HUD Publishes Final Rule on HERA Changes to Section 8

On June 25, HUD published a final rule implementing changes to the Section 8 tenant-based and project-based voucher programs made by the Housing and Economic Recovery Act of 2008 (HERA). HERA made several changes to the U.S. Housing Act of 1937 that affect programs administered by HUD’s Office of Public and Indian Housing. This affects owners since tax credit sites apply the rules of the Section 8 project-based program for purposes of rent determination and because voucher residents make up many tax credit sites’ resident bases.

The final rule, effective July 25, 2014, makes numerous clarifications and revisions to the proposed rule that was published in May 2012, including provisions relating to the interaction of rules for the Section 8 programs and the Low-Income Housing Tax Credit program.

Applicable voucher program. As noted at the proposed rule stage, the procedure for determining the rent reasonableness standard applicable to units receiving low-income housing tax credits was streamlined by Section 2835(a)(2) of HERA. In the proposed rule, HUD noted that HERA makes several changes to coordinate tax incentives for private housing and federal housing programs, including the Section 8 voucher program. In this final rule, HUD clarifies that this provision is applicable only to the Section 8 tenant-based voucher program and not to the Section 8 project-based voucher program.

Reasonable rent. HUD stated that the rent is to be considered reasonable if the rent doesn’t exceed the greater of:

• The rent for other LIHTC- or HOME-assisted units in the project not occupied by families with tenant-based assistance; and
• The payment standard established by a housing authority for a unit of the size involved.

However, the final rule noted that the more accurate way for HUD to have stated this provision is as follows: “Rent reasonableness is not required if the voucher rent does not exceed the rent for other LIHTC- or HOME-assisted units in the project not occupied by families with tenant-based assistance.”

A housing authority may use the higher Section 8 rent for tax credit units if the LIHTC rent is less than the amount that would be permitted under Section 8. But in no case may rent paid by a housing authority exceed rent permitted under the Rent Reasonableness Test, except in cases where, upon redetermination of rent to the owner, the reasonable rent would result in a rent below the initial rent paid for the unit.

For units receiving LIHTC assistance or HOME assistance, a rent comparison with unassisted units isn’t required if the voucher rent doesn’t exceed the rent for other LIHTC- or HOME-assisted units in the project that aren’t occupied by families with tenant-based assistance.

If the rent requested by an owner exceeds the LIHTC rents for non-voucher families, the housing authority must perform a rent comparability study and the rent must not exceed the lesser of: (1) reasonable rent as determined pursuant to a rent comparability study; and (2) the payment standard established by the housing authority for the unit size involved.