July/August 1997

Section 8: Points of View
The Community Stake in Section 8 Restructuring

by Paul S. Grogan, President, Local Initiative Support Corporation

Low-income communities have much at stake in the restructuring of the FHA-insured Section 8 multifamily housing portfolio.

The first policy imperative of the restructuring should be to do no harm. Many HUD multifamily projects are located in low-income communities. In many cases, these projects are in relatively good condition and are a community asset. If multifamily portfolio restructuring is mishandled, it will destabilize these projects and, even more important, undermine the surrounding neighborhoods.

In other cases, troubled multifamily projects are already corroding low-income communities. Portfolio restructuring should provide an opportunity to address these troubled properties.

Over the years the Section 8 projects have become increasingly occupied by the very poor tenants. The median tenant income is roughly the same as for public housing. Such intense poverty concentration within inner city projects tends to isolate the poor from the economic mainstream and exacerbates inner city community problems. Portfolio restructuring offers a real opportunity to address the problem without forcing the displacement of poor tenants.

We believe that legislation should – and can – have the following elements:

• Retention of project-based assistance. In most cases, project-based rental assistance will be essential to minimize potential disruption of tenants, buildings, and communities.
• Retention of FHA mortgage insurance. In many or most cases, FHA mortgage insurance will be necessary to attract new private mortgage financing after restructuring.
• Extended low-income use. It is appropriate to extend the principal public benefit – low-income use – in return for a restructuring of the FHA mortgage.
• Preference for public purpose administrators. In delegating restructuring responsibilities, HUD should give preference to capable states, localities, and non-profits, which have public missions and are likely to be sensitive to the needs of low-income tenants and communities.
• Community and tenant involvement in planning. Affected communities and tenants must be actively involved both in the program plans and in restructuring individual projects. The capability and responsiveness of CDCs merits their preference in this process.
• Adequate resources for rehabilitation. Other public resources, like HOME, CDBG, and Housing Credits should not have to be significantly diverted to rehabilitate the Section 8 stock.