Section 8 housing holds blueprints for reform

[Originally in the January 17th 2010 issue of the Badger Herald. Comments are off here]

Section 8 discrimination is one of the most frustrating challenges to ensuring housing security for all members of our community. Section 8 assistance, or more accurately, the Housing Choice Voucher Program, is a federal program that helps low-income people pay their rent. Though it is illegal to discriminate against a potential tenant because they receive Section 8 assistance in Dane County, right-wing pundits call for landlords to avoid renting to Section 8 recipients. Accordingly, many landlords find a way to do so, occasionally bragging about it. This undermines the program and wastes taxpayer dollars by making it more difficult for those who receive assistance to actually use it. Education, enforcement and a commitment to immediately rebut the fear mongers who equate Section 8 recipients with criminals will, over time, vanquish Section 8 discrimination. However, there is action we can take now to hasten the end to that discrimination.

One of the ways to help end the discrimination is to make Section 8 invisible, that is, hide the fact a tenant is receiving assistance. While it is hard to understand why some landlords would reject a no-hassle, government guaranteed payment for the entire lease term merely because of the program’s name, it remains some do. Just changing the name of the program is not sufficient, because landlords and knuckle-dragging AM radio commentators would quickly adapt. What is needed is a way to make Section 8 renters look like all other renters.

The two naive approaches are both non-starters. Simply making cash payments to tenants directly would never fly, and placing all renters in the Section 8 program is equally ridiculous. Similarly, allowing people to buy into the Section 8 program, for those of us who would stand in solidarity with Section 8 renters, would probably not create a large enough group to justify the hassle on the government side. Thankfully, there is a way to align the market with the interests of both the renters and the landlords to reshape the leasing process.

When you think about it, not only is it crazy for landlords to reject the guaranteed rent of the Section 8 program, but it is also crazy for landlords to not want all of their tenants to come with some sort of rental guarantee. In fact, they should be charging tenants who don’t come with such a guarantee, to reflect the risk they’re taking of ultimately not being paid. Landlords already do this to an extent — many leases come with an early payment discount. Though it’s true that with a lease they can always go to court and demand payment, that’s time-consuming, expensive and ultimately there is no certainty they will see their money. If there were a visible program where a trusted third party guaranteed the rent, the norm would quickly become that tenants would have to pay more to not have the guarantee.

There is benefit to the renters, too, for having the landlords deal with a third party. During the application process, prospective tenants must provide the landlords with detailed financial information for credit checks and verification. If the landlord is careless — or worse, malicious — this is identity theft waiting to happen. Most of us would prefer our landlords not know this much about us, especially before we sign a lease. Likewise, the credit check process is a hassle and cost for the landlord. This is especially an issue when renting to college students, who may be signing a lease with five, six or more people on the same lease.

It would be far easier for landlords, and safer for tenants, if credit checks were instead handled as a “pre-approval” for a certain level of rent. If the tenants have such a guarantee, the landlord knows when renters sign the lease they no longer have to worry about being paid. This guarantee might come from the government, but it could come from anywhere. Banks, and especially credit unions, have some obligation to provide useful services to their members. Between customer demand and some governmental prodding, banks and credit unions should offer these guarantees as a normal product. (As a UW Credit Union member, I’d rather see the UWCU doing more good in the community than building more fancy brick buildings). Section 8 recipients, as lower-income people, are more likely than higher-income people to not have a relationship with a bank. This is to everyone’s detriment. Incorporating Section 8 vouchers as part of a larger banking program could help squeeze out predatory pay-day loan and check cashing “services”. Depending on how the program is structured, it could also serve as a useful tool to help boost credit scores. This would be a real boon to college students, who have limited opportunity to build their credit.

Just as is the case with home mortgages, the biggest cost that needs to be addressed is handling renters who default. We could potentially cover these losses through the security deposit financing described earlier, but the more plausible option would be to charge the renters a premium for the guarantee. There are obvious benefits to the system, which should encourage its use even with the premium. However, a mandatory but very moderate tax (and entirely avoidable) on those who chose not to carry such a guarantee, designed to raise the rent just slightly above what it would cost to rent with a third party guarantee, could be enough to bootstrap a rental guarantee program into widespread use, and would help with financing.

It’s possible the savings from the landlord’s hassle of repeated credit checks alone would be enough to justify a program of rental guarantees. When you add to that the cost of personal information exposure by renters, it certainly becomes viable. This is an easy example that could start tomorrow, and aligns with the market to solve a social justice problem.

(Thanks to the People’s Housing Vision working group for their feedback and suggestions.)

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