Chairman Mack, Ranking Member Kerry, members of the Subcommittee, my name is Tom Shuler. I am Chief Operating Officer of Insignia Residential Group, a subsidiary of Insignia Financial Group, Inc., headquartered in Greenville, South Carolina, and past President of the National Apartment Association. Insignia is the nation's largest manager of multifamily rental housing with more than 275,000 units in more than 2,000 properties. Close to 41,000 of these units in more than 350 properties are part of the U.S. Department of Housing and Urban Development's (HUD) resident- and project-based Section 8 programs.
Accompanying me is Chris Bums, Vice President of Lincoln Property Company, headquartered in Tampa, Florida, and past President of the Florida Apartment Association. Lincoln Property is also involved in HUD's resident- and project-based Section 8 program with approximately 10,000 units in more than 95 properties.
I am here today on behalf of the National Multi Housing Council (NMHC) and the National Apartment Association (NAA). NMHC and NAA represent the majority of the nation's firms participating in the multifamily rental housing industry. Our combined memberships are engaged in all aspects of the development and operation of apartments, including ownership, construction, finance, and management
NMHC represents the apartment industry's largest and most prominent firms. NMHC members are the principal officers of these organizations. NAA is the largest national federation of state and local associations of apartment industry professionals including developers, owners, investors and property managers. NAA is comprised of 150 affiliates and represents more than 25,000 professionals who own and/or manage more than 3.3 million apartments. NMHC and NAA jointly operate a federal legislative program and provide a unified voice for the private apartment industry.
The U.S. apartment industry provides homes for approximately 15 million families and
individuals nationwide, representing the full spectrum of America's population. Apartments
account for about 15 percent of the entire housing stock. Rental revenues from apartments total
more than $75 billion annually, and management and operation of apartments are responsible for
approximately 400,000 jobs. Construction of apartment communities has added roughly 200,000
new apartment homes in each of the past two years. The value of the new construction has
averaged more than $16 billion annually, providing jobs to more than 200,000 workers. Among
the owners of apartment corrununities are individuals, partnerships, real estate investment trusts,
corporations, and nonprofit organizations. Mortgage financing of apartments is provided by an
array of lenders including commercial banks, thrift institutions, life insurance companies, and
government-sponsored enterprises. And a growing share of the financing comes from publicly
traded mortgage-backed securities.
The resident-based Section 8 program can and should work. But I am here today to tell you that the program does not operate as well as it should because over the years it has been amended to include a set of rules that run contrary to sound private market practices. A recent HUD survey of private apartment owners and managers revealed that Section 8 recipients would be accepted in only about 53 percent of multifamily properties. Owners and managers, who responded to the survey, cited "too many regulations" and "too much paperwork" among the most common reasons they do not accept Section 8 recipients.
As a result, as many as 20 percent of Section 8 recipients fail to find suitable housing and return their vouchers and certificates unused. Eighty percent is a terrific success rate if you're running for re-election. But in my view, a 20 percent failure rate is much too high for a matter as critical as locating suitable housing for our nation's low- and very-low income families. This failure is, in part, a result of the bureaucratic design of the Section 8 program which has caused many owners of good quality, well-located rental housing to shy away from participating in the program.
That's the bad news.
The good news is that of all the aspects of HUD reform that have been discussed during the 104th and 105th Congress, there is perhaps a greater degree of consensus on how to fix the residentbased Section 8 program than on any other topic. Conventional, assisted, and public housing providers, Members of Congress, and, on many points, the Department of Housing and Urban Development agree on changes that will improve the program. A foundation of this consensus was a 1994 report commissioned by NAA and NMHC and conducted by Abt Associates.
The Abt report, which was based on focus groups conducted with owners and managers with experience or an interest in the Section 8 program, found that owners of multifamily housing would be more likely to participate in the program if it were amended to operate as much as possible within the bounds of the private marketplace. In other words, vouchers and certificates should be as good as cash; Section 8 recipients should receive the same protections as their non- subsidized neighbors but no more; and owners should not be penalized with rent-up delays, late payments from public housing authorities (PHAs), or constraints on market-driven decisions. I have attached to our testimony for inclusion in the record, key excerpts from the Abt report, from which I am pleased that many of its recommendations are included in S. 462.
Let me now discuss, in a bit of detail, two of the major disincentives to owner participation in the resident-based Section 8 program: the "endless lease" and "take one, take all" provisions.
The "endless lease" provision precludes owners from opting-out of a rental relationship with a Section 8 recipient upon expiration of a lease. Outside the Section 8 program, it is a well established provision of landlord-tenant law that when a lease expires, both the owner and the resident have the option of ending the rental relationship. Owners need this option to protect their investments from residents who cause losses, and residents need this option to end a rental relationship if an owner is providing an inferior product. Under the Section 8 program, however, owners are required to continue a rental relationship indefinitely or go through a lengthy, costly eviction process to end it. The "endless lease" provision, while enacted with the intent of protecting Section 8 recipients, has had an unintended and opposite effect: many owners choose not to participate in the program at all.
The "take one, take all" provision, like the "endless lease" provision, was also established with the intent of protecting Section 8 recipients. Like the "endless lease" provision, however, the "take one, take all" provision has created a disincentive, rather than an incentive, for owners to participate in the Section 8 program. The "take one, take an" provision requires owners who accept one Section 8 recipient to accept all others who apply to any property in their portfolio. Companies, such as my own, which manage good quality, well-located rental housing want to accept Section 8 recipients. It is good business and it creates good opportunities for lowerincome families. But without the flexibility to limit the number of Section 8 recipients they must accept, many owners are choosing to "take none" rather than to "take one and take all."
As you know, Congress took an initial step when it enacted last year's appropriations bill which temporarily eliminated the "endless lease" and "take one, take all" provisions. Mr. Chairman, members of the Subcommittee, now is the time to permanently eliminate these provisions because doing so will greatly improve the Section 8 program. Eliminating these provisions will in no way deny Section 8 recipients the rights and protections provided to non-subsidized residents. All residents are protected under the Fair Housing Act, the Americans with Disabilities Act, and state and local resident protection laws. These laws provide a comprehensive set of protections for all residents, both subsidized and non-subsidized.
If these provisions are eliminated, more owners win be wining to participate in the Section 8
program, Section 8 recipients will have more housing opportunities, and the increased
participation will come at no budget cost. This would be a solid accomplishment.
I would now like to quickly mention a few other key provisions in S. 462 that we support.
First, we support Section 202 of this measure which eliminates federal preferences and replaces it with local PHA preferences. We believe that local PHAs, rather than the federal government, are better able to determine the housing needs of their citizens. If there is one lesson I have learned in this business, it is that we must avoid concentrations of poverty in housing and strive to create mixed-income housing. As the Low Income Housing Tax Credit and tax-exempt bonds have proven, mixed-income housing provides positive environments for lower-income families and their communities.
Second, we recommend that Section 8 recipients be allowed to pay more than 30 percent of their income for rent. By limiting the percentage of income a resident is able to pay for rent, many good quality, well located apartments are being placed out of reach of Section 8 recipients. This has had the unintended effect for some lower-income families of limiting their ability to rent an apartment in communities where they feel there is more suitable employment, educational, and family resources.
Third, we support Section 201 which requires PHAs to pay administrative fees for late payments and authorizes a demonstration program to streamline inspection procedures.
Finally, we strongly urge that you include a provision, similar to Section 702 in H.R. 2, that would preclude HUD from establishing occupancy standards, recognize that state standards are presumed reasonable and provide for a reasonable standard in the event a state does not have an established standard. Clear occupancy standards are a fundamental building block of quality property management. Owners must be provided with a reasonable, unambiguous standard in order to provide current residents with requisite maintenance and services and to protect the stock of rental housing for future residents.
The occupancy standards provision contained in H.R. 2 and in stand-alone measures pending in the House (H.R. 1108) and the Senate (S. 458) are supported by a broad coalition of organizations representing assisted, public, seniors, manufactured and market-rate rental housing; and cities. These provisions were designed in response to recent efforts by HUD to require housing providers to house substantially more people than is widely considered appropriate and reasonable -- as many 10 people in a two bedroom apartment and as many as 15 people in a three bedroom apartment.
In 1995, a group of 12 housing organizations representing a wide range of rental housing providers commissioned a report on occupancy standards and the impact of HUD's occupancy proposal. The sponsoring organizations asked Dr. William C. Baer, Ph.D., a national expert on the effects of overcrowding and Professor of Urban and Regional Planning at the University of Southern California, to review the relevant sociological and academic literature on overcrowding and assess the potential effects of HUD's occupancy proposal, including its effects on the supply and condition of rental housing and its effects on both residents and owners of rental housing. Dr. Baer's report, Rental Crowding and Occupancy Standards: A Literature Review and Policy Analysis, highlighted five key points:
I have attached to our testimony an executive summary of Dr. Baer's report for inclusion in the record.
Thank you again for the opportunity to appear before the Subcommmittee today. I would be
happy to answer any questions you might have.
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