a

GAO

United States Government Accountability Office

Report to the Chairman, Subcommittee 

on Housing and Community Opportunity, 

Committee on Financial Services, House 

of Representatives

April 2006 RENTAL HOUSING 

ASSISTANCE

Policy Decisions and 

Market Factors 

Explain Changes in 

the Costs of the 

Section 8 Programs

GAO-06-405
What GAO Found

United States Government Accountability Office

Why GAO Did This Study

Highlights

Accountability Integrity Reliability

April 2006

RENTAL HOUSING ASSISTANCE

Policy Decisions and Market Factors 

Explain Changes in the Costs of the 

Section 8 Programs 

Highlights of GAO-06-405, a report to the 

Chairman, Subcommittee on Housing and 

Community Opportunity, Committee on 

Financial Services, House of 

Representatives 

Annual appropriations for the 

Department of Housing and Urban 

Development’s (HUD) Section 8 

programs—a key federal tool for

subsidizing rents of low-income

households—have increased 

sharply in recent years, raising 

concerns about their cost. Section 

8 pays the difference between a 

unit’s rent and the household’s 

payment (generally 30 percent of

adjusted income). Section 8 

includes a voucher program 

administered by public housing 

agencies (PHA) that allows eligible

households to use vouchers to rent 

units in the private market and a

project-based program 

administered by property owners 

who receive subsidies to rent 

specific units to eligible 

households. In both programs, 

contracts between HUD and the 

administrators specify the duration

and amount of the subsidy.

GAO assessed Section 8 trends 

from fiscal years 1998 through 2004 

and examined (1) annual budget 

authority and outlays for each 

program; (2) factors that have

affected outlays; and (3) the

estimated impact of factors, such 

as market rents, on the average 

rental subsidy per voucher

household. 

From 1998 through 2004, annual budget authority for Section 8 grew from 

$9.4 billion to $19.3 billion (105 percent, or 82 percent after adjusting for 

inflation), while outlays grew from $14.8 billion to $22.2 billion (50 percent, 

or 33 percent after inflation adjustment). The steep rise in budget authority 

was partly due to the additional funding needed to cover the cost of 

renewing long-term contracts. GAO estimates that voucher outlays grew by 

93 percent from 1998 through 2004 (71 percent after inflation adjustment), 

accounting for almost all of the growth in total Section 8 outlays. Estimated 

project-based outlays grew by 6 percent (and actually declined after inflation 

adjustment) over this period. 

GAO estimates that about 43 percent of the growth in voucher outlays from 

1998 through 2004 stemmed from policy decisions that increased the number 

(from 1.6 million to 2.1 million) and use of vouchers, while over half of this 

growth was due to an increase in the average rental subsidy per household. 

For the project-based program, a modest increase in the average rental 

subsidy per household drove the growth in outlays but was partly offset by a 

reduction of 62,000 in the number of units. 

On the basis of statistical analysis of cost data, GAO estimates that growth in 

the average annual rental subsidy per voucher household from 1999 through 

2004 is primarily explained by changes in market rents (about one-half of the 

growth), PHAs’ decisions to increase the maximum subsidized rents (about 

one-quarter), and lagging growth in assisted household incomes (about 16 

percent.) Household and neighborhood characteristics, while important 

cost determinants, did not vary enough to cause a substantial change in the 

average rental subsidy per household. 

Annual Budget Authority and Outlays for Section 8, 1998-2004

www.gao.gov/cgi-bin/getrpt?GAO-06-405.

To view the full product, including the scope 

and methodology, click on the link above. 

For more information, contact David G. Wood 

at (202) 512-8678 or WoodD@gao.gov. 
Page i GAO-06-405 Trends in Section 8 Costs

Contents

Letter 1

Results in Brief 4

Background 6

Increases in the Number of Vouchers Drove Growth in the Size of 

Section 8 from 1998 through 2004 10

Section 8 New Budget Authority Increased at a Faster Rate than 

Outlays from 1998 through 2004 13

Policy Decisions and Market Factors Drove Increases in Section 8 

Outlays, but HUD and Congress Have Acted to Limit Further 

Growth 22

Policy Changes and Trends in Market Rents and Household Incomes 

Increased the Average Subsidy per Voucher Household 31

Observations 37

Agency Comments 38

Appendixes

Appendix I: Objectives, Scope, and Methodology 41

Appendix II: Information on the Section 8 Moderate Rehabilitation 

Program 44

Appendix III: Description of the Section 8 Rental Housing Assistance 

Programs 47

Appendix IV: Data on Budgetary Costs for the Voucher and Project-Based 

Programs 49

Appendix V: Description of the Econometric Analysis of Rental Subsidy 

Costs per Household for the Voucher Program 52

Appendix VI: Trends in Rents and Household Payments for the Voucher 

and Project-Based Programs 61

Annual Increases in Voucher Rents and Fair Market Rents Were 

Similar 63

Appendix VII: Comments from the Department of Housing and Urban 

Development 65

Appendix VIII: GAO Contact and Staff Acknowledgments 67

Tables Table 1: Number of New Vouchers Awarded by Major Voucher 

Type, 1998-2004 12
Contents

Page ii GAO-06-405 Trends in Section 8 Costs

Table 2: Estimated Impact of Policy Decisions and Other Factors 

on the Change in Outlays for the Voucher and 

Project-Based Programs from 1998 through 2004 24

Table 3: Number of Authorized Units under the Section 8 Moderate 

Rehabilitation Program, 1998-2004 45

Table 4: Estimated Outlays for the Section 8 Moderate 

Rehabilitation Program, 1998-2004 46

Table 5: HUD Programs with Section 8 Rental Assistance, in Order 

of Year Authorized 47

Table 6: Total Available Budget Authority in Nominal Dollars, 

1998-2004 49

Table 7: Total Available Budget Authority in Inflation-Adjusted 

Dollars, 1998-2004 49

Table 8: Outlays for the Section 8 Programs, 1998-2004 50

Table 9: Outlays for the Voucher and Project-Based Programs, 

1998-2004 50

Table 10: Estimated Impact of Policy Decisions and Other Factors 

on the Change in Outlays for the Voucher and 

Project-Based Programs in Inflation-Adjusted Dollars from 

1998 through 2004 51

Table 11: Average Values of Voucher Household Groups from 1999 

through 2004 55

Table 12: Regression Results 57

Table 13: Averages for Selected Variables, 1998-2004 60

Figures Figure 1: About 59 Percent of Very-Low Income Renter Households 

Did Not Receive Housing Assistance and Had Housing 

Needs in 2003 9

Figure 2: The Total Number of Authorized Section 8 Vouchers and 

Units Increased from 1998 through 2004 10

Figure 3: New Budget Authority for Section 8 More than Doubled 

from 1998 through 2004, while Outlays Grew by 50 

Percent 15

Figure 4: Renewals of Expiring Vouchers and Project-Based Units 

Have Grown Significantly since 1998 17

Figure 5: Total Available Budget Authority for Section 8 Grew, 

although Carryover Declined from 1998 through 2004 18

Figure 6: Estimated Outlays Grew Faster for Vouchers than for the 

Project-Based Program from 1998 through 2004 21

Figure 7: Factors Affecting Section 8 Outlays 23
Contents

Page iii GAO-06-405 Trends in Section 8 Costs

Figure 8: The Average Annual Rental Subsidy per Household Grew 

by 42 Percent for Vouchers and 12 Percent for the 

Project-Based Program from 1998 through 2004 26

Figure 9: Growth in Market Rents Had a Significant Impact on the 

Estimated Average Rental Subsidy per Household 33

Figure 10: Estimated Growth in the Average Rental Subsidy per 

Household Would Have Been Less Had the Average 

Payment Standard Remained at the 1999 Level 34

Figure 11: Had Household Income Grown as Fast as Market Rents, 

Growth in the Estimated Average Rental Subsidy per 

Household Would Have Been Less 36

Figure 12: Average Annual Rents for the Voucher and Project-Based 

Programs, 1998-2004 61

Figure 13: Average Annual Household Payment for the Voucher and 

Project-Based Programs, 1998-2004 62

Figure 14: Average Voucher Rents and Fair Market Rents, 

1999-2004 64

Abbreviations

AMI area median income

CBO Congressional Budget Office

CRS Congressional Research Service

FMR fair market rent

GDP gross domestic product

HAP housing assistance payment

HUD U.S. Department of Housing and Urban Development

HUDCAPS HUD Central Accounting and Program System

Mod Rehab Section 8 Moderate Rehabilitation

PAS Program Accounting System

PHA public housing agency

PIC Public and Indian Housing Information System

QCT qualified census tract

TRACS Tenant Rental Certification System
Contents

Page iv GAO-06-405 Trends in Section 8 Costs

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Page 1 GAO-06-405 Trends in Section 8 Costs

United States Government Accountability Office

Washington, D.C. 20548

A

April 28, 2006 Letr

The Honorable Robert W. Ney

Chairman 

Subcommittee on Housing 

and Community Opportunity

Committee on Financial Services

House of Representatives

Dear Mr. Chairman:

Annual appropriations for the Department of Housing and Urban 

Development’s (HUD) Section 8 rental housing programs have grown 

significantly in recent years, climbing to nearly $21 billion in 2006.1

Authorized by the Housing and Community Development Act of 1974 (P.L. 

93-383), as amended, Section 8 currently comprises the Housing Choice 

Voucher (voucher) and project-based programs. While these programs are 

the federal government’s primary tool for making rental housing units 

affordable to low-income households, they are not entitlements—that is, 

not all eligible households receive assistance. HUD and Congress have 

recently supported changes to the voucher program designed to limit 

further growth in appropriations without reducing the number of 

households that receive assistance. However, analysis of factors driving the 

growth in the budgetary costs of Section 8—which could assist in such 

efforts—has been limited, in part because HUD has not separately reported 

budget authority or outlays for each program.2

The voucher and project-based programs share the common mission of 

making housing affordable to low-income households by paying subsidies 

that make up the difference between a unit’s rent and the household’s 

payment, which is generally 30 percent of monthly income after 

adjustments. Despite their shared goals, the two programs operate 

differently. The voucher program, administered by state and local public 

housing agencies (PHA), provides vouchers that eligible households can 

use to rent houses or apartments in the private market. The subsidies in the 

1

Unless otherwise noted, all years cited in this report are federal fiscal years, which run 

from October 1 through September 30, and all dollars are nominal.

2

Budget authority is enacted by law and gives federal agencies the legal authority to incur 

obligations. Outlays (i.e., payments that liquidate obligations), minus budget receipts, 

contribute to federal budget deficits or surpluses.
Page 2 GAO-06-405 Trends in Section 8 Costs

voucher program are tied to the household, rather than to any particular 

dwelling unit (i.e., they are tenant-based). In contrast to vouchers, the 

project-based program is administered by property owners who have 

agreed to rent specific dwelling units to eligible households. The subsidies 

in the project-based program are tied to the rental unit rather than to any 

specific tenant. Under both programs, the program administrators enter 

into contracts with HUD that specify the number of vouchers or units 

authorized to receive rental subsidies and the duration of the subsidy 

payments. For the voucher program, PHAs have flexibility to determine the 

maximum amount of rental subsidy they can pay for assisted households 

within limits set by HUD. For example, HUD establishes “fair market rents” 

for each geographic area, based on actual market rents for standard-quality 

rental units, but PHAs may choose a “payment standard” that is up to 10 

percent lower or higher.

Each year, Congress appropriates budget authority to cover the cost of 

Section 8 contracts. HUD uses its budget authority to incur obligations 

(e.g., enter into contracts) that result in expenditures, or outlays, of federal 

funds. Unlike budget authority, outlays occur when payments are made and 

thus reflect the programs’ actual annual cost of providing rental assistance. 

Originally, Section 8 contracts were written with 5- to 40-year terms, and 

Congress appropriated all of the budget authority needed to cover the 

projected costs of these contracts up front. Under this approach, further 

appropriations were generally not needed; HUD could make outlays to 

provide the subsidy in each year, using the budget authority already 

appropriated, until the contract expired. However, for expiring contracts 

that are renewed, appropriations of new budget authority are needed to 

cover the renewed contract term. Today, contracts are renewed and funded 

in 1-year increments for vouchers and either 1- or 5-year increments for the 

project-based program. 

In response to your request, this report provides information on trends in 

the size and the cost of the Section 8 programs from 1998 through 2004 (the 

last year for which data were available at the time of our analysis). 

Specifically, the report discusses (1) the annual numbers of vouchers in the 

voucher program and units in the project-based program, (2) the annual 

new budget authority and outlays for each program, and (3) the factors that
Page 3 GAO-06-405 Trends in Section 8 Costs

have affected outlays.3 In addition, for the voucher program—the larger of 

the Section 8 programs and the focus of recent efforts to limit costs—the 

report discusses factors, such as changes in market rents, that have 

affected the annual average rental subsidy cost per household.

To determine the annual number of vouchers and project-based units and 

the annual amounts of new budget authority and outlays for each program, 

we obtained and analyzed data from HUD’s budget office, annual budget 

requests and other budget documents, and audited financial statements. 

HUD’s budget office was not able to report data on budget authority and 

outlays for the voucher and project-based programs separately. We 

estimated outlays using data from HUD’s accounting systems, which 

showed the rental assistance payments paid to PHAs and property owners 

under each program from 1998 through 2004. Our report generally presents 

budget authority and outlay amounts in nominal dollars; amounts adjusted 

for inflation are shown in appendix IV. To identify the factors that have 

affected outlays, we analyzed data on rents and household incomes from 

HUD’s administrative databases and reviewed reports by HUD, 

Congressional Budget Office (CBO), and Congressional Research Service 

(CRS). To assess the impact of different factors on the average rental 

subsidy cost per household for the voucher program, we developed a 

statistical model using data from HUD and the Census Bureau. Our model 

allowed us to estimate the effect of each of several variables—market 

rents, household incomes, household and neighborhood characteristics, 

and a measure of the relationship between program policies and market 

rents—on the average rental subsidy per voucher household while 

controlling for the effects of other variables. Because data on certain 

variables used in our statistical model were not available for 1998, our 

analysis of average rental subsidy costs in the voucher program covers the 

period from 1999 through 2004. We assessed the reliability of the data from 

HUD’s accounting systems and administrative databases by reviewing 

related documentation and interviewing agency officials who work with 

the systems. In addition, we performed internal checks to determine the 

extent to which the data fields were populated and the reasonableness of 

3

We excluded the Section 8 Moderate Rehabilitation program from our analysis of units and 

outlays because, while it is a project-based program, it is administered differently and 

evolved independently from the other project-based programs. The program accounts for a 

small and declining portion of the overall project-based program (about 34,000 units as of 

2004). We could not exclude the program from our analysis of budget authority because 

HUD’s budget office was not able to break out budget authority by individual program. 

Information on the Moderate Rehabilitation program is included in appendix II. 
Page 4 GAO-06-405 Trends in Section 8 Costs

the values contained in the fields. We concluded that the data were 

sufficiently reliable for the purposes of this report. To address all of the 

objectives, we interviewed officials from HUD’s Offices of the Chief 

Financial Officer, Public and Indian Housing, Housing, and Policy 

Development and Research. We also met with CBO and CRS officials and 

representatives of various industry and research groups. We conducted our 

work in Washington, D.C., and Chicago, Illinois, from April 2005 through 

March 2006 in accordance with generally accepted government auditing 

standards. Appendix I provides additional details on our scope and 

methodology.

Results in Brief Overall, the size of the Section 8 program—that is, the combined number of 

authorized vouchers and project-based units—increased annually, from 

2.93 million in 1998 to 3.36 million in 2004, or 15 percent during the period. 

This growth resulted exclusively from the authorization of additional 

vouchers; the number of project-based units actually declined. Specifically, 

the number of authorized vouchers rose from about 1.60 million in 1998 to 

2.09 million in 2004, a 31 percent increase. At the same time, the number of 

authorized project-based units fell from 1.33 million to 1.27 million, a 5 

percent decrease, primarily because property owners and HUD decided not 

to renew some project-based contracts. HUD generally provided vouchers 

to households in project-based units for which contracts were not renewed 

so that these households could continue receiving rental assistance. These 

“tenant protection” vouchers, including those provided to households no 

longer receiving assistance under other HUD programs, accounted for 42 

percent of the increase in the number of vouchers from 1998 through 2004.

Both annual new budget authority and outlays for the Section 8 programs 

increased significantly from 1998 through 2004. Appropriations of new 

budget authority grew from $9.4 billion to $19.3 billion (from $10.6 billion 

to $19.3 billion after adjusting for inflation). This new budget authority was 

primarily needed to renew expiring contracts covering 818,095 vouchers 

and 373,310 project-based units. Annual outlays rose from $14.8 billion to 

$22.2 billion (from $16.8 billion to $22.4 billion after adjusting for inflation). 

On an annual basis, total Section 8 outlays typically exceeded new budget 

authority appropriated during this period because HUD was making rental 

assistance payments under long-term contracts for which Congress had 

appropriated budget authority in previous years. Although HUD did not 

separately track outlays for the voucher and project-based programs during 

this period, we estimate that outlays for vouchers increased from $7.5 

billion in 1998 to $14.5 billion in 2004, and accounted for nearly all of the 
Page 5 GAO-06-405 Trends in Section 8 Costs

growth in total Section 8 outlays. Outlays for the project-based program 

rose from an estimated $7.3 billion to $7.7 billion.

A number of policy decisions and market factors contributed to the growth 

in outlays for the voucher and project-based programs from 1998 through 

2004. These include increases in the total number of assisted households, 

the average rental subsidy cost per household, and other program 

expenses. Specifically, about 43 percent of the growth in voucher outlays 

was the result of policy decisions that increased the number of assisted 

households—for example, the decision to offer tenant protection 

vouchers—while over half was the result of an increase in the average 

annual rental subsidy cost per voucher household from $4,420 to $6,262 (a 

42 percent increase, or 25 percent after adjusting for inflation). In contrast, 

most of the growth in project-based outlays resulted from a 12-percent 

increase in the average annual rental subsidy per household ($5,305 to 

$5,948)—an increase that was partially offset by the declining number of 

project-based units. Congress and HUD have taken steps to limit further 

growth in the budgetary costs of the Section 8 programs. For example, in 

2003, Congress authorized changes to the method for calculating the 

amounts of voucher funding in order to slow the growth in both new 

budget authority and outlays. In addition, for the project-based program, 

Congress and HUD continued steps begun in 1997 to reduce above-market 

rents at some properties and to limit annual rent increases.

On the basis of our statistical analysis of cost data for the voucher program, 

we found that three factors primarily accounted for the growth in the 

average annual rental subsidy per voucher household from 1999 through 

2004:4

• Over one-half of the total increase was explained by changes in market 

rents.

• About one-quarter of the total increase was due to overall higher 

payment standards—that is, by PHAs’ exercising their flexibility to 

increase the maximum amount of rental subsidy they can pay for 

assisted households.

4

Our analysis covers the period from 1999 through 2004 because data on certain variables 

used in our statistical model were not available for 1998.
Page 6 GAO-06-405 Trends in Section 8 Costs

• About 16 percent of the increase was due to the fact that the incomes of 

assisted households grew modestly during this period and did not keep 

up with increases in market rents.

We also found that although household and neighborhood characteristics 

were important determinants of per household rental subsidies, on 

average, they did not vary enough from 1999 through 2004 to cause a 

substantial change in the average per household rental subsidy.

In written comments on a draft of this report, HUD suggested that the 

report include a description of its proposed legislation for reforming the 

voucher program and provide additional explanations of the differences 

between the average per household costs for the project-based and 

voucher programs. We revised our final report in response to HUD’s 

comments where appropriate.

Background Prior to the 1970s, the federal government made housing affordable to lowand moderate-income households by subsidizing the production of 

privately and government-owned properties with below-market interest 

rate mortgages, direct loans, and other development subsidies. Under these 

production programs, the rent subsidies were project based, and tenants 

received assistance only while living in the subsidized units. In the early 

1970s, concerns were raised about the effectiveness of these programs: 

Many moderate-income tenants benefited from federal assistance, while 

lower-income families did not; federal costs for producing the housing 

exceeded the private sector costs to produce the same services; and 

allegations of waste surfaced. Interest in a more cost-effective approach 

led Congress to explore options for using existing housing to shelter 

low-income tenants. Section 8 of the Housing and Community 

Development Act of 1974, as amended, authorized programs that reflected 

both approaches—a tenant-based rental certificate program (now called 

the voucher program) for use in existing housing and a project-based 

program. The project-based program comprises multiple subprograms, 

including Section 8 New Construction/Substantial Rehabilitation, Loan 

Management Set-Aside, and Property Disposition. Appendix III contains 

detailed descriptions of these subprograms.

The voucher program provides vouchers to eligible households to rent 

houses or apartments in the private market from landlords who are willing 

to accept the vouchers. Voucher holders are responsible for finding 

suitable housing that complies with HUD’s housing quality standards. The 
Page 7 GAO-06-405 Trends in Section 8 Costs

voucher program pays the difference between the lesser of the unit’s gross 

rent or a local “payment standard,” and the household’s payment, which is 

generally 30 percent of monthly income, after certain adjustments.5

 To be 

eligible to apply for assistance, households must have very low 

incomes—less than or equal to 50 percent of area median income (AMI) as 

determined by HUD. Under the provisions of the Quality Housing and Work 

Responsibility Act of 1998 (P.L. 105-276), at least 75 percent of new 

participants in the voucher program must be households with extremely 

low incomes—at or below 30 percent of AMI.6

 Households already 

participating in the voucher program remain eligible for assistance as long 

as their incomes do not rise above 80 percent of AMI. The voucher program 

is administered by over 2,500 state and local PHAs that are responsible for 

inspecting dwelling units, ensuring that rents are reasonable, determining 

households’ eligibility, calculating households’ payments, and making 

payments to landlords. HUD provides funding to PHAs for administrative 

expenses as well as rental subsidies.

The project-based program subsidizes rents at properties whose owners 

have entered into contracts with HUD to make rents affordable to 

low-income households. Often these properties were financed with 

mortgages insured or subsidized by HUD or with bonds issued by state and 

local housing finance agencies. Property owners and managers are 

responsible for administering the program at about 22,000 properties 

nationwide. The project-based program operates much like the voucher 

program, paying the difference between a HUD-approved unit rent and the 

household’s payment, which is generally equal to 30 percent of adjusted 

monthly income.7

 In general, only households with low incomes (i.e., at or 

below 80 percent of AMI) are eligible for assistance, and since 1998 at least 

40 percent of new residents must have extremely low incomes. Private 

property owners and managers have requirements similar to those for 

PHAs for administering the project-based program—they must ensure that 

5

The payment standard is based on the HUD-determined fair market rent for the locality. 

HUD sets fair market rents generally equal to the 40th percentile of the market rents 

(including utilities) paid by recent movers for standard-quality units. PHAs may set local 

payment standards at 90 to 110 percent of the fair market rent for their area and, with HUD’s 

approval, above 110 percent of the fair market rent. 

6

See 42 U.S.C. 1437n (b)(1). 

7

Under current HUD policies, as expiring contracts are renewed, HUD generally sets rents 

for project-based Section 8 units based on market rents for comparable units. These rents 

are adjusted annually using a HUD-determined operating cost factor.
Page 8 GAO-06-405 Trends in Section 8 Costs

households meet program eligibility requirements and must calculate 

households’ payments. HUD pays rent subsidies directly to the property 

owners but does not pay them a separate administrative fee, as the owners’ 

administrative costs are reflected in the HUD-approved rents. However, 

because of limited staff resources and the large number of project-based 

Section 8 contracts, HUD pays contract administrators (state and local 

PHAs) administrative fees to oversee most of the contracts, a task that 

requires processing monthly payment vouchers, reviewing property 

owners’ tenant information files, and addressing health and safety issues.

Each year, Congress appropriates budget authority to cover the costs of 

new Section 8 contracts, renewals of expiring contracts, amendments to 

existing project-based contracts, and administrative fees.8

 For the period 

covered by our review (1998 through 2004), Congress appropriated funds 

for the Section 8 programs in HUD’s Housing Certificate Fund account.9

Over time, Congress has changed the way it funds the Section 8 programs. 

From 1974 to 1983, Congress made large up-front appropriations to cover 

the projected costs of multiyear Section 8 contracts. Initially, voucher 

contracts were written for 5 years and were renewable, at HUD’s 

discretion, for up to 15 years, while the terms for project-based contracts 

ranged from 15 to 40 years. When these initial contracts began to expire in 

1989, HUD required new budget authority to renew them. Owing to budget 

constraints, Congress funded Section 8 contracts with amounts that led to 

shorter contract terms. HUD initially renewed expiring contracts generally 

for 5-year terms but starting in the mid-1990s switched to 1-year terms for 

the voucher program and either 1- or 5-year terms for the project-based 

program.

The Section 8 programs are not entitlements, and as a result, the amount of 

budget authority HUD requests and Congress provides through the annual 

appropriations process limits the number of households that Section 8 can 

assist. Historically, appropriations for the Section 8 programs (as well as 

for other federal housing programs) have not been sufficient to assist all 

8

Amendments fund existing project-based Section 8 contracts that have depleted their 

budget authority before the end of the contract term. HUD does not amend voucher 

contracts.

9

Prior to this account, funds for Section 8 were appropriated in the Annual Contributions for 

Assisted Housing account. Beginning in 2005, Congress directed the agency to create two 

new Section 8 budget accounts—a tenant-based account and a project-based account. New 

budget authority is appropriated into these two accounts.
Page 9 GAO-06-405 Trends in Section 8 Costs

households that HUD has identified as having housing needs—that is, 

households with very low incomes that pay more than 30 percent of their 

income for housing, live in substandard housing, or both. According to 

HUD data for calendar year 2003, Section 8 and other federal housing 

programs assisted an estimated 4.3 million households, or 27 percent of all 

renter households with very low incomes (see fig. 1).10 HUD estimated that 

over 9 million very low income households (about 59 percent) did not 

receive assistance and had housing needs. Of these 9 million households 

with housing needs, over 5 million had what HUD terms “worst case” 

needs—that is, they paid over half of their income in rent, lived in severely 

substandard housing, or both.

Figure 1: About 59 Percent of Very-Low Income Renter Households Did Not Receive 

Housing Assistance and Had Housing Needs in 2003

Note: Total = 15.7 million households that rented and had very low incomes.

10U.S. Department of Housing and Urban Development, Office of Policy Development and 

Research, Affordable Housing Needs: A Report to Congress on the Significant Need for 

Housing (Washington, D.C.: December 2005).

Unassisted without housing needs

(2,222)

Source: HUD.

Households in thousands

14%

27% Assisted

(4,256) 59%

Unassisted with housing needs

(9,180)
Page 10 GAO-06-405 Trends in Section 8 Costs

Increases in the 

Number of Vouchers 

Drove Growth in the 

Size of Section 8 from 

1998 through 2004 

The combined number of authorized vouchers and project-based units 

grew from about 2.93 million to 3.36 million from 1998 through 2004—an 

overall increase of about 15 percent and an average annual increase of 

about 2 percent (see fig. 2). Most of this increase occurred from 1998 to 

2001, when about 327,000 vouchers were added. However, as figure 2 

shows, this overall trend masked a difference in the trends for the 

individual programs: The number of vouchers grew by 31 percent during 

this period, while the number of project-based units declined by 5 percent.

Figure 2: The Total Number of Authorized Section 8 Vouchers and Units Increased 

from 1998 through 2004

Note: Totals may not add because of rounding.

It is important to note that at any given time the actual number of 

households assisted with Section 8 programs is likely to be less than the 

number of authorized vouchers and project-based units, because some 

1998 1999 2000 2001 2002 2003 2004

Fiscal year

Source: HUD.

3.33 3.26 3.27

3.14

3.00 2.93

3.36

1.30 1.29 1.28 1.27 1.27

0

.5

1.0

1.5

2.0

2.5

3.0

3.5

Total

Vouchers

Project-based units

Units in millions

1.33

2.05 1.97 2.00

1.84

1.68 1.60

2.09

1.32
Page 11 GAO-06-405 Trends in Section 8 Costs

authorized vouchers and units may not be in use. For example, vouchers 

may go unused because households may not be able to find units that meet 

the program’s affordability requirements and quality standards. (As 

discussed subsequently in this report, the extent to which authorized 

vouchers are actually used to rent units—and thus incur subsidy costs—is 

called the voucher utilization rate.) Project-based units may not be in use 

during the period when landlords are seeking new occupants for units that 

have been vacated.

The Number of Vouchers 

Increased by 31 Percent

From 1998 through 2004, the number of authorized vouchers grew from 

about 1.60 million to almost 2.09 million, an increase of 490,944 vouchers 

(see fig. 2). This increase represents an average annual growth rate of 

almost 5 percent. The new vouchers were composed of both “incremental 

vouchers” and tenant protection vouchers. Incremental vouchers are those 

that resulted from Congress’ decision to expand the program to serve more 

households. Notices published in the Federal Register and HUD data 

indicate that the agency awarded 276,981 incremental vouchers and 

205,853 tenant protection vouchers from 1998 through 2004 (see table 1).

Incremental vouchers consist of three major types: fair share, 

welfare-to-work, and special purpose. Fair share vouchers are those that 

HUD allocates to PHAs on a competitive basis using a formula that 

accounts for poverty rates, renter populations, vacancies, overcrowding, 

and other measures, in each county and independent city throughout the 

country. Welfare-to-work vouchers are designated for households for which 

a lack of stable, affordable housing is a barrier to employment and that are 

making the transition to economic self-sufficiency.11 Finally, special 

purpose vouchers include those designated for a variety of special needs 

populations, such as persons with disabilities. Fair share vouchers 

accounted for about 56 percent of the total, while welfare-to-work and 

special purpose vouchers represented 18 percent and 26 percent, 

respectively.

From 1998 through 2002, Congress provided new funding each year for a 

large number of incremental vouchers to help address the unmet housing 

11HUD awarded approximately 50,000 additional vouchers to PHAs through the 

Welfare-to-Work program demonstration in 1999. While HUD continued to renew the 

vouchers issued in 1999, no new welfare-to-work vouchers have been awarded since that 

time. HUD began phasing out the demonstration program in March 2004.
Page 12 GAO-06-405 Trends in Section 8 Costs

needs of very low-income households, and fair share vouchers were the 

key type of incremental vouchers used to increase the number of assisted 

households. Starting in 2003, Congress provided no new funding for fair 

share vouchers, but did provide new funding for a smaller number of 

special purpose vouchers. By 2004, however, no new funding was provided 

for any type of incremental voucher.

Unlike incremental vouchers, tenant protection vouchers do not add to the 

total number of authorized units under Section 8 (and other HUD programs 

for which they are used) because they replace one form of HUD assistance 

with another. Tenant protection vouchers are offered to eligible households 

that had received housing assistance under various HUD programs 

(including the project-based program, certain HUD mortgage insurance 

programs, and public housing) before the assistance was terminated. As 

part of its annual budget request, HUD estimates the number of tenant 

protection vouchers it will need and the amount of funding required for 

these vouchers. As table 1 shows, the number of tenant protection 

vouchers awarded from 1998 through 2004 remained relatively stable, from 

a low of 22,839 in 2002 to a high of 36,000 in 2001.

Table 1: Number of New Vouchers Awarded by Major Voucher Type, 1998-2004

Source: GAO analysis of HUD data. 

a

Special purpose vouchers include Mainstream vouchers, which are targeted to persons with 

disabilities, and other smaller voucher subprograms.

b

For 8,110 vouchers, or about 2 percent of the total, data indicating voucher type were not available.

 Year

Voucher type 1998 1999 2000 2001 2002 2003 2004 Total

Incremental 32,358 52,540 76,934 90,493 22,856 1,800 0 276,981

 Fair share 0 0 60,801 78,475 16,460 0 0 155,736

 Welfare-to-work 0 50,000 0 0 0 0 0 50,000

 Special purposea 32,358 2,540 16,133 12,018 6,396 1,800 0 71,245

Tenant protection 27,736 29,158 29,333 36,000 22,839 26,787 34,000 205,853

Subtotal 482,834

Unknownb 8,110

Total 60,094 81,698 106,267 126,493 45,695 28,587 34,000 490,944
Page 13 GAO-06-405 Trends in Section 8 Costs

The Number of 

Project-Based Units 

Declined by 5 Percent

The number of authorized project-based units fell from 1.33 million to 1.27 

million, a decline of approximately 62,000 units (see fig. 2). This 

represented an average annual decrease of less than 1 percent. The number 

of project-based Section 8 units declined primarily because either property 

owners or HUD decided not to renew Section 8 contracts. Owners may 

choose not to renew their contracts and to opt out of the program for a 

variety of reasons, including plans to convert the properties to market-rate 

rental units. HUD may decide not to renew some contracts if property 

owners have not complied with program requirements, such as maintaining 

the property in decent, safe, and sanitary condition.

If a property owner or HUD decides not to renew a project-based Section 8 

contract, the property is no longer required to comply with program rules, 

including affordability requirements. To protect Section 8 households from 

rent increases that may result when owners opt out of their contracts, HUD 

provides a special type of tenant protection voucher known as an enhanced 

voucher. Enhanced vouchers are designed to ensure that tenants can afford 

to remain in the properties that are no longer receiving project-based 

Section 8 assistance—even if the rents for these units exceed those for the 

regular voucher program (such vouchers are considered enhanced because 

they allow these higher subsidies). If HUD terminates a project-based 

Section 8 contract, the agency usually provides affected families with 

regular vouchers to allow them to find other housing. The substitution of 

tenant protection vouchers for subsidies previously paid for project-based 

units has helped minimize the net loss of Section 8 units.

Section 8 New Budget 

Authority Increased at 

a Faster Rate than 

Outlays from 1998 

through 2004

Although both budget authority and outlays for the Section 8 programs 

increased significantly from 1998 through 2004, the rates of growth 

differed. Appropriations of new budget authority grew more than twofold 

during this period (105 percent), partly because HUD needed more budget 

authority to cover the cost of renewing long-term contracts that began to 

expire in 1989. In comparison, from 1998 through 2004 total Section 8 

outlays rose at a slower rate (50 percent). However, this increase masks 

substantial differences in the rates of growth for the individual Section 8 

programs. Although HUD did not separately track outlays for the voucher 

and project-based programs during this period, we estimate that outlays 

increased by 93 percent for the voucher program and by 6 percent for the 

project-based program.
Page 14 GAO-06-405 Trends in Section 8 Costs

Renewal of an Increasing 

Number of Expiring 

Contracts Contributed to 

Much of the Growth in 

Budget Authority

Appropriations of new budget authority for Section 8 grew from $9.4 billion 

in 1998 to $19.3 billion in 2004, an overall increase of about 105 percent and 

an average annual rate of 13 percent (see fig. 3). During 2001, new budget 

authority grew by 22 percent, the largest single-year increase during this 

period.12 For the other years, the annual increase in new budget authority 

ranged from 10 to 17 percent. Over the same period, new budget authority 

for Section 8 accounted for an increasing share of HUD’s total annual 

appropriations, growing from 41 percent in 1998 to 54 percent in 2004.13

Part of the growth reflects the effects of inflation. After adjusting for 

inflation, new budget authority rose from $10.6 billion in 1998 to $19.3 

billion in 2004 (82 percent).14 Appendix IV contains detailed information on 

budgetary costs in nominal and inflation-adjusted dollars.

12We adjusted the percent growth in new budget authority from 2000 to 2001 to include the 

$4.2 billion advance appropriation in 2000. Without the adjustment, new budget authority 

increased by 94 percent.

13To calculate these percentages, we divided total budget authority for Section 8 by the total 

gross discretionary budget authority for the entire agency.

14We used the gross domestic product (GDP) price index to adjust for inflation and 2004 as 

the reference year.
Page 15 GAO-06-405 Trends in Section 8 Costs

Figure 3: New Budget Authority for Section 8 More than Doubled from 1998 through 

2004, while Outlays Grew by 50 Percent 

Notes:

Because HUD does not report budget authority separately by subprograms, we were unable to 

exclude the Moderate Rehabilitation program from budget authority.

New budget authority dropped in 2000 because it did not include a $4.2 billion advance appropriation 

that was contained in the 2000 appropriations but was not available for obligation until 2001.

New budget authority reflects across-the-board reductions by Congress in 2001 (0.22 percent), 2003

(0.65 percent), and 2004 (0.59 percent).

Outlays for the Section 8 programs are based on our estimate of outlays for rental assistance 

payments and certain administrative expenses under the voucher and project-based programs only. 

The Moderate Rehabilitation program, for example, is not included in our estimate of outlays.

We adjusted outlays for 1999 to include an advance payment of $680 million that was made in 1998 for 

the 1999 voucher program and reduced outlays for 1998 by the same amount.

HUD did not separately track budget authority for the voucher and 

project-based programs for the period covered by our analysis. HUD 

budget officials told us they had no need to do so because Congress funded 

both programs under a single budget account, the Housing Certificate 

Fund. However, to provide better transparency and strengthen oversight of 

1998 1999 2000 2001 2002 2003 2004

Fiscal year

Source: HUD budget data.

Outlays

New budget authority

Dollars in billions

20.7

18.2

16.5

15.7 15.3 14.8

22.2

17.1

16.3

13.9

19.3

9.4

10.3

0

5

10

15

20

25

7.2
Page 16 GAO-06-405 Trends in Section 8 Costs

the programs, Congress directed HUD to create two new budget 

accounts—Tenant-Based Rental Assistance and Project-Based Rental 

Assistance—for all new Section 8 appropriations.15 Beginning with its 2006 

budget, HUD has provided separate information for each program.

The substantial growth in new budget authority stemmed primarily from 

decisions to renew expiring long-term Section 8 contracts. From 1974 to 

1983, Congress made large up-front appropriations to cover the projected 

costs of multiyear Section 8 contracts that were written in those years. 

Because Congress and HUD funded these long-term contracts up front, 

they generally did not require new budget authority during the years 

specified in the contracts.16 During the early to mid-1990s, large numbers of 

these long-term contracts reached the end of their terms. Decisions to 

renew the contracts created the need for new budget authority. As figure 4 

shows, the trend in the numbers of expiring contracts continued from 1998 

through 2004. Specifically, the number of project-based units with expiring 

contracts that were renewed grew significantly—by 373,310 units from 

1998 through 2004. (As noted previously, because some project-based 

contracts were not renewed, the total number of authorized project-based 

units declined during this period—even as the number needing new budget 

authority grew.) Additional new budget authority was required each year to 

cover the renewal of 818,095 vouchers from 1998 through 2004.17

15U.S. House of Representatives, Committee on Appropriations, Committee Report on the 

Departments of Veterans Affairs and Housing and Urban Development, and Independent 

Agencies Appropriations Bill, 2005, Rpt. 108-674 (Washington, D.C.: 2005).

16For some contracts, insufficient budget authority was appropriated to cover the costs of 

rental assistance before the contract expired. As a result, Congress appropriated additional 

budget authority to fund contract amendments.

17Despite these increases, budget authority for rental assistance programs was still lower 

from 1998 through 2004 than from 1977 through 1981, when Congress appropriated around 

$30 billion annually (in nominal dollars).
Page 17 GAO-06-405 Trends in Section 8 Costs

Figure 4: Renewals of Expiring Vouchers and Project-Based Units Have Grown 

Significantly since 1998

A factor also contributing to the need for new budget authority was a 

declining amount of “carryover” budget authority. Carryover consists of 

unobligated budget authority (not yet committed to specific contracts), 

including funds that have been “recovered” (de-obligated from expired 

contracts that did not need all of the budget authority that had been 

obligated for them). Congress may rescind any portion of such unused 

budget authority and in fact enacted rescissions in the Section 8 program 

during each of the years we examined.18 Total budget authority available to 

renew Section 8 contracts in any year thus consists of both the carryover, 

net of rescissions, as well as new budget authority, and represents all of the 

funds available to HUD for future obligations and outlays.

18A rescission is legislation enacted by Congress that cancels budgetary authority that has 

already been provided before that authority would otherwise lapse.

Additional renewals (in thousands of units)

Fiscal ear

Source: HUD budget data.

Vouchers

Project-based units

1999 2000 2001 2002 2003 2004

Baseline

(1998)

200

400

600

800

1,000
Page 18 GAO-06-405 Trends in Section 8 Costs

Typically, HUD has had large amounts of carryover funds in the Section 8 

programs, and these carryover funds have helped offset the need for new 

budget authority. However, as shown in figure 5, the carryover amounts 

generally declined during the period we examined. For example, about $7.5 

billion in carryover funds in 1998 lessened the need for new appropriations 

of budget authority in that year, whereas the decline in carryover funds in 

later years increased the need for new appropriations. Partly because of 

declining carryover amounts during this period, total available budget 

authority grew at a slower rate than new budget authority. More 

specifically, total available budget authority grew from $14.0 billion to $20.9 

billion over this period (fig. 5), an average annual rate of about 7 percent. 

Congress rescinded between $1.6 billion and $2.9 billion each year during 

the period.

Figure 5: Total Available Budget Authority for Section 8 Grew, although Carryover 

Declined from 1998 through 2004

Dollars in billions

Fiscal year 2004 1998 1999 2000 2001 2002 2003

-5

0

5

10

15

20

25

-1.9 -1.6 -1.6 -2.0 -2.2 -2.9 -2.8

3.5 4.1

5.4

7.7

6.4

7.5

9.4

4.4

10.3

16.3 17.1

13.9

7.2

19.3

Source: HUD budget data.

New budget auhority

Rescissions

Carryover

Total

available: 14.0 14.7 19.1 12.7 20.9 17.3 18.8
Page 19 GAO-06-405 Trends in Section 8 Costs

Notes: 

Total available budget authority may not add because of rounding. 

New budget authority dropped in 2000 because it did not include a $4.2 billion advance appropriation 

that was contained in the 2000 appropriations but was not available for obligation until 2001. 

Appendix IV provides detailed information on total available budget authority in inflation-adjusted 

dollars.

Total Section 8 Outlays 

Grew by 50 Percent

As figure 3 shows, annual outlays for Section 8 programs grew from $14.8 

billion in 1998 to $22.2 billion in 2004, an overall increase of about 50 

percent and an average annual increase of 7 percent.19 About 78 percent of 

this growth occurred from 2002 to 2004, with 2003 representing the largest 

annual increase ($2.5 billion). Despite this growth, total Section 8 outlays 

accounted for a relatively stable share of HUD’s total outlays over this 

period, ranging from 45 percent in 1998 to 52 percent in 2004.20

Outlays for Section 8 generally exceeded new budget authority for the 

program each year from 1998 through 2004 (see fig. 3). This pattern 

resulted primarily from the way the program was originally funded. As 

noted previously, initial Section 8 contracts generally had long terms and 

received large up-front appropriations of budget authority to cover their 

projected costs. As a result, HUD has for many years—including the 1998 

through 2004 period—made outlays for contracts that have not required 

new budget authority. During this period, the gap between outlays and new 

budget authority narrowed as the number of expiring vouchers and 

project-based units that required new budget authority grew and were 

renewed on an annual basis. If all Section 8 contracts had reached the end 

of their multiyear terms and were renewed annually, new budget authority 

requirements would more closely approximate the expected annual 

outlays.

19After adjusting for inflation, total outlays for Section 8 increased from $16.8 billion in 1998 

to $22.4 billion in 2004, an increase of 33 percent.

20To calculate these percentages, we divided outlays for both the voucher and project-based 

programs by total gross discretionary outlays for the entire agency.
Page 20 GAO-06-405 Trends in Section 8 Costs

Estimated Outlays for 

Vouchers Rose by 93 

Percent, while Those for the 

Project-Based Program 

Remained Relatively Stable 

Since HUD did not separately track outlays for the voucher and 

project-based programs (for the same reasons it did not do so for budget 

authority), we developed our own estimates of outlays for both programs 

based on data from the accounting systems HUD uses to record Section 8 

rental subsidy payments.21 On the basis of these data, we estimated that 

from 1998 though 2004:

• Outlays for the voucher program rose from $7.5 billion to $14.5 billion 

(fig. 6)—an overall increase of 93 percent and an average annual rate of 

increase of 12 percent. The largest annual increases—approximately 20 

percent—occurred both in 2002 and 2003. About 56 percent of the total 

increase in outlays also occurred in these 2 years. As discussed in more 

detail in a subsequent section of this report, the growth in voucher 

program outlays resulted in large part from increases in the average 

rental subsidy per household and decisions by Congress to expand the 

number of vouchers.

• In contrast, outlays for the project-based program remained relatively 

stable, rising from $7.3 billion to $7.7 billion, or about 6 percent from 

1998 through 2004—an average annual rate of about 1 percent.

21We analyzed data from HUD’s Program Accounting System, which contained payment 

information for project-based Section 8 contracts, and HUD Central Accounting and 

Program System, which contained payment information for both a limited number of 

project-based Section 8 contracts and all voucher contracts. The estimated total outlays for 

the Section 8 programs cited in this report are also based on data from these systems.
Page 21 GAO-06-405 Trends in Section 8 Costs

Figure 6: Estimated Outlays Grew Faster for Vouchers than for the Project-Based 

Program from 1998 through 2004

Note: We adjusted voucher outlays for 1999 to include an advance payment of $680 million that was 

made in 1998 and reduced voucher outlays for 1998 by the same amount.

Because of its much faster rate of growth, the voucher program accounted 

for nearly all of the growth in total Section 8 outlays from 1998 through 

2004. Specifically, the program accounted for about $7.0 billion (94 

percent) of the $7.4 billion increase in total Section 8 outlays during this 

period. In contrast, the project-based program accounted for only $419 

million (6 percent) of the overall increase in total Section 8 outlays. In 1998, 

the voucher and project-based programs each represented about half of the 

total outlays for the Section 8 programs. In a relatively short time span, 

voucher outlays surpassed those for the project-based program by a 

significant margin, and by 2004 the voucher program was responsible for 

about 65 percent of total Section 8 outlays.

Outlays for the project-based program increased at a rate slower than 

inflation from 1998 through 2004. Specifically, after adjusting for inflation, 

1998 1999 2000 2001 2002 2003 2004

Fiscal year

Source: HUD budget data.

Project-based

Vouchers

Dollars in billions

7.5 7.2 7.2 7.0 7.3 7.2

7.7

13.2

11.1

9.3

8.6

14.5

7.5

8.1

0

3

6

9

12

15
Page 22 GAO-06-405 Trends in Section 8 Costs

outlays dropped from $8.3 billion to $7.8 billion, a decrease of 6 percent. 

The growth in voucher outlays, however, significantly outpaced the rate of 

inflation, increasing from $8.5 billion to $14.6 billion (71 percent) in 

inflation-adjusted dollars.22 Additional information on outlays in nominal 

and inflation-adjusted dollars appears in appendix IV.

Policy Decisions and 

Market Factors Drove 

Increases in Section 8 

Outlays, but HUD and 

Congress Have Acted 

to Limit Further 

Growth

A number of policy decisions and market factors contributed to the growth 

in total Section 8 outlays from 1998 through 2004, including decisions to 

expand the number of households receiving vouchers, increases in the 

average rental subsidy per household, and other program costs. Figure 7 

shows the general relationship between these policy decisions and market 

factors and Section 8 outlays. Although these factors also affected budget 

authority, our analysis focuses on outlays because, unlike budget authority, 

outlays occur when payments are made and thus reflect the actual annual 

cost of providing rental assistance. Congress and HUD have taken steps to 

limit further growth in Section 8 program costs—for example, by changing 

the program’s funding formula for vouchers.

22Outlays for 2004 in inflation-adjusted dollars differ from those in nominal dollars because 

any payment made in the first three quarters of 2004 has been adjusted to reflect inflation 

occurring prior to the last quarter.
Page 23 GAO-06-405 Trends in Section 8 Costs

Figure 7: Factors Affecting Section 8 Outlays

Policies to Expand the 

Number of Assisted 

Households Resulted in an 

Increase in Voucher Outlays, 

while the Declining Number 

of Units Limited Growth in 

Project-Based Outlays

Decisions to increase the number of households receiving vouchers were a 

significant driver of growth in voucher outlays from 1998 through 2004. As 

noted previously, between 1998 and 2004 Congress authorized funding for a 

total of 490,944 incremental and tenant protection vouchers. This trend, 

coupled with a rise in the percentage of authorized vouchers in use (the 

utilization rate) that started in 2001, increased the number of assisted 

households and, in turn, the amount of outlays for vouchers. We estimate 

that about $3.0 billion (43 percent) of the increase in voucher outlays from 

1998 through 2004 was attributable to the additional assisted households 

resulting from the authorization of new vouchers and higher utilization 

rates (table 2).23

Certain policy changes were designed to increase average voucher 

utilization rates. For example, starting in 2002, PHAs that applied for fair 

share vouchers had to maintain utilization rates of at least 97 percent to be 

eligible to receive them. Also, according to HUD, Congress’ decision in 

( ) x + =

Policy decisions and market factors

Number of

assisted

households

Section 8

outlays

Subsidy

cost per

household

Other

program

costs

• Number of 

authorized

 vouchers and 

 project-based units

• Utilization of

authorized 

assistance

Source: GAO.

• Fair market rent/

 payment standard

• Housing market

 characteristics

• Household income 

and family size

• Efforts to reduce 

 program costs

• Program

administration

• Special programs

23We estimated this amount by multiplying the number of new vouchers authorized from 

1998 through 2004 (490,944) by the percentage of authorized vouchers in use in 2004 (98.5 

percent). We then multiplied the result by the average per household subsidy in 2004 

($6,262).
Page 24 GAO-06-405 Trends in Section 8 Costs

2003 to limit the funding basis for voucher contracts to only vouchers that 

were actually in use effectively encouraged PHAs to increase their 

utilization rates in order to receive more funding.

Table 2: Estimated Impact of Policy Decisions and Other Factors on the Change in 

Outlays for the Voucher and Project-Based Programs from 1998 through 2004

Source: GAO analysis of HUD data.

a

This amount represents the estimated outlays that did not occur in 2004 because the number of 

project-based units declined. This amount partially offset the increase in outlays caused by growth in 

the average rental subsidy per household. Taken together, these two factors produced a net increase 

of $250 million (-$367 million plus $616 million) in outlays, or about 60 percent of the total change in 

outlays for the project-based program.

b

For each program, these amounts were derived by taking the difference between the (1) change in 

total program outlays for this period and (2) individual changes in program outlays due to the other two 

factors.

c

These amounts comprise actual increases in the administrative fee for vouchers and the cost of 

Performance-Based Contract Administrators for the project-based program. Limitations in the data did 

not allow us to identify other program costs.

Using the average annual household subsidy in 2004 for the project-based 

program ($5,948), we estimate that the decline of about 62,000 units 

reduced project-based outlays by roughly $367 million (see table 2). 

However, this decrease was more than offset by the other factors, leading 

to an overall increase of $419 million.

Although the decline in the number of project-based units caused outlays 

for the project-based program to be less than they would have been 

otherwise, its effect on total Section 8 outlays was offset to a large degree 

by the issuance of tenant protection vouchers to households displaced 

from their project-based units. As noted previously, under the 

project-based program (or other HUD programs), tenants in units receiving 

assistance that is terminated (e.g., because the unit owner decides not to 

renew an expiring contract) may face higher rental payments. To protect 

Dollars in millions

Estimated change in outlays

Factors Vouchers Project-based

Change in the number of 

assisted households/units $3,028 -$367a

Change in rental subsidy per 

householdb 3,569 616

Change in administrative costsc 368 170

Total $6,966 $419
Page 25 GAO-06-405 Trends in Section 8 Costs

these tenants from potentially unaffordable rent increases and continue 

providing assistance, Congress made tenant protection vouchers available. 

In effect, outlays from the project-based program were shifted to the 

voucher program, although not on a one-for-one basis because the per 

household subsidy costs were different for project-based units and 

vouchers.24

Increases in the Average 

Rental Subsidy per 

Household Contributed to 

Higher Outlays for Both 

Programs

Increases in the average rental subsidy per household also contributed to 

the growth in outlays for the voucher and project-based programs, 

although the average subsidy increased more for vouchers than for 

project-based programs.25 As figure 8 shows, the average subsidy for 

vouchers grew from $4,420 to $6,262 from 1998 through 2004, an overall 

increase of 42 percent.26 The annual rate of increase in the average per 

household subsidy for vouchers was 6 percent during the period, ranging 

from a low of 1 percent in 1999 to a high of 11 percent in both 2002 and 

2003. The high rate of growth in 2002 and 2003 coincided with the largest 

yearly increases in voucher outlays (see fig. 6). For 2004, the annual rate of 

increase slowed to over 2 percent after several years of substantial growth. 

The growth in the number of enhanced vouchers, which, as previously 

noted, allows for higher subsidies, may have contributed to the overall 

increase. As described in table 2, an estimated $3.6 billion (51 percent) of 

the increase in voucher outlays was due to growth in the average rental 

subsidy per household.27

24Since HUD did not maintain separate outlay data for tenant protection vouchers for the 

entire period of our analysis, we could not estimate the impact of this shift on total Section 8 

outlays.

25The data for this analysis were based on extracts taken in each December from 1998 

through 2004. For each year, the data contained household and rent information that were 

updated throughout the calendar year. We multiplied all figures by 12 to annualize them. 

These per household costs exclude administrative fees.

26After adjusting for inflation, the average rental subsidy per voucher household rose from 

$5,031 to $6,313, an increase of 25 percent over this period. The average for 2004 ($6,313) in 

inflation-adjusted dollars differs from the average in nominal dollars ($6,262) because 

subsidies from the first three quarters of 2004 have been adjusted to reflect inflation 

occurring prior to the last quarter.

27We estimated this amount by subtracting the increase in voucher outlays due to (1) the 

change in the number of assisted households ($3,028 million) and (2) the change in 

administrative costs ($368 million) from the total increase in outlays ($6,966 million).
Page 26 GAO-06-405 Trends in Section 8 Costs

Figure 8: The Average Annual Rental Subsidy per Household Grew by 42 Percent for 

Vouchers and 12 Percent for the Project-Based Program from 1998 through 2004

Note: These averages do not include an administrative fee for vouchers or the cost of Section 8

contract oversight for the project-based program. However, the costs to property owners for 

administering the project-based program, which are reflected in the units’ rents, are accounted for in 

these averages. 

In comparison, the average rental subsidy per household for the 

project-based program grew more modestly during the period—from 

$5,305 to $5,948, an overall increase of 12 percent and an average annual 

increase of 2 percent.28 The annual rate of increase in average per 

household subsidy did not exceed 1 percent from 1998 through 2001 and 

remained at less than 4 percent from 2002 through 2004. As described in 

table 2, we estimate that this raised outlays for the project-based program 

28After adjusting for inflation, the average subsidy per project-based household fell from 

$6,038 to $5,990, a decrease of 1 percent.

1998 1999 2000 2001 2002 2003 2004

Fiscal year

Source: HUD data from the Public and Indian Housing Information Center (PIC) and the Tenant Rental Assistance Certification 

System (TRACS), 1998-2004.

Project-based

Vouchers

Nominal dollars

6,115

5,497

4,995

4,690

4,420 4,468

6,262

5,708 5,527 5,284 5,356

5,948

5,305 5,274

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

8,000
Page 27 GAO-06-405 Trends in Section 8 Costs

by about $616 million.29 The decline in the number of project-based units 

partially offset this increase in program outlays, however.

As figure 8 shows, during the period we examined, the per household 

subsidy in the voucher program was initially less than the project-based per 

household subsidy but then became greater. However, this trend does not 

mean that the project-based program has become more cost-effective. Any 

comparison of the cost-effectiveness of these programs should account for 

all subsidies received during the properties’ life cycles, adjusted for any 

differences in unit and household characteristics, such as the number of 

bedrooms and family size.30 For example, the average project-based 

subsidy per household during the period we examined did not account for 

the effects of past subsidies or for potential future subsidies that may be 

needed to maintain properties in the program. Similarly, it is important to 

note that the nationwide trends we present do not reflect the considerable 

variation that exists across local rental housing markets. That is, even 

during the period we examined, in some markets the per household 

subsidy for vouchers may have remained below that for the project-based 

program.

For both the voucher and project-based programs, many policy decisions 

and market factors influenced the average per household rental subsidy, 

such as HUD’s fair market rent (FMR) determinations, housing market 

conditions, household incomes, and policies for limiting the cost of rental 

assistance. More detailed information on the trend in the average rental 

subsidy per household and the specific impact of these factors on per 

household rental subsidies for vouchers are discussed in a subsequent 

section of this report.

29We estimated this amount by subtracting the increase in project-based outlays due to (1) 

the change in the number of assisted units ($-367 million) and (2) the change in 

administrative costs ($170 million) from the total increase in outlays ($419 million).

30In a 2002 report, we estimated the costs of vouchers relative to housing programs that 

were actively developing low-income housing at the time. Since Section 8’s project-based 

program no longer developed new housing, it was not part of the scope of our report. 

Nonetheless, we estimated that the average 30-year federal cost of the production programs 

was from 16 percent to 43 percent more than the costs for vouchers. See GAO, Federal 

Housing Assistance: Comparing the Characteristics and Costs of Housing Programs, 

GAO-02-76 (Washington, D.C.: Jan. 31, 2002). Other studies have also found that vouchers 

cost less than other housing programs. For a listing of these studies, see HUD, Targeting 

Rental Production Subsidies—Literature Review (Washington, D.C.: December 2003).
Page 28 GAO-06-405 Trends in Section 8 Costs

Administrative and Special 

Program Costs Contributed 

Modestly to the Increase in 

Outlays for Both Programs

Other costs for program administration and special programs contributed 

to the change in outlays for the voucher and project-based program, 

although to a lesser extent than the other factors (see table 2). More 

specifically, according to data from HUD’s accounting systems, 

administrative costs for vouchers increased by about $368 million from 

1998 through 2004. Although complete data on administrative costs for the 

project-based program were not available, a major administrative expense 

was HUD’s Performance-Based Contract Administrator initiative, which 

started in 2000. This initiative, intended to augment HUD’s oversight of 

project-based Section 8 contracts, added $170 million in outlays from 1998 

through 2004. 

According to HUD, outlays for special programs increased but were 

relatively small during the period covered by our analysis. There have been 

multiple special programs, including the Family Self-Sufficiency program, 

which paid for service coordinators to help participating families achieve 

economic independence. The Family Self-Sufficiency program accounted 

for about $50 million in outlays in 2004. Since detailed data on the outlays 

for special programs were not readily available for this period, we were 

unable to comprehensively estimate their impact on outlays.

HUD and Congress Have 

Taken Steps to Limit 

Growth in the Cost of Both 

Programs

HUD has implemented measures to limit increases in the cost of the 

Section 8 programs. For example, as noted previously, in 2003 Congress 

authorized changes to HUD’s policies for funding vouchers to slow the 

growth in new budget authority and, in turn, outlays. Before 2003, Congress 

appropriated budget authority using a unit-based approach that covered all 

vouchers authorized in each contract, whether or not all of the vouchers 

had been utilized. Concerned that appropriations were exceeding actual 

program needs, Congress changed the formula for funding voucher 

contracts to a dollar-based approach, basing it on actual expenditures from 

the previous year plus an inflation factor. In addition, Congress authorized 

a contingency fund to cover increases in rental costs in excess of the 

inflation factor. 

In HUD’s 2004 budget, Congress authorized the creation of a Quality 

Assurance Division within HUD to provide more oversight of the 

administration and cost of the voucher program. A key part of this effort 

involves monitoring and verifying program costs reported by PHAs. The 

division also audits PHAs’ program records to ensure that voucher costs 

were reported accurately and monitors local rental market trends to 
Page 29 GAO-06-405 Trends in Section 8 Costs

determine whether HUD’s FMRs were set too high or too low. In addition, 

quality assurance staff review PHAs’ compliance with HUD’s requirement 

that rents for voucher units be reasonable—that is, comparable to rents for 

similar unassisted units in the market.

Congress and HUD have taken further steps since the period of our analysis 

to limit cost growth. For example, Congress made further changes to the 

voucher’s dollar-based formula in 2005 that eliminated all contingency 

funding, so that PHAs were expected to absorb all additional cost increases 

during the year. To help PHAs keep their costs within their funding levels, 

HUD issued guidance in 2005 concerning options PHAs could exercise to 

limit costs.31 These options included the following.

• Reduce payments standards: Because PHAs may set their own payment 

standards—that is, the maximum rent that can be used to calculate 

rental subsidies—anywhere between 90 and 110 percent of the FMR for 

their area, reducing payment standards allow PHAs to limit growth in 

rental subsidy payments.

• Ensure reasonable rents: Statute and HUD regulations require PHAs to 

compare rents for voucher units to those for comparable unassisted 

units and reduce rents for voucher units if warranted.32 To ensure that 

rents are reasonable, PHAs can conduct more frequent reviews of rents 

charged by landlords. Any rent reductions would reduce the rental 

subsidy payments that PHAs make.

• Deny moves within and outside PHA jurisdiction: The voucher 

program allows households to move anywhere within and outside of a 

PHA’s jurisdiction. However, if a PHA has insufficient funding, it can 

deny a voucher household’s move to an area that would result in higher 

subsidy costs—for example, an area with a higher payment standard. 

• Not reissue vouchers or terminate assistance: Vouchers can become 

available to new households when assisted households leave the 

program (turnover). To limit costs, PHAs can choose not to reissue 

turnover vouchers or pull back outstanding vouchers for other 

unassisted households searching for housing. PHAs can also terminate 

31Public and Indian Housing Notice 2005-9.

32See 42 U.S.C. § 1437f(o)(10) and 24 C.F.R. 982.507(b).
Page 30 GAO-06-405 Trends in Section 8 Costs

assistance if they determine that the funding provided by HUD is 

insufficient, although according to HUD, the department is not aware of 

any instance in which a PHA has terminated voucher assistance.

• Set higher minimum rents: HUD policy allows PHAs to set a minimum 

rent for households that can range from as low as $0 to as high as $50. 

Some PHAs currently allow certain households with very little income 

to pay rents that are below the minimum rent ceiling (i.e., less than $50). 

To reduce their costs, these PHAs can raise the minimum rent to $50. 

Furthermore, HUD supports proposed legislation—the State and Local 

Housing Flexibility Act of 2005—that would replace the existing voucher 

program with the “flexible voucher program.”33 This proposed program 

would, among other things, allow individual PHAs to set (within broad 

federal guidelines) eligibility requirements, the maximum period that a 

household could receive assistance, and households’ contributions toward 

rents. According to HUD, this proposed program, which would initially 

continue to fund vouchers using the dollar-based approach, would create 

incentives and provide flexibilities for PHAs to manage their funds in a 

cost-effective manner.34

For the project-based program, Congress has taken steps to control the 

cost of rental subsidies, and as our analysis shows, these steps have limited 

growth in the program’s average rental subsidy per household and thus in 

outlays. In 1997, Congress passed the Multifamily Assisted Housing Reform 

and Affordability Act, which established the Mark-to-Market program. 

When properties entered the project-based program in the late 1970s 

through the mid-1980s, HUD often subsidized rents that were above local 

market levels to compensate for high construction costs and 

program-related administrative expenses. Thereafter, these rents were 

adjusted annually using an operating cost factor determined by HUD. In the 

early 1990s, HUD concluded that the continued growth in subsidy levels 

would be unsupportable within HUD’s budget limitations. The 

Mark-to-Market program, which began in 1998, authorized HUD to reduce 

rents to market levels on project-based properties with HUD-insured

33See S. 771 and H.R. 1999.

34The legislation would require HUD to establish a final funding formula through a 

negotiated rulemaking process no later than 24 months after enactment.
Page 31 GAO-06-405 Trends in Section 8 Costs

mortgages.35 According to HUD, the program has reduced project-based 

rental subsidy costs at over 2,700 properties by an estimated $216 million 

per year since 2000.36

Policy Changes and 

Trends in Market Rents 

and Household 

Incomes Increased the 

Average Subsidy per 

Voucher Household

We developed a statistical model to assess the impact that certain 

variables—specifically, market rents, payment standards, household 

incomes, and household and neighborhood characteristics—had on the 

change in the average rental subsidy per household for the voucher 

program.37 Changes in market rents explained a significant part of the 

increase in the average rental subsidy per household. Specifically, we 

estimate that from 1999 through 2004, over one-half of the increase in the 

average per household subsidy was explained by higher market rents, all 

other things being equal.38 Higher payment standards and the relatively 

slow growth in household incomes also contributed to the increase. 

Although we found that household and neighborhood variables were 

important determinants of per household rental subsidies, their average 

values did not vary enough from 1999 through 2004 to cause a significant 

change in the average per household rental subsidy over this period.

Growth in Market Rents Because voucher households rent units in the private market, trends in 

market rents have a major effect on per household rental subsidies. To 

assess the impact of market rents on per household rental subsidies, we

35If the reduced rents affected a property’s financial viability, HUD could restructure the 

mortgage and reduce the monthly mortgage payment so that the adjusted rents cover 

project expenses, including mortgage payments.

36U.S. Department of Housing and Urban Development, Performance and Accountability 

Report for Fiscal Year 2005 (Washington, D.C.: Nov. 15, 2005).

37See appendix V for a detailed discussion of our model. All estimates from the model are 

expressed in 2004 dollars.

38Our analysis covers the period from 1999 through 2004 because data on certain variables 

used in our statistical model were not available for 1998.
Page 32 GAO-06-405 Trends in Section 8 Costs

used HUD’s FMRs as indicators of local market rents.39 Our model 

estimated the average per household subsidy that HUD paid in each year 

(baseline estimate).40 We then used the model to estimate the average per 

household subsidy HUD would have paid in each year, had the average 

market rents remained at the 1999 level, adjusted for overall price level 

changes. Comparing this figure with the baseline estimate indicates the 

influence of changes in rents. We estimate that from 1999 through 2004 the 

average annual rental subsidy per household would have grown from 

$5,225 to $5,800 (an increase of 11 percent), if the average market rents had 

remained at 1999 levels, compared with the 24 percent growth, from $5,225 

to $6,478, in the baseline estimate (fig. 9).41 Expressed differently, the effect 

of market rents accounted for over half of the increase in the average per 

household subsidy, all other things being equal.42

39FMRs are generally equal to the 40th percentile of the market rents (including utilities) 

paid by recent movers for standard-quality units. For those markets where the FMR is equal 

to the 50th percentile, we adjusted these FMRs to the 40th percentile level. Our 2005 report 

(GAO-05-342) found that the FMRs for fiscal year 2000 were generally accurate when 

compared with 2000 census data. Specifically, the report found that 88 percent of the 2000 

FMRs (weighted by population) that HUD estimated in 1999 were within 10 percent of the 

census figure. About 7 percent (weighted by population) were lower than census rents by at 

least 10 percent, and about 6 percent were greater by at least 10 percent.

40Even though we had data showing the actual amount HUD paid in rental subsidy for each 

household, we estimated the amounts in order to compare consistent values. Each 

estimated value contained an error term that captured the effects of omitted variables 

unavailable for the modeling process. By comparing two estimated values, we removed the 

influence of the omitted variables from our comparison. Appendix V provides additional 

information about our model.

41As a result of the weighting procedures used in our statistical model and the differences in 

time periods, the growth in our baseline estimate of the average subsidy per voucher 

household varies somewhat from those cited earlier in this report.

42We calculated this amount by dividing the difference between the two estimates in 2004 

($6,478-$5,800 = $678) by the growth in the baseline estimate from 1999 through 2004 

($6,478-$5,225 = $1,253).
Page 33 GAO-06-405 Trends in Section 8 Costs

Figure 9: Growth in Market Rents Had a Significant Impact on the Estimated Average 

Rental Subsidy per Household

PHAs’ Exercise of 

Flexibility in Setting 

Payment Standards

In 1998, the Quality Housing and Work Responsibility Act (P.L. 105-276) 

authorized PHAs to set local payment standards anywhere between 90 to 

110 percent of the FMR without the need for prior HUD approval. This 

flexibility was intended to make it easier for voucher households to find 

housing successfully, reduce concentrations of poverty by helping voucher 

households find housing in neighborhoods with higher incomes, and allow 

PHAs to respond to local market conditions. The result of this policy was 

that the average payment standard, as a percentage of the FMR, increased 

from about 96 percent in 1999 to 103 percent in 2004. The average voucher 

rent as a percentage of the FMR also increased, rising from about 94 

percent in 1999 to 97 percent in 2004 (see app. VI for detailed discussion of 

the trends in voucher rents). 

To assess the impact of higher payment standards on the change in per 

household rental subsidies, we compared our baseline estimate with the 

Inflation-adjusted dollars (in thousands)

Fiscal year

Source: GAO analysis of HUD data from PIC, 1999-2004.

Baseline estimate

Estimate if market rents remained at their 1999 level, adjusted for overall price level changes

1999 2000 2001 2002 2003 2004

5.00

5.25

5.50

5.75

6.00

6.25

6.50
Page 34 GAO-06-405 Trends in Section 8 Costs

average per household subsidy that our model predicted HUD would have 

paid in each year had the average payment standard, as a percentage of the 

FMR, remained at its 1999 value. As shown in figure 10, we estimate that 

over this period the average per household subsidy would have grown from 

$5,225 to $6,169 (an 18 percent increase) if the average payment standard 

as a percentage of the FMR had remained at the 1999 level, compared with 

the 24 percent growth, from $5,225 to $6,478, in the baseline estimate. 

Further, we estimate that the impact of higher payment standards 

accounted for about one-quarter of the increase in the average per 

household subsidy from 1999 through 2004, all other things being equal.43

Figure 10: Estimated Growth in the Average Rental Subsidy per Household Would 

Have Been Less Had the Average Payment Standard Remained at the 1999 Level

43We calculated this amount by dividing the difference between the two estimates in 2004 

($6,478 - $6,169 = $309) by the growth in the baseline estimate from 1999 through 2004 

($6,478 - $5,225 = $1,253).

Inflation-adjusted dollars (in thousands)

Fiscal year

Source: GAO analysis of HUD data from PIC, 1999-2004.

Baseline estimate

Estimate if the average payment standard as a percentage of the FMR remained at the 1999 level

1999 2000 2001 2002 2003 2004

5.00

5.25

5.50

5.75

6.00

6.25

6.50
Page 35 GAO-06-405 Trends in Section 8 Costs

Slower Growth in the 

Average Income for Voucher 

Households

Slow growth in household incomes, which did not keep pace with the 

increases in market rents, also contributed to higher per household rental 

subsidies. Specifically, from 1999 through 2004, the average income of 

voucher households grew from $8,779 to $10,086, an overall increase of 15 

percent and an average annual rate of about 3 percent. However, market 

rents, as measured by FMRs, increased by about 23 percent over this 

period, or an average annual rate of over 4 percent. To determine the 

impact of household income on the change in per household rental 

subsidies, we compared the baseline estimate with the estimated amount 

that our model predicted HUD would have paid had the average household 

income grown at the same rate as the average market rent. As shown in 

figure 11, we estimate that over this period the average per household 

subsidy would have grown from $5,225 to $6,279 (an increase of 20 

percent) if the average income had grown as fast as the average market 

rent, compared with the 24 percent growth, from $5,225 to $6,478, in the 

baseline estimate. Further, we estimate that the effect of relatively slow 

growth in the average household income accounted for about 16 percent of 

the increase in the average per household subsidy, all other things being 

equal.44

44We calculated this amount by dividing the difference between the two estimates in 2004 

($6,478 - $6,279 = $199) by the growth in the baseline estimate from 1999 through 2004 

($6,478 - $5,225 = $1,253).
Page 36 GAO-06-405 Trends in Section 8 Costs

Figure 11: Had Household Income Grown as Fast as Market Rents, Growth in the 

Estimated Average Rental Subsidy per Household Would Have Been Less

Household and 

Neighborhood 

Characteristics of Voucher 

Holders Did Not Have a 

Significant Effect on the 

Growth in the Average 

Rental Subsidy per 

Household

We analyzed certain household characteristics, such as family size, family 

types (for example, whether the household was headed by an elderly 

person or a person with a disability), and others, and found that, while they 

were major determinants of per household rental subsidies, they did not 

vary enough over this period to effect significant change in the average per 

household rental subsidy. Stated differently, these factors exhibited about 

the same influence on per household voucher subsidies throughout the 

period, and thus do not help explain the overall trend of increased rental 

subsidy. 

In addition, we analyzed the characteristics of the neighborhoods—also 

important determinants of per household subsidies—where voucher

Inflation-adjusted dollars (in thousands)

Fiscal year

Source: GAO analysis of HUD data from PIC, 1999-2004.

Baseline estimate

Estimate if incomes grew at the same rate as market rents

1999 2000 2001 2002 2003 2004

5.00

5.25

5.50

5.75

6.00

6.25

6.50
Page 37 GAO-06-405 Trends in Section 8 Costs

holders live.45 Specifically, given the significant increases in voucher rents 

and payment standards, we explored the extent to which the increase in 

the average per household subsidy was the result of voucher households 

moving to neighborhoods with less poverty and other favorable 

characteristics. However, just as with the household characteristics, the 

average values of these variables did not vary enough from 1999 through 

2004 to cause a substantial change in the average per household rental 

subsidy over this period. Because we did not have comprehensive data on 

the quality of rental units in the voucher program, we could not explore 

whether the trends in higher voucher rents and payment standards were 

also accompanied by changes in the quality of units occupied by voucher 

holders.

Observations The cost of providing rental assistance has been a long-standing issue for 

policymakers and has led Congress, on different occasions, to reform 

various housing programs. Recent proposals for reform have focused on 

the voucher program, which experienced a significant growth in outlays 

and constituted nearly all of the increase in total Section 8 outlays from 

1998 through 2004. We found that the growth both in the number of assisted 

households—driven largely by policy decisions to expand this 

nonentitlement program—and in the average rental subsidy per household 

explain much of the increase in voucher outlays over this period. In turn, 

the average per household subsidy rose in large part because of changes in 

the rental market, use of higher payment standards by PHAs, and 

household incomes that grew more slowly than rents. 

To the extent that policymakers wish to stem the rising cost of the voucher 

program, our analysis suggests that future increases could be mitigated by 

reducing the number of assisted households, lowering payment standards, 

requiring households to pay a larger share of their incomes toward rent, 

subsidizing households with higher incomes, or a combination thereof. 

However, these actions require making difficult trade-offs between limiting 

program costs and achieving long-standing policy objectives, such as 

45We ran statistical models using different variables to measure neighborhood quality. In the 

model cited above, we used a single measure of neighborhood quality indicating whether 

the associated census tract was designated by HUD as a qualified census tract, meaning that 

at least 50 percent of households had incomes that were less than 60 percent of the AMI or 

there was a poverty rate of at least 25 percent. In a second model, we used a number of 

census variables describing the socioeconomic and housing conditions of the associated 

census tracts. Both models yielded similar results.
Page 38 GAO-06-405 Trends in Section 8 Costs

serving more needy households, having assisted households pay a 

relatively small share of their incomes in rents, making it easier for voucher 

holders to find housing (especially in tight rental markets), reducing the 

concentration of poverty, and giving PHAs the flexibility to respond to local 

rental market conditions.

Congress and HUD have already responded to the increasing cost of 

vouchers by changing the way the program is funded. Specifically, HUD no 

longer provides funding to PHAs based on the number of authorized 

vouchers, but rather based on the prior year’s level of voucher 

expenditures, adjusted by an inflation factor. While this approach allows 

HUD to limit the annual rate of increase in the program’s cost, it does not 

directly address the policy decisions and market factors that we identified 

as contributing to the increase in program costs. Instead, it will be up to 

PHAs to exercise their flexibilities and make decisions regarding how to 

use the voucher funding that they receive from HUD. For example, some 

PHAs may choose to reduce their local payment standard, a course that, as 

our analysis suggests, would likely limit growth in voucher costs. The 

decisions that PHAs make will eventually influence trends in outlays, per 

household subsidies, and unit rents, and these trends will become more 

apparent in the years following the period covered by our analysis.

Agency Comments We provided HUD with a draft of this report for review and comment. In a 

letter from the Acting Deputy Chief Financial Officer (see app. VII), HUD 

suggested technical clarifications, which we incorporated where 

appropriate, and made the following comments:

• HUD noted that the draft report’s discussion of efforts to limit growth in 

program costs did not cite the department’s recent legislative 

proposal—the State and Local Housing Flexibility Act—to reform the 

voucher program. The proposal’s primary mechanism for limiting cost 

growth is the continued implementation of a dollar-based approach for 

funding the voucher program. Our draft report discussed the 

dollar-based approach and its intended impact on program costs. 

However, in response to HUD’s comment, we added language to the 

final report describing the legislation’s key provisions and objectives. 

• HUD indicated that the draft report was incorrect in stating that to be 

eligible for assistance under the voucher program, households must 

have very low incomes—less than or equal to 50 percent of AMI. HUD 

said that households must have low incomes—less than or equal to 80 
Page 39 GAO-06-405 Trends in Section 8 Costs

percent of AMI—to be eligible. The income limit that HUD referred to 

generally applies to households already participating in the voucher 

program. The income limit cited in our draft report referred to the 

eligibility criteria for new applicants. We revised the final report to make 

this distinction clearer.

• HUD said that our draft report’s discussion of the growth in 

appropriations from 1998 through 2004 that was due to expiring Section 

8 contracts may have inadvertently cited 1989 (rather than 1998) as the 

year in which contracts began to expire. Based on our analysis of prior 

studies on this issue, 1989 is generally regarded as the year in which 

Section 8 contracts started to expire. Contracts that expired, and were 

renewed with shorter terms in 1989 and afterwards, required new 

appropriations for renewals in subsequent years, including the years 

covered by our analysis. Accordingly, we made no changes to the final 

report.

• Finally, HUD stated that the draft report did not mention a critical 

reason that the lower cost per unit in project-based programs did not 

imply greater cost effectiveness—specifically, that vouchers are used 

for units that, on average, have more bedrooms and serve larger 

households than project-based units. In response to HUD’s comments, 

we revised the final report to reflect the fact that determining the 

cost-effectiveness of HUD’s housing programs must account for not only 

all subsidies received over time but also unit and household 

characteristics.

As agreed with your office, unless you publicly announce its contents 

earlier, we plan no further distribution of this report until 30 days from the 

report date. At that time, we will send copies to the Secretary of Housing 

and Urban Development and other interested congressional committees. 

We will also make copies available to others upon request. In addition, this 

report will be available at no charge on the GAO Web site at 

http://www.gao.gov. 
Page 40 GAO-06-405 Trends in Section 8 Costs

If you have any questions about this report, please contact me at

 (202) 512-8678 or WoodD@gao.gov. Contact points for our Office of 

Congressional Relations and Public Affairs may be found on the last page 

of this report. GAO staff who made major contributions to this report are 

listed in appendix VIII.

Sincerely yours,

David G. Wood

Director, Financial Markets and

 Community Investment
Page 41 GAO-06-405 Trends in Section 8 Costs

Appendix I

Objectives, Scope, and Methodology AAppenednxidexiIs

This report provides information on trends in the size and cost of the 

Department of Housing and Urban Development’s (HUD) Section 8 

program from 1998 through 2004. Specifically, our report objectives were to 

determine (1) the annual numbers of vouchers in the voucher program and 

units in the project-based programs, (2) the annual new budget authority 

and outlays for each program, (3) the factors that have affected outlays, 

and (4) the impact of factors on the average rental subsidy cost per 

household for the voucher program.

To determine the annual numbers of vouchers in the voucher program and 

units in the project-based program, we obtained and reviewed data on the 

numbers of authorized vouchers and project-based units from 1998 through 

2004 from HUD’s budget office. We compared the annual numbers of 

vouchers and project-based units that HUD provided with information 

reported in the agency’s annual budget requests to ensure that they were 

consistent. We obtained data on the number of units authorized under the 

Section 8 Moderate Rehabilitation program from HUD’s program offices. 

We compiled and analyzed HUD notices of funding announcements and 

awards published in the Federal Register to determine the different types 

of new vouchers that were added to the program.

To determine the annual amount of new budget authority and outlays for 

each program, we obtained and analyzed data from HUD’s budget office, 

annual budget requests and other budget documents, and audited financial 

statements. We also reviewed relevant prior reports from HUD, HUD’s 

Office of Inspector General (OIG), the Congressional Budget Office (CBO), 

and the Congressional Research Service (CRS). Because HUD’s budget 

office was not able to report data on outlays for the voucher and projectbased programs separately, we obtained data on rental assistance 

payments from HUD’s accounting systems and estimated the amount of 

rental assistance payments paid to public housing agencies (PHA) and 

property owners under each program from fiscal years 1998 through 2004. 

Specifically, from the HUD Central Accounting and Program System 

(HUDCAPS), we obtained information on rental assistance payments and 

other expenses for the voucher and the Section 8 Mod Rehab program, as 

well as for a limited number of contracts for the project-based program. 

From HUD’s Program Accounting System (PAS), we obtained similar 

information for the remaining project-based Section 8 contracts. In total, 

the data we used comprised approximately 3 million payment records. Our 

analysis included payment records associated with the voucher and 

project-based programs only and did not include payment records for other 

HUD rental assistance programs, such as the Section 202 Supportive 
Appendix I

Objectives, Scope, and Methodology

Page 42 GAO-06-405 Trends in Section 8 Costs

Housing for the Elderly and Section 811 Supportive Housing for Persons 

with Disabilities programs. We included payment records for certain 

administrative expenses, such as fees paid to PHAs for the voucher 

program and to Performance-Based Contract Administrators for the 

project-based program. 

We compared our estimate of outlays for the voucher, project-based, and 

Mod Rehab programs and other related expenses (total outlays) with 

published totals in HUD’s annual budget requests. Our estimates using 

HUDCAPS and PAS were, on average, 0.7 percent less than the totals in 

HUD’s annual budget requests. For 1998 and 1999, our estimate of total 

outlays varied from the published totals by -1.2 percent and -4.2 percent, 

respectively. For 2000 through 2004, our estimates of total outlays were 

within 0.4 percent. One reason for the variation between our estimates and 

the published totals is that our analysis did not include certain nonrental 

assistance activities paid for with Section 8 funds.

In order to assess the reliability of the data from HUDCAPS and PAS, we 

reviewed related documentation and interviewed agency officials who 

work with these databases. In addition, we performed internal checks to 

determine the extent to which the data fields were populated and the 

reasonableness of the values contained in the fields. We concluded that the 

data were sufficiently reliable for the purposes of this report.

To identify the factors that have affected outlays, we analyzed our reports 

and reports by HUD, CBO, CRS, transcripts of congressional committee 

hearings, and congressional committee reports. We also obtained and 

analyzed data on rental subsidies per household, a key factor affecting 

outlays, from two HUD databases—the Public and Indian Housing 

Information Center (PIC) for the voucher program and the Tenant Rental 

Assistance Certification System (TRACS) for the project-based program. 

Using these data, we analyzed trends in unit rents, household incomes, and 

household rental payments. In order to assess the reliability of the data 

from PIC and TRACS, we reviewed related documentation and interviewed 

agency officials who work with these databases. In addition, we performed 

internal checks to determine the extent to which the data fields were 

populated and the reasonableness of the values contained in the fields. We 

concluded that the data were sufficiently reliable for the purposes of this 

report.

To assess the impact of different factors on the average rental subsidy cost 

per household for the voucher program, we developed a statistical model 
Appendix I

Objectives, Scope, and Methodology

Page 43 GAO-06-405 Trends in Section 8 Costs

using data from HUD and the Census Bureau. Specifically, we obtained 

household-level data from PIC on the rental subsidies per household, unit 

rents, household incomes, various demographic characteristics, and 

geographic information about where households were located. We also 

incorporated information from the 2000 Decennial Census and HUD on 

neighborhood characteristics at the census tract level. Our model allowed 

us to estimate the effect of each variable—market rents, household 

incomes, household and neighborhood characteristics, and a measure of 

the relationship between the payment standard and HUD’s fair market 

rent—on the average rental subsidy per voucher household, while 

controlling for other variables. The PIC data for 1998 did not have complete 

information for certain fields (such as the fair market rent associated with 

an individual household), and consequently, we did not include data for 

1998 in our model. Appendix V contains further information on the results 

of our statistical analysis.

To address all of the objectives, we interviewed officials from HUD’s 

Offices of the Chief Financial Officer, Public and Indian Housing, Housing, 

and Policy Development and Research. We also met with CBO and CRS 

officials and representatives of various industry and research groups: the 

Center for Budget and Policy Priorities, the Council of Large Public 

Housing Authorities, the National Leased Housing Association, and the 

National Low Income Housing Coalition. We conducted our work in 

Washington, D.C., and Chicago, Illinois, from April 2005 through March 

2006 in accordance with generally accepted government auditing 

standards.
Page 44 GAO-06-405 Trends in Section 8 Costs

Appendix II

Information on the Section 8 Moderate 

Rehabilitation Program ApendxiI

This appendix provides information on the Section 8 Moderate 

Rehabilitation (Mod Rehab) program. The Mod Rehab program was 

created in 1978 to add to the existing stock of assisted housing. It did this 

by providing funding to upgrade a portion of the estimated 2.7 million thenunassisted rental housing units with deficiencies that required a moderate 

level of repair, and rental subsidies for low-income households to live in 

them. Congress funded no new contracts for the Mod Rehab program after 

1989 and repealed the program in 1991.

Under annual contracts with public housing agencies (PHA) that 

administer the Mod Rehab program, HUD provides the funding for rental 

subsidies as well as an administrative fee to the agencies. The 

administering agencies, in turn, enter into contracts with property owners. 

Under these contracts, property owners rehabilitate their housing units to 

meet HUD’s standards for housing quality by completing repairs costing at 

least $1,000 and make the rehabilitated units available to eligible 

households. In exchange, PHAs screen applicants for eligibility and pay the 

difference between the approved contract rent and the household’s portion 

of the rent. The Mod Rehab has features that are common to both the 

project-based and voucher programs. For example, similar to the voucher 

program, the Mod Rehab program is administered by PHAs and was 

intended to utilize the existing stock of privately owned rental housing. 

However, Mod Rehab is fundamentally a project-based program because 

the rental subsidy is tied to a specific unit, not the household.

During the 11 years that Congress funded new contracts under the Mod 

Rehab program, the term for the Section 8 contracts was 15 years. When 

the oldest of these contracts began to expire in 1995 and 1996, HUD 

instructed PHAs to replace them with vouchers. Since fiscal year 1997, 

however, HUD has renewed expiring contracts on an annual basis if the 

owners opt to do so and the properties consist of more than four rental 

units. 

As shown in table 3, the Mod Rehab program has undergone significant 

reductions in the number of units—from 71,659 in 1998 to 34,141 in 2004, a 

decline of about 52 percent. As with project-based Section 8, owners of 

Mod Rehab properties can choose to leave the program upon contract 

expiration, and in these cases, eligible households can receive enhanced 

vouchers.
Appendix II

Information on the Section 8 Moderate 

Rehabilitation Program

Page 45 GAO-06-405 Trends in Section 8 Costs

Table 3: Number of Authorized Units under the Section 8 Moderate Rehabilitation 

Program, 1998-2004

Source: HUD.

Data on budget authority for the Mod Rehab program were not available 

separately. From 1998 through 2004, HUD received budget authority for the 

Mod Rehab program as part of the overall appropriations for Section 8 in 

the Housing Certificate Fund account. Starting in its 2006 budget request, 

HUD included renewal funding for the Mod Rehab program in its ProjectBased Rental Assistance budgetary account. Similarly, data on Mod Rehab 

outlays were not available. However, as we did for the voucher and projectbased programs, we estimated Mod Rehab outlays using data from HUD’s 

accounting systems. As table 4 shows, from 1998 through 2004, estimated 

Mod Rehab outlays decreased by over 50 percent, from $472 million to $246 

million. The decrease in outlays was due to significant reductions in the 

number of units assisted under the program.

Year Authorized units

1998 71,659

1999 64,463

2000 57,777

2001 52,342

2002 49,013

2003 42,504

2004 34,141
Appendix II

Information on the Section 8 Moderate 

Rehabilitation Program

Page 46 GAO-06-405 Trends in Section 8 Costs

Table 4: Estimated Outlays for the Section 8 Moderate Rehabilitation Program, 1998-

2004

Source: GAO analysis of HUD Central Accounting and Program System.

Dollars in millions

Estimated outlays

Year Nominal dollars

Inflation-adjusted 

dollars 

1998 $472 $536

1999 364 408

2000 351 386

2001 332 358

2002 305 322

2003 280 289

2004 246 248
Page 47 GAO-06-405 Trends in Section 8 Costs

Appendix III

Description of the Section 8 Rental Housing 

Assistance Programs ApendxiI

Federal rental housing assistance, which began with the enactment of the 

U.S. Housing Act of 1937, includes subsidies to construct new affordable 

housing and to make rents affordable in existing rental housing. From 1937 

through 1974, the emphasis was almost exclusively on new construction. 

Questions about the cost-effectiveness of new construction led Congress to 

explore options for using existing housing to shelter low-income families. 

In 1974, it added Section 8 to the U.S. Housing Act of 1937 and created the 

Existing Housing Certificate program, the first major program to rely on 

existing privately owned rental housing and to provide tenant-based, rather 

than project-based, assistance. Another type of Section 8 assistance, the 

voucher program, started as a demonstration program in 1983, was made 

permanent in 1988, and operated simultaneously with the certificate 

program until 1998. At that time, the two programs were consolidated into 

the Housing Choice Voucher program, which combined features of both 

earlier programs. This program is now the largest federal housing 

assistance program. Table 5 summarizes the Section 8 rental housing 

assistance programs, including their authorization date and current status. 

Table 5: HUD Programs with Section 8 Rental Assistance, in Order of Year Authorized

Program Type of subsidy

Year 

authorized Status Description

Section 202 

Elderly and 

Disabled Housing 

Direct Loan 

Program

Project-based:

direct loan with below-market 

interest rates,

rental assistance payments 

generally through Section 8

1959 No new 

commitments 

since 1991

Provides direct loans at below-market rates for up to 

40 years to finance the construction of rental 

housing for the elderly and disabled. All projects 

built since 1974 also receive Section 8 rent 

subsidies.

Section 8 New 

Construction and 

Substantial 

Rehabilitation

Project-based:

rental assistance payment,

below-market interest rate 

loansa

1974 No new 

commitments 

since 1983, 

except for 

Section 202 

program (see 

above)

Provides rent subsidies in new or substantially 

rehabilitated projects. Subsidy initially covered the 

difference between tenants’ payment and fair 

market rent, determined by HUD. Subsidy contracts 

were for 20 to 40 years. Tax incentives and financing 

arrangements also may reduce owners’ effective 

mortgage interest rates and project rents. Current 

restructuring of ongoing contracts will result in 

realignment of subsidy payments.

Section 8 Loan 

Management Setaside and Property 

Disposition

Project-based:

rental assistance payment

1974 No new 

commitments 

Provides subsidies to units in financially troubled 

projects in the FHA-insured inventory and on the 

sale of HUD-owned projects. Subsidies ensure 

improved cash flows and preserve projects for 

lower-income tenants. Subsidies cover the 

difference between tenant payments and unit rents, 

which often are below market rates because of 

other federal subsidies.
Appendix III

Description of the Section 8 Rental Housing 

Assistance Programs 

Page 48 GAO-06-405 Trends in Section 8 Costs

Source: GAO.

a

The subsidy is provided by another housing program.

Section 8 Existing 

Housing 

Certificates

Tenant-based:

rental assistance payment

1974 Merged in 

1998 with the 

voucher 

program to 

become the 

Housing 

Choice 

Voucher 

program

Aids low-income households to rent housing units in 

the market. Rent cannot exceed the HUDestablished fair market rent for the geographical 

area. HUD pays the difference between the actual 

unit rent and the tenant payment. Administered by 

local public housing authorities, which enter into 

contracts with landlords.

Section 8

Moderate 

Rehabilitation

Project-based:

rental assistance payment

1978 No new 

commitments 

since 1989

Provides rental subsidies to units in privately owned 

properties where the owners agreed to make up to 

$1,000 per unit in repairs in order to receive rental 

assistance. Although the program was repealed in 

1991, property owners may request 1-year renewals 

of existing contracts. Unlike project-based Section 

8, Mod Rehab relied on existing private housing and 

was administered by public housing authorities. 

However, like project-based Section 8, rental 

assistance under Mod Rehab is tied to the unit, and 

a household can benefit from the subsidy only if it 

remains in the unit. 

Section 8

Vouchers

Tenant-based:

rental assistance payment

1983 Merged in 

1998 with 

Existing 

Housing 

Certificates to 

become the 

Housing 

Choice 

Voucher 

program

Similar to the Section 8 Certificate program in that 

assisted households could live in privately owned 

units, and public housing authorities administered 

the program. Unlike the certificate program in that 

recipients could occupy units whose rents exceeded 

the voucher payment standard—roughly equivalent 

to the fair market rent—if they paid the difference. If 

rents were below the payment standard, households 

could keep the difference (also known as the 

shopper’s incentive).

Housing Choice 

Voucher Program

Tenant-based:

rental assistance payment

1998 Active Aids low-income households to rent housing units in 

the market. Public housing authorities have 

discretion to set voucher payment standard 

anywhere between 90 and 110 percent of the fair 

market rent. HUD pays the difference between the 

payment standard (or, if less, the unit’s rent) and the 

total tenant payment, which is usually at least 30 

percent of adjusted household income. If the unit’s 

rent exceeds the payment standard, the tenant can 

pay the difference, provided that household initial 

rent burden does not exceed 40 percent of adjusted 

income).

(Continued From Previous Page)
Page 49 GAO-06-405 Trends in Section 8 Costs

Appendix IV

Data on Budgetary Costs for the Voucher and 

Project-Based Programs ApendxiIV

This appendix provides detailed data on total available budget authority 

and outlays for the Section 8 programs. Since we are evaluating budget 

trends over a 7-year period, we present the budgetary data in both nominal 

(current) and inflation-adjusted dollars. We use the gross domestic product 

(GDP) index to adjust for inflation and 2004 as the reference year.

Table 6: Total Available Budget Authority in Nominal Dollars, 1998-2004

Source: HUD.

Note: Totals may not add because of rounding.

Table 7: Total Available Budget Authority in Inflation-Adjusted Dollars, 1998-2004

Source: HUD.

Note: Totals may not add because of rounding.

Dollars in millions

Fiscal year

New budget 

authority Carryover Rescission

Total available 

budget 

authority

1998 $9,373 $7,542 -$2,897 $14,018

1999 10,327 6,366 -2,000 14,692

2000 7,177 7,721 -2,243 12,655

2001 18,110 5,375 -1,947 21,538

2002 16,281 4,093 -1,589 18,786

2003 17,112 3,549 -1,600 19,060

2004 19,257 4,439 -2,844 20,852

Dollars in millions

Fiscal 

year

New budget 

authority Carryover Rescission

Total available 

budget authority

1998 $10,552 $8,491 -$3,262 $15,782

1999 11,476 7,075 -2,223 16,328

2000 7,817 8,410 -2,443 13,784

2001 19,272 5,720 -2,072 22,919

2002 17,000 4,274 -1,659 19,616

2003 17,521 3,633 -1,638 19,516

2004 19,257 4,439 -2,844 20,852
Appendix IV

Data on Budgetary Costs for the Voucher and 

Project-Based Programs

Page 50 GAO-06-405 Trends in Section 8 Costs

Table 8: Outlays for the Section 8 Programs, 1998-2004

Source: GAO analysis of data from the HUD Central Accounting and Program System (HUDCAPS) and Program Accounting System 

(PAS).

Table 9: Outlays for the Voucher and Project-Based Programs, 1998-2004

Source: GAO analysis of data from HUDCAPS and PAS.

Dollars in millions

Fiscal year Nominal dollars Inflation-adjusted dollars

1998 $14,773 $16,794

1999 15,306 17,148

2000 15,681 17,267

2001 16,488 17,734

2002 18,235 19,225

2003 20,715 21,414

2004 22,159 22,372

Dollars in millions

Fiscal year

Voucher Project-based

Nominal 

dollars

Inflation-adjusted 

dollars 

Nominal 

dollars

Inflation-adjusted 

dollars

1998 $7,513 $8,540 $7,261 $8,254 

1999 8,109 9,101 7,197 8,047 

2000 8,641 9,516 7,040 7,750 

2001 9,328 10,037 7,160 7,697 

2002 11,083 11,684 7,153 7,541 

2003 13,247 13,694 7,468 7,720 

2004 14,479 14,617 7,680 7,755 
Appendix IV

Data on Budgetary Costs for the Voucher and 

Project-Based Programs

Page 51 GAO-06-405 Trends in Section 8 Costs

Table 10: Estimated Impact of Policy Decisions and Other Factors on the Change in 

Outlays for the Voucher and Project-Based Programs in Inflation-Adjusted Dollars 

from 1998 through 2004

Source: GAO analysis of HUD data.

a

This amount represents the difference between the (1) total outlays for the period and (2) individual 

changes in outlays due to the other two factors.

b

This amount comprises increases in the administrative fee for vouchers and the cost of PerformanceBased Contract Administrators for the project-based program. Limitations in the data did not allow us 

to identify other program costs.

Dollars in millions

Estimated change in outlays

Factors Vouchers Project-based

Change in the number of 

assisted households/units $3,053 -$369

Change in rental subsidy per 

householda 2,742 -302

Change in other program costsb 282 172 

Total $6,077 -$499
Page 52 GAO-06-405 Trends in Section 8 Costs

Appendix V

Description of the Econometric Analysis of 

Rental Subsidy Costs per Household for the 

Voucher Program ApendxiV

This appendix provides an overview of the econometric analysis we used to 

investigate trends in Section 8 rental subsidies per household (housing 

assistance payments, or HAP) between 1999 and 2004 for the voucher 

program. These subsidies, which make up the difference between 

households’ payments (usually 30 percent of adjusted income) and the 

actual unit rent, are limited by the payment standards set by local public 

housing agencies. PHAs set these payment standards based in part on fair 

market rents (FMR) that the Department of Housing and Urban 

Development (HUD) establishes for individual housing markets, generally 

at the 40th percentile (in some cases 50th percentile) of the distribution of 

rents. Raising the payment standard relative to the FMR can provide 

assisted households with a wider choice of housing, but renting more 

expensive units raises both the cost of the subsidies and thus of the Section 

8 programs.

Because of the potential influence on program costs, we wanted to 

investigate the role of HUD and PHA policies in setting payment standards. 

Since 1998, PHAs have had more leeway than they did previously to 

increase (or decrease) payment standards relative to the FMR. According 

to HUD, this authority has been exercised too generously and is a major 

cause of the recent increase in HAPs. 

Model and Data We developed a pooled cross-section time-series model explaining monthly 

HAPs as depending on a variety of housing market, program, and 

household characteristics. The results and descriptive statistics are based 

on a 10 percent sample of voucher (and certificate) household records 

obtained from HUD’s Public and Indian Housing Information Center files. 

These files provide snapshots of the program as of the end of each calendar 

year from 1998 through 2004 and provide information on HAPs, gross rents, 

FMRs, and payment standards as well as household income and other 

characteristics. The information in a file on a particular assisted household 

is current as of a point in time—for instance, the date of a program action, 

usually the date of an annual recertification for program eligibility. HUD’s 

Office of Policy Development and Research worked with the underlying 

administrative files to (1) correct various coding errors and 

inconsistencies, (2) identify the census tract of each household based on 

tenants’ addresses, and (3) add information of analytical interest that was
Appendix V

Description of the Econometric Analysis of 

Rental Subsidy Costs per Household for the 

Voucher Program

Page 53 GAO-06-405 Trends in Section 8 Costs

not necessarily required for program administration.1 The date of 

admission to the program and the date of the program action were used to 

measure how long the household had been in the program, and other fields 

were used to indicate any change in the household’s rental unit and 

whether the household left the program. We used information on the 

household’s census tract to identify neighborhood characteristics. We also 

used the census tract information to develop an indicator of neighborhood 

quality by determining whether the voucher household’s census tract was a 

HUD-designated qualifying census tract (QCT).2

We excluded observations with extreme or missing values for key 

variables, and we excluded duplicate observations in the latest record and 

the record from the previous year. We also excluded households that 

appeared to have entered or left the program more than once.

We placed each household in one of four categories, based on demographic 

and labor market characteristics: single female-headed households with 

children (nonelderly, nondisabled), elderly (including elderly disabled), 

nonelderly disabled, and all other.3

 Because groups could face different 

housing and labor market conditions and the variables in our model could 

have different effects on the level of HAP in each group, we estimated the 

same model separately for each of the four categories. For instance, 

disabled households are typically smaller than other households but may 

require housing with features not commonly available in the general rental 

stock. Families with children may be larger than other families, and thus 

require larger units, and may also experience changes in labor market 

incomes. 

The purpose of the model is to explain monthly HAPs using an estimating 

equation that is based on a variety of household, housing, neighborhood, 

and policy factors. HAPs range from close to zero to the thousands of 

dollars, with variations in each cross section and over time. In the model, 

HAPs are explained by the general level of market rents, tenant incomes, a 

1

We did not have access to individual addresses or other identifying information.

2

QCTs are census tracts in which at least 50 percent of households have incomes at or below 

60 percent of the area median income or which have a poverty rate of at least 25 percent. 

3

Elderly households are those with a head of household or spouse who is 62 years or older. 

Disabled households are those with a head of household or spouse who is disabled but not 

elderly.
Appendix V

Description of the Econometric Analysis of 

Rental Subsidy Costs per Household for the 

Voucher Program

Page 54 GAO-06-405 Trends in Section 8 Costs

measure of neighborhood quality, time period, and a measure of PHA 

payment standard policy. We also included in our model a series of 

explanatory dummy variables for household size, duration in program, 

termination and moves, and metropolitan areas. All dollar amounts (e.g., 

HAP, market rents, adjusted income) are expressed in 2004:Q4 terms using 

the price index for Personal Consumption Expenditures from the Bureau of 

Economic Analysis.

Because gross rents are important in defining the level of HAPs, we control 

for the general level of market rents in order to examine the effects of other 

variables. We use the FMR for this purpose because it provides 

considerable variation within cross sections and across time.4

 The level of 

income is also important in determining the level of HAPs, and we used 

adjusted income as reported in the file. This choice is potentially 

problematic, as the level of HAPs may influence income by encouraging 

program participants to seek work or not. However, this problem is 

somewhat mitigated by the fact that adjusted income is a predetermined 

rather than an actual amount. Specifically, the adjusted income reported in 

the file is the PHA’s projection of a household’s income in the upcoming 

year based on income information from the previous year, taking into 

account expected changes in hours, wages, and labor force status. Finally, 

the file did not include information concerning household characteristics, 

such as occupation, education, and experience, that would help explain 

variations in assistance payments at the individual household level.

The policy variable of interest relates to the way PHAs set payment 

standards (relative to the FMR). We define a ratio variable to measure this 

policy by calculating the average payment standard and average FMR by 

year and bedroom size for each PHA and then calculate the ratio (1 = 100) 

of the year-specific, PHA-specific payment standard to the FMR. Missing 

payment standard information were set equal to the FMR for a value of 

100.5

 (To limit the effects of outliers, we excluded from the analysis those 

4

We use the bedroom-specific FMR and do not use a further bedroom size control. While for 

most housing market areas, the FMR is calculated to represent the 40th percentile rent, for 

some areas in some years, the FMR is calculated to represent the 50th percentile rent. For 

those areas and years, HUD provided an estimate of the 40th percentile FMR as well, and we 

use that measure for this purpose.

5

Missing information on payment standards was applicable mainly to households that 

received assistance under the certificate program, a predecessor to the current voucher 

program (see app. III), because payment standards were not used to compute HAP under 

the older program.
Appendix V

Description of the Econometric Analysis of 

Rental Subsidy Costs per Household for the 

Voucher Program

Page 55 GAO-06-405 Trends in Section 8 Costs

households with payment standard ratios of less than 75 and more than 

120.) The baseline specification uses the year-specific, PHA-specific 

payment standard to FMR ratio as a continuous variable (also truncated at 

75 and 120).

Neighborhood quality is measured in two ways, both of them based on the 

household’s census tract. Our base specifications use HUD-designated 

QCTs, which are in less desirable neighborhoods than other tracts. Thus 

rents and HAPs should be lower in those neighborhoods, given that the 

market rent variable distinguishes higher-rent markets from lower-rent 

markets. 

Because the same households are in the data set for many years, up to as 

many as six times, the error terms are not likely to be independent from 

each other to the extent that unobserved characteristics may make the 

error terms for each household correlated with each other. However, to the 

extent that this presents a problem with the confidence intervals around a 

coefficient estimate (rather than a point) estimate, we believe that this is 

mitigated to a large extent by the large sample sizes used in the estimation. 

Table 11 shows the mean values of the variables included in our statistical 

model for the whole period from 1999 through 2004.

Table 11: Average Values of Voucher Household Groups from 1999 through 2004

Household group

Variable

Single female-headed 

with children

Nonelderly 

disabled Elderly All others

Monthly HAP 552.871 430.302 400.898 497.301

Qualified census tract 0.270 0.248 0.219 0.268

Local market rent 857.948 700.366 690.228 822.026

Adjusted income 9980.614 9360.595 9690.530 10819.378

Payment standard ratio 99.109 99.385 99.168 99.324

Duration dummy variables

1 year 0.218 0.190 0.122 0.258

2 years 0.191 0.167 0.116 0.189

3 years 0.144 0.135 0.106 0.128

4 years 0.103 0.102 0.086 0.083

5 years 0.073 0.076 0.070 0.058

6 years 0.056 0.059 0.062 0.047
Appendix V

Description of the Econometric Analysis of 

Rental Subsidy Costs per Household for the 

Voucher Program

Page 56 GAO-06-405 Trends in Section 8 Costs

7 years 0.043 0.046 0.052 0.039

8 years 0.033 0.038 0.044 0.031

9 years 0.028 0.031 0.040 0.026

10 years 0.023 0.027 0.038 0.023

11 years 0.019 0.022 0.034 0.020

12 or more years 0.015 0.019 0.032 0.017

Participation status dummy variables

Mover household 0.059 0.058 0.033 0.045

Household assistance terminated 0.097 0.076 0.075 0.115

Household size dummy variables

1 person N/A 0.558 0.751 0.415

2 persons 0.299 0.209 0.187 0.068

3 persons 0.336 0.113 0.036 0.111

4 persons 0.218 0.065 0.015 0.149

5 or more persons 0.095 0.032 0.007 0.123

Year and quarter dummy variables

1999:2 0.031 0.029 0.034 0.031

1999:3 0.042 0.035 0.038 0.039

1999:4 0.040 0.033 0.035 0.037

2000:1 0.026 0.025 0.030 0.025

2000:2 0.034 0.033 0.040 0.033

2000:3 0.046 0.042 0.044 0.042

2000:4 0.057 0.048 0.047 0.053

2001:1 0.041 0.038 0.042 0.041

2001:2 0.041 0.038 0.042 0.040

2001:3 0.030 0.031 0.031 0.028

2001:4 0.038 0.037 0.033 0.036

2002:1 0.020 0.021 0.021 0.021

2002:2 0.037 0.042 0.043 0.039

2002:3 0.044 0.047 0.045 0.045

2002:4 0.061 0.058 0.052 0.060

2003:1 0.029 0.034 0.034 0.031

2003:2 0.044 0.051 0.051 0.049

2003:3 0.058 0.061 0.056 0.060

2003:4 0.069 0.065 0.059 0.071

(Continued From Previous Page)

Household group

Variable

Single female-headed 

with children

Nonelderly 

disabled Elderly All others
Appendix V

Description of the Econometric Analysis of 

Rental Subsidy Costs per Household for the 

Voucher Program

Page 57 GAO-06-405 Trends in Section 8 Costs

Source: GAO analysis of data from PIC.

Results The results of our regressions are reported in table 12. Unless reported 

separately in parentheses, all P-values are less than 0.0001.

Table 12: Regression Results

2004:1 0.029 0.034 0.033 0.030

2004:2 0.043 0.051 0.051 0.046

2004:3 0.055 0.061 0.056 0.059

2004:4 0.066 0.067 0.059 0.068

(Continued From Previous Page)

Household group

Variable

Single female-headed 

with children

Nonelderly 

disabled Elderly All others

Coefficient

Household group

Variable

Single female-headed 

with children

Nonelderly 

disabled Elderly All others

Intercept -240.552 -168.373 -115.147 -292.440

Qualified census tract -28.283 -18.869 -25.689 -34.603

Local market rent 0.649 0.691 0.633 0.660

Adjusted household income -0.022 -0.022 -0.021 -0.022

Payment standard ratio 3.866 3.398 3.418 4.237

Duration dummy variables

1 year 46.034 23.026 33.999 53.647

2 years 35.756 18.196 24.746 44.206

3 years 29.083 13.634 18.374 33.276

4 years 25.382 8.878 15.256 29.547

5 years 23.069 7.110 17.204 28.888

6 years 21.209 6.446 15.695 29.878

7 years 20.167 5.282 13.495 21.174

8 years 19.276 6.233 13.291 20.160

9 years 13.259 6.013 13.024 19.785

10 years 9.483 4.646 14.813 16.343

11 years 11.401 6.443 16.090 17.874

12 or more years 7.772 4.026 10.311 19.456
Appendix V

Description of the Econometric Analysis of 

Rental Subsidy Costs per Household for the 

Voucher Program

Page 58 GAO-06-405 Trends in Section 8 Costs

Participation status dummy variables

Mover household 41.479 27.219 24.174 31.057

Household assistance terminated -27.264 -22.529 -20.597 -26.525

Household size dummy variables

1 person N/A -100.261 -138.022 -95.574

2 persons -71.769 -67.421 -105.279 -71.650

3 persons -53.702 -47.023 -73.181 -58.171

4 persons -37.119 -32.854 -55.639 -44.040

5 or more persons -22.759 -19.995 -20.483 -27.020

Year and quarter dummy variables

1999:2 -0.257

(.89)

1.863

(.42)

2.465

(.40)

2.120

(.61)

1999:3 2.704

(.11)

5.671

(.01)

5.199

(.07)

3.722

(.35)

1999:4 -1.691

(.33)

-3.055

(.17)

0.294

(.92)

4.068

(.31)

2000:1 18.328 13.973 12.736 15.781

2000:2 25.116 20.466 16.514 25.087

2000:3 32.275 27.919 25.471 29.245

2000:4 13.081 9.142 10.418 14.786

2001:1 20.595 18.043 23.518 21.154

2001:2 29.780 22.617 26.271 32.555

2001:3 29.524 26.093 16.319 28.751

2001:4 15.548 9.251 2.708

(.35)

19.327

2002:1 9.472 7.623 2.221

(.49)

10.239

(.02)

2002:2 17.449 13.194 8.509 14.673

2002:3 16.950 11.318 5.394

(.05)

16.654

2002:4 12.098 5.315

(.01)

-5.070

(.06)

12.949

2003:1 36.467 8.982 2.196

(.46)

28.221

2003:2 42.401 14.587 2.684

(.33)

27.116

(Continued From Previous Page)

Coefficient

Household group

Variable

Single female-headed 

with children

Nonelderly 

disabled Elderly All others
Appendix V

Description of the Econometric Analysis of 

Rental Subsidy Costs per Household for the 

Voucher Program

Page 59 GAO-06-405 Trends in Section 8 Costs

Source: GAO analysis of data from PIC.

In general, the results are consistent with our general expectations. For 

example, 

• HAPs increase with market rent levels and decrease with adjusted 

incomes. 

• Households in less desirable neighborhoods, as measured by the QCT 

variable, are about $20 to $30 per month less ($240 to $360 annually), 

depending on the group.

• Smaller households receive smaller HAPs, and those in the program 

longer receive smaller HAPs. 

• Those that ultimately leave the program receive smaller HAPs, in some 

cases because incomes may have increased to the point that the 

households are no longer eligible.

• Households that move to a new unit tend to receive higher HAPs.

• HAPs increase as the payment standard increases relative to the FMR. 

The time period dummy variables used in our model suggest that, at least 

for households that are neither elderly nor disabled, HAPs were 

2003:3 46.316 17.019 8.263 32.605

2003:4 44.151 14.244 4.514

(.09)

36.258

2004:1 57.448 21.379 7.499

(.06)

43.155

2004:2 55.581 19.587 2.651

(.34)

32.373

2004:3 53.379 16.720 9.975 42.051

2004:4 52.209 13.051 6.428

(.02)

39.735

Sample size 375,753 187,216 131,693 93,536

R2 0.83 0.81 0.71 0.81

(Continued From Previous Page)

Coefficient

Household group

Variable

Single female-headed 

with children

Nonelderly 

disabled Elderly All others
Appendix V

Description of the Econometric Analysis of 

Rental Subsidy Costs per Household for the 

Voucher Program

Page 60 GAO-06-405 Trends in Section 8 Costs

approximately $40 to $50 per month ($480 to $600 annually) higher in 2004 

than in 1999, even after controlling for changes in market rent levels and 

payment standards.

To present the results in terms of trends, we focused on those variables for 

which the average values changed significantly over the time period. Table 

13 presents averages of selected variables—HAP, market rents, adjusted 

income, and payment standard ratio—for the largest group (single femaleheaded households with children).

Table 13: Averages for Selected Variables, 1998-2004

Source: GAO analysis of data from PIC.

Year

Variable 1999 2000 2001 2002 2003 2004

Monthly HAP $487.0 $492.5 $509.7 $558.7 $612.9 $615.8

Market rents $803.4 $805.0 $824.4 $880.1 $907.1 $896.9

Adjusted income $9,619 $10,064 $10,136 $10,002 $9,970 $10,031

Payment standard ratio 96.1 94.3 95.9 100.4 102.5 103.1
Page 61 GAO-06-405 Trends in Section 8 Costs

Appendix VI

Trends in Rents and Household Payments for 

the Voucher and Project-Based Programs ApendxiVI

The rental subsidy per household of both Section 8 programs is the 

difference between a household’s payment and the lesser of either the 

payment standard or the unit’s gross rent. Trends in rents and household 

payments, therefore, drive changes in the rental subsidy per household. For 

the voucher program, average rents grew by 35 percent from 1998 through 

2004 (fig. 12). The average annual increase in voucher rents was 5 percent 

during this period, ranging from a low of 3 percent in 2004 to 8 percent in 

2002. Average project-based rents grew by 12 percent over this period, an 

average annual rate of 2 percent. Rents in the voucher program grew 

almost three times faster than those in the project-based program (35 

percent versus 12 percent) over this period. A major reason for this 

difference is that voucher rents are determined by the private market, 

while project-based rents are adjusted annually using a HUD-determined 

operating cost factor.

Figure 12: Average Annual Rents for the Voucher and Project-Based Programs, 

1998-2004

1998 1999 2000 2001 2002 2003 2004

Fiscal year

Source: HUD data from the Public and Indian Housing Information Center (PIC) and the Tenant Rental Assistance Certification 

System (TRACS), 1998-2004.

Project-based Section 8

Vouchers

Nominal dollars

8,208 7,982 7,812 7,603 7,612 7,692

8,479

9,291

8,754

8,127

7,734

9,595

7,110

7,451

0

2,000

4,000

6,000

8,000

10,000
Appendix VI

Trends in Rents and Household Payments for 

the Voucher and Project-Based Programs

Page 62 GAO-06-405 Trends in Section 8 Costs

Annual increases in household payments did not keep pace with the 

increases in voucher rents. Specifically, the average household payment by 

voucher households rose by 24 percent over this period and grew at an 

average annual rate of 4 percent (fig. 13). The disparity in the rates of 

increase between rents and household payments accelerated the growth in 

the average per household subsidy for vouchers. In contrast, the annual 

rate of increase in the average project-based rent was similar to that of 

household payments. As a result, growth in the average per household 

subsidy kept pace with rents and household payments in the project-based 

program.

Figure 13: Average Annual Household Payment for the Voucher and Project-Based 

Programs, 1998-2004

1998 1999 2000 2001 2002 2003 2004

Fiscal year

Source: HUD data from PIC and TRACS, 1998-2004.

Project-based Section 8

Vouchers

Nominal dollars

2,485 2,500 2,457 2,409 2,338 2,299

2,530

3,176 3,226 3,132 3,044

3,333

2,690

2,983

0

500

1,000

1,500

2,000

2,500

3,000

3,500
Appendix VI

Trends in Rents and Household Payments for 

the Voucher and Project-Based Programs

Page 63 GAO-06-405 Trends in Section 8 Costs

Annual Increases in 

Voucher Rents and Fair 

Market Rents Were 

Similar

Although the average voucher rent grew dramatically from 1998 through 

2004, our analysis found that this increase was consistent with the growth 

in the average fair market rent. Fair market rents, which HUD sets for each 

locality, reflect the cost of modest, standard-quality housing.1

 We created a 

fair market rent index, weighted by the proportion of voucher households 

in each locality, and compared it to the average rent for vouchers, which 

was similarly weighted, in order to assess the change in the average rent for 

vouchers over time. From 1999 through 2004 (the only years for which 

complete data on fair market rents and voucher holders were available), 

the average rent in the voucher program grew by 27 percent, while the 

average fair market rent grew by 23 percent (fig. 14). Starting in 2003, the 

average voucher rent increased at a faster rate than the average fair market 

rent—5 percent versus 4 percent, respectively, in 2003, and 3 percent 

versus 1 percent, respectively, in 2004—thus narrowing the gap between 

them.

1

More specifically, fair market rents are generally equal to the 40th percentile of the market 

rents (including utilities) paid by recent movers for standard-quality units. However, in 39 

localities, the fair market rents are equal to the 50th percentile. In March 2005, we reported 

on the accuracy of HUD’s fair market rents. See GAO, Rental Housing: HUD Can Improve 

Its Process for Estimating Fair Market Rents, GAO-05-342 (Washington, D.C.: Mar. 31, 

2005).
Appendix VI

Trends in Rents and Household Payments for 

the Voucher and Project-Based Programs

Page 64 GAO-06-405 Trends in Section 8 Costs

Figure 14: Average Voucher Rents and Fair Market Rents, 1999-2004

Note: Data on the fair market rent associated with the individual household were not available for 1998.

A major reason for the trend in the growth in the average voucher rent was 

PHAs’ authority to set their payment standard above the applicable fair 

market rent. As previously noted, each PHA sets a local payment standard 

up to 110 percent of the fair market rent for their area. The average 

payment standard as a percentage of the fair market rent has steadily 

increased, from about 96 percent in 1999 to 103 percent in 2004. 

Accordingly, the average voucher rent as a percentage of the fair market 

rent also increased, from about 94 percent in 1999 to 97 percent in 2004.

Nominal dollars (in thousands)

Fiscal year

Source: GAO analysis of HUD data from PIC, 1999-2004

Average voucher rents

Average fair market rents

1999 2000 2001 2002 2003 2004

7.0

7.5

8.0

8.5

9.0

9.5

10.0
Page 65 GAO-06-405 Trends in Section 8 Costs

Appendix VII

Comments from the Department of Housing 

and Urban Development ApendxiVI
Appendix VII

Comments from the Department of Housing 

and Urban Development

Page 66 GAO-06-405 Trends in Section 8 Costs
Page 67 GAO-06-405 Trends in Section 8 Costs

Appendix VIII

GAO Contact and Staff Acknowledgments ApendxiVI

GAO Contact David G. Wood, (202) 512-8678 or WoodD@gao.gov

Acknowledgments In addition to the contact named above, Steve Westley, Assistant Director; 

Stephen Brown; Emily Chalmers; Mark Egger; Daniel Garcia-Diaz; John T. 

McGrail; Marc W. Molino; Rose Schuville; and William Sparling made key 

contributions to this report. 

(250243)
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