properties was to provide rental properties for large families as we noticed there were NO 4 bedroom homes for rent on the market.  We have learned why this is.  It isn’t economical for Section 8 based on the utility allowances, but it also isn’t economical for the most part for market tenants either. Most 2 to 3 bedroom homes are around 800 to 1200 square feet.  The average 4 bedroom home in our area is pushing 2,000 square feet.  This is a lot more flooring, walls, windows, and doors for tenants to damage.  In our state we are limited to only being able to charge 1.5X rent for a security deposit.  We have lost a LOT of money on tenant destruction of property in larger houses. 4 bedroom houses really only make sense if they are smaller in total square footage, which is hard to find.

Reason 3: A break in the 3rd payer system:

When people don’t pay for the goods and services they receive they abuse them.  This has been our experience with Section 8 tenants.  They skirt every rule, they ask for more and more upgrades, and are generally a pain in the butt. The two Section 8 tenants we have had in this property both had entitlement mindsets and were rude and passive aggressive.

Reason 4: The reward system is broken and I can no longer morally support it:

With Section 8 there is no time limit.  People wait on the Section 8 waitlist for many years in order to get a voucher.  Once they have a voucher they have it for life as long as they don’t get in legal trouble and don’t earn over a certain amount.  If we have 2 people who both have the same income and 1 of them receives no assistance and the other one gets free rent for life, we have a problem.  We also trap the person who does receive the benefits because they are never going to move forward in life.  They will NEVER work more because they will lose their voucher. They will take pay cuts and work less hours. They will prevent their teenage children from getting jobs because it could affect their voucher.

I’m not opposed to helping people in need. In fact I would be in favor of expanding the Section 8 program through eliminating the mortgage interest tax deduction IF, and only if the following reforms were made:

Section 8 assistance only provides a 100% voucher for disabled veterans and elderly people, all others can receive a 100% voucher for only the first 2 months of an occurrence.  Section 8 benefits are limited to 1 calendar year per decade, where the maximum assistance is 50% of the rental cost per month. But this is not going to happen.  I don’t think it is right to give people infinite free housing and I will no longer participate in it with my assets.

Overall, the Section 8 program as administered is a very poor method to assist with housing costs for low income families.  It traps the people who do receive it and they will have a truly rude awakening when they start having to pay market rate rent. It is also not fair to the people who qualify but get no assistance.

Reason 5: The Misleading Way The Voucher Is Calculated:

I keep mentioning free rent, but doesn’t Section 8 require families to pay 30% of their income as rent?  Well this 30% of income as rent figure is deceiving.  It is not 30% of their gross income it is 30% of their income after certain deductions are made.  It is also inclusive of all household utilities, not just rent.  As an example, let’s look at a single mother with 3 kids who earns $30,000 per year.

Gross income is $2,500 per month so 30% would be $750 per month, however we now look at the adjustments.  This is NOT the same Adjusted gross income number from our tax returns that most people would be familiar with, this is a fully separate equation. Government payments such as the earned income tax credit and SNAP benefits also do not count as income.

There is a $480 adjustments per child. In this case we have 3 children, so that is $1,440 that will get deducted from income.

Any documented child care expenses can also be deducted.  Let’s assume she spends $500 per month on documented child care for the youngest, this is another $500 that will be deducted from the gross income.

• Gross Income: $2,500
• Child Adjustments: -$1,440
• Childcare adjustment: -$500
• Adjusted Gross: $560
• 30% of adjusted income: $168

In this scenario her monthly rent payment would be $168.  This is also an extreme example, as the incentive structure would typically result in the mother working less to maximize her other benefits like the earned income tax credit.  Earning around $24,000 would result in maximizing this credit at $8,046.

If she earned $24,000 per year:

• Gross Income: $2,000
• Child Adjustments: -$1,440
• Childcare adjustment: -$500
• Adjusted Gross: $60
• 30% of adjusted income: $20

She would receive in total assistance:

• $1,536 per month total in rental and utility costs ( $1,556 for a 3 bedroom – $20 tenant portion based on income)
• $975 in food stamps (max for a family of four)
• $670.50 amortized earned income tax credit
• $425 amortized additional child tax credit for 3 children, refundable amount
• $3,606 total per month in antipoverty programs. Her true NET income ends up being around $65,000. This does not include the $0 cost for medical insurance that she would also receive.

Section 8 also does not have a work requirement, so 30% of $0 is $0 in these instances.

Reason 6: I Don’t Want To Supply The Tools Of My Destruction:

Michigan is a swing state and has been under Democrat leadership for 16 of the last 24 years.  Section 8 recipients are overwhelmingly Democrats. Democrat voters are the reason property taxes are so high, it takes months to evict non paying tenants, and that landlords can’t charge adequate, enforceable late fees and security deposits.  This is just on the property front, Democrat policies have led to higher taxes, higher regulation, and lower freedom and economic opportunities.

They can vote how they like and believe in what they like, however I do not have to provide additional support to their worldview.  Many Section 8 tenants end up losing their vouchers precisely because they can not find someone who will rent to them. If I don’t agree with how the system works, I should not participate in the system. Perhaps it will eventually fail because no landlords will support it anymore.

Reason 7: There are plenty of market tenants:

There is a major demand for rental houses in our area.  Very few rentals have been on the market in the last couple of years.  While turning a property after a recent eviction I have had no fewer than a half dozen people stop by and ask we about when it will be listed and if they can apply for it now.  I don’t need to appeal to customers with free government rent because there are many qualified tenants looking for housing. Section 8 may make more sense in areas that always have vacancies.  20 years ago the vacancy rate in our area was 18%, today it is officially 6%, but feels much lower. In 2006 accepting Section 8 would likely be necessary to ensure units don’t sit vacant, whereas today this is simply not the case.

What do you think of the Section 8 program? If you were a landlord would you rent to Section 8 tenants?