Chairman Sarbanes, Senator Gramm, and distinguished members of the Banking, Housing and Urban Affairs Committee, my name is Scott Gardner. I am President of Crosshaven Properties, a privately operated apartment company headquartered in Tulsa, Oklahoma. I am also President of the National Apartment Association (NAA), a trade group representing over 30,000 apartment executives and professionals. NAA operates a Joint Legislative Program with the National Multi Housing Council, a trade association representing the nationís larger and most prominent apartment firms. It is my pleasure today to testify on behalf of both organizations. Our combined memberships are engaged in all aspects of the apartment industry, including ownership, development, professional management, and finance. Together, NMHC/NAA members own and manage over five million apartment homes nationwide.
NMHC and NAA commend the Members of the Committee for your valuable work addressing the important issue of affordable housing in America. We, too, believe it is critical to meet the housing needs of low- and moderate-income families. And we believe the Section 8 Housing Choice Voucher Program can be one of the most effective means of doing so; however, the programís potential has been limited and its utilization should be greater. We believe that the chief reason for this is that the programís structure and administration discourage private owner participation and make it difficult for voucher holders to compete with unsubsidized residents for vacant apartments. For Section 8 to realize its purpose, the program must be improved to be more "transparent," which would then result in greater apartment owner participation.
Mr. Chairman, we appreciate your leadership on this issue and we support many provisions of the proposed Housing Voucher Improvement Act, particularly the ones aimed at improving the unit inspection process. We wholeheartedly thank you for addressing those issues. However, even with this important reform, the proposed legislation falls short of fully incorporating the reforms necessary to generate broader market support for the Section 8 program.
The best way to increase voucher utilization rates is to address the problems that have traditionally caused private property owners to either not participate or to withdraw from the program. My statement today will focus on four key proposals we believe would improve the program and increase owner participation and voucher utilization: (1) Improving the Housing Quality Standards Unit Inspection Process; (2) Improving the Subsidy Payment System; (3) Increasing the Payment Standard; and (4) Amending the Lease Addendum.
1. Improving the Housing Quality Standards Unit Inspection Process
Currently, before an apartment is eligible to lease to a Section 8 voucher holder, the administering Public Housing Authority (PHA) must inspect that unit for compliance with HUD-prescribed Housing Quality Standards (HQS) prior to lease and then annually thereafter. PHAs handling 1,250 or fewer units must complete the initial unit inspection within 15 days of a tenancy approval request. Those with more than 1,250 units must conduct the initial inspection within 15 days or within a "reasonable" time after the request. Apartment owners agree that voucher holders should reside in safe, sanitary environments, but we believe that this can be achieved without conducting individual unit inspections.
Unit-by-unit inspections delay resident occupancy even if the PHA conducts its inspection within the required time frame. Further, because of the limited resources available to PHAs for inspections, and the difficult logistics that accompany inspections, they are infrequently conducted in a timely manner. Some apartment owners report delays of 30 days or longer. Given that the professional apartment industry relies on seamless turnover to meet its overhead costs, the financial implications of such delays to owners are significant.
Not only do unit-by-unit inspections cause intolerable delays in leasing units, they do not satisfy HUDís objective of protecting residents and assuring owner compliance with the agencyís health and safety criteria. They do not accurately assess the propertyís regular property management practices or HQS compliance. They only reveal the status of a unit at a particular moment in time.
NMHC/NAA applaud the intent of Section 9 of the proposed legislation that would speed up the move-in process by allowing individual unit inspections to take place within 30 days after the resident moves in and payment commences. This Section would also allow PHAs to conduct building-wide, rather than unit-by-unit, inspections in certain cases. It would reward professionally-managed properties that participate in the program and allow PHAs to focus their scarce resources elsewhere.
Although we strongly support Section 9ís proposed intent, we advocate the total elimination of individual unit inspections. Instead, we would encourage PHAs to rely on property-level inspection reports previously conducted for the HUD/Federal Housing Administration (FHA) or on routine lender inspections. These alternative inspections include a review of the propertyís maintenance procedures and maintenance history. More importantly, relying on these alternatives would eliminate the current duplication of effort by the PHAs and HUD/FHA, and would reduce occupancy delays caused by untimely unit inspections.
2. Improving the Subsidy Payment System
Another aspect of program administration that would improve private owner participation is improving the Subsidy Payment System. PHAs are required to make prompt, direct subsidy payments to apartment owners. Unfortunately, subsidy payments are often not timely, which discourages owners from participating. Yes, HUDís regulations allow PHAs to be sanctioned for untimely payments, but these sanctions are nominal because they must be paid from a PHAís limited administrative fees. As a result, they do not serve as an incentive for prompt payment.
NMHC/NAA believe more apartment owners would participate in the Section 8 program if the costs of renting to voucher residents were more comparable to the costs of serving unsubsidized residents. Therefore, it is essential to overhaul Section 8ís costly payment structure. Just as owners would not regularly accept late rental payments from market-rate residents, they should not be forced to accept late subsidy payments.
One way to achieve the goal of transparency between subsidized residents and market-rate residents would be to require that all PHAs make automated electronic fund transfers, thereby assuring timely subsidy payments. While some PHAs already use automated funds transfer systems, making this uniform among all PHAs would substantially reduce costs for both owners and PHAs.
3. Increasing the Payment Standard
The current payment standard to owners typically ranges between 90 and 110 percent of an areaís Fair Market Rent (FMR). Both the payment standard generally, and FMR levels specifically, are far too low to support owner participation. FMRs, set annually for each metropolitan area, must be high enough to encourage owner participation and, in turn, create a sufficient supply of apartments.
The shortage of affordable housing is a true example of market supply and demand at work. Private owners must receive sufficient rents to cover the costs of developing and operating an apartment property or the property will not be built. If the FMRs are too low, the owners will not be able to rent to subsidized residents because they will not generate enough income to operate and maintain the property.
The current FMR level is the 40th percentile rent, or the dollar amount below which 40 percent of the standard-quality rental housing units are rented. Establishing the FMR at the 40th percentile is a primary reason many apartment owners do not participate in the voucher program. These rents are simply too low to support the propertyís operations. NMHC/NAA recommend that the FMR be based on at least the 50th percentile.
We further recommend that the payment standard be raised to 120 percent of FMR in high-cost areas, and that PHAs be given the flexibility to raise the level to 150 percent in areas where the voucher utilization rate is less than 80 percent and the market occupancy rate is greater than 95 percent. It should be noted that in high-cost areas, even that increase would still be well below market rents.
We appreciate that the proposed legislation recognizes the importance of this issue. In Section 5, the proposal would allow payment to be increased to 120 percent of the FMR where it had been set at 110 percent or higher for the previous year and voucher utilization rates were less than 95 percent for the 12 months prior to establishing the new standard. As previously stated, NMHC/NAA propose a higher increase, and we advocate that such increases be authorized where voucher utilization rates were less than 80 percent for the previous six months, not the proposed 12 months. We strongly believe that six months is an adequate period after which to determine the need for a higher utilization rate, and 12 months will only serve to further delay expanded owner participation in the program.
4. Amending the Lease Addendum
The proposed bill does not address this issue. HUD requires every lease to a Section 8 voucher holder include its standard addendum. The addendum itself requires that the lease include, word-for-word, all of the addendumís provisions. If there is a conflict between the addendum and another lease provision, the addendum preempts the lease.
The addendum contains numerous provisions that may override local practice and even landlord-tenant (NAA/NMHC prefer "owner-resident") laws, putting owners in a very untenable situation. Differences between Section 8 and market leases also require owners to specially train their staffs to administer Section 8 leases. This is particularly difficult in an industry where employee turnover averages 50 percent.
In short, HUDís lease addendum is many times incompatible with state and local landlord-tenant laws and disregards industry-wide model lease language developed by NAA. This inconsistency creates confusion among apartment owners and causes difficulties for owners who must comply with one set of lease requirements for voucher residents and another for non-voucher residents residing within the same property. Apartment owners have told us time and time again that the lease addendum creates obstacles that discourage their participation in the program.
We propose the elimination or modification of the lease addendum to reflect standards used with market leases, thereby reducing administrative burdens and other costly procedures. Alternatively, NMHC/NAA propose establishing pilot programs to test alternative, less conflicting and burdensome lease addendums or the NAA model lease.
NMHC/NAA support the addendumís intended purpose, which is to ensure the safety of Section 8 residents. However, residents are already protected by existing local laws. The addendum does not add anything to these protections, it only adds costly burdens to owners, which, in turn, discourages their participation in the program.
In summary, NMHC/NAA support the Section 8 program and wish to engage more fully in it. However, such participation is not economically feasible without reforming the program to reduce the significant costs and burdens it imposes on apartment owners. I thank you for the opportunity to testify on behalf of the National Apartment Association and the National Multi Housing Council, and wish to offer our assistance as the Committee continues with its important work toward creating a more effective and efficient program. Thank you.
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