How Section 8 Determines Voucher Amount

Section 8 of the Housing Act of 1937, often just called Section 8, determines how much it will pay for each voucher based on several factors. The maximum amount it will pay varies based on factors such as the town you live in and your income level.

The amount of the Section 8 voucher may be more or less than the amount the landlord could receive for the rental on the open market. The four main criteria Section 8 will consider include the Fair Market Rent, payment standard, tenant portion, and allowance for utilities.

How Does HUD Calculate Fair Market Rent?

The first step in determining the voucher amount is to calculate the Fair Market Rent for the area. Each year the U.S. Department of Housing and Urban Development (HUD) comes up with this number for over 2,500 areas of the country.

When calculating this number, HUD looks at all units that have been rented in that specific area over the last 15 months. It excludes units that are less than two years old, assisted living units, and units that have been rented at what they consider to be below-market rent.

HUD uses two-bedroom homes as the standard for calculating Fair Market Rent. It then derives the rents for all other bedroom sizes from the Fair Market Rent for the two-bedroom.

The Fair Market Rent is set at a level that is in the 40th percentile for the rents in the area. This means that 40% of the units in the area were rented for less than this amount and 60% were rented for more. Therefore, it is slightly lower than the median rent for the area. HUD sets the Fair Market Rent for some metropolitan areas at the 50th percentile instead of the 40th percentile.

HUD sets the Fair Market Rents at the 40th or 50th percentile to help balance the needs of low-income tenants, who must still afford their portion of rent, and landlords, who must receive enough rent to be willing to participate in the Section 8 program.

What Is the Payment Standard in Each Area?

Local public housing authorities will use the Fair Market Rent that HUD has set as a guide. In addition, these housing authorities will look at factors in their specific area, such as how long it takes a Section 8 family to locate housing, and then determine their payment standard, or the maximum amount they are willing to pay for each number of bedrooms.

Tenant Portion

Tenants who receive housing choice vouchers have to contribute a tenant portion to the rent. The amount that the tenant must contribute will be the greater of the following:

• 30% of their monthly adjusted income
• 10% of their monthly gross income
• The amount of the welfare rent, which is a portion of welfare designated for housing costs (most states do not have welfare rents)
  
• The minimum rent amount set by the public housing authority

The tenant portion will be paid directly to the landlord by the tenant. If the rent for a unit is higher than the payment standard set by the public housing authority, the tenant can elect to pay more. Tenants are allowed to increase their portion as long as the amount they pay is approved by the public housing authority and does not account for more than 40% of the tenant’s monthly adjusted income.

Utility Allowance

If utilities are included in the monthly rent, the public housing authority will usually include an amount for utilities when issuing the housing choice voucher. If the rent for your unit does not include utilities, the housing authority may issue the tenant a separate amount as a utility allowance or a utility reimbursement (which may go directly to the utility company).

Pros and Cons of Section 8 Vouchers for Landlords

Landlords who have property that would rent at or below the average rent for the area could benefit from accepting Section 8 tenants. This is because they may be able to receive higher rents from these housing choice vouchers than they would in the open market. In addition, you will be paid consistently each month by the public housing authority.

For landlords with units that would rent above the average rent for the area, participating in the housing choice voucher program may be a disadvantage. It could result in you receiving a lower monthly rent than you could receive in the open market.