If you are willing to accept tenants who receive housing choice vouchers, you must understand how the voucher amount is calculated. Even if your unit could command a certain amount in the open market, it does not mean Section 8 will be willing or able to pay you that same amount. The maximum amount that you will receive from Section 8 is based on a variety of factors. Here are some factors that go into how much Section 8 will pay.
Fair Market Rent
Each year, HUD calculates the Fair Market Rent for over 2,500 areas of the country. When calculating this number, HUD takes into account 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 or other units that have been rented at what they consider to be below-market rent.
HUD uses two bedrooms 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 percent of the units in the area rented for less than this amount and 60 percent of the units in the area rented for more than this amount. Therefore, it is slightly lower than the median rents for the area. The Fair Market Rent for certain metropolitan areas will be set at the 50th percentile instead of the 40th percentile.
The Fair Market Rents are set in the 40th or 50th percentile so that:
- Landlords will be more willing to participate in the Section 8 program because they can receive a decent rent for the unit.
- Low-income tenants will be able to afford their portion of the rent.
Each local Public Housing Authority will then use the Fair Market Rent that HUD has set as a guide. The PHA will look at factors in their area such as, how long it takes a Section 8 family to locate housing, and will determine their payment standard, or the maximum amount they are willing to pay for each number of bedrooms. This payment standard will be between 90 and 110 percent of the Fair Market Rent.
Therefore, the three factors that determine how much you will receive from Section 8 are:
- The Fair Market Rent that has been set for the metropolitan area where your property is located. HUD publishes their list of Fair Market Rents each year.
- The payment standard set by the Public Housing Authority.
- The number of bedrooms your unit has.
Landlords who have property that would rent at or below the average rent for the area could benefit from accepting Section 8 tenants, because they may be able to receive higher rents from these housing choice vouchers than they would in the open market. For those landlords with units that would rent above the average rent for the area, participating in the housing choice voucher program could result in you receiving a lower monthly rent than you could receive in the open market. However, the advantage of Section 8 is that, each month, you are paid consistently by the Public Housing Authority.
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:
- 30 percent of their monthly adjusted income.
- 10 percent of their monthly gross income.
- The welfare rent.
- The minimum rent amount set by the PHA.
The tenant portion will be paid directly to you by the tenant. If the rent for your unit is set at a higher amount than the payment standard the PHA has set for the unit, the tenant can elect to pay more. They are allowed to increase their tenant portion as long as the amount they will pay is approved by the PHA and does not account for more than 40 percent of the tenant’s monthly adjusted income.
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 PHA may issue the tenant a separate amount for utility allowance or may issue a utility reimbursement directly to the tenant or directly to the utility company.