There is not enough affordable housing to meet demand from middle- and low-income households. The federal government can play a role in incentivizing the private market to create new affordable housing to supplement the stock of naturally occurring affordable housing. In the United States, public-private partnerships have historically been the most successful policies in creating affordable housing.

Current Project-Based Section 8 Voucher Policies

A current federal program that incentivizes developers to construct affordable housing is project-based Section 8 vouchers. Similar to traditional Section 8 vouchers (read more about Section 8 vouchers here), project-based Section 8 vouchers assist low-income families in paying rent. Participating households contribute 30% of their monthly income to rent and the federal government covers the remaining amount. However, project-based Section 8 vouchers differ from traditional Section 8 vouchers in that the voucher is tied to a housing unit rather than moving with a household. Typically, developers seek out project-based Section 8 vouchers from local public housing authorities when figuring out the financial aspects of a project before the project is constructed. Developers actively seek out project-based Section 8 vouchers because they are a stable source of income for housing developments. Housing developments are usually not feasible if the rent is set at a rate affordable to low and middle income families. Many housing units are built at market rate rents, however, by applying the voucher, developers are able to make profit and invest in more housing developments. So, because of the vouchers, developers are still able to charge rents at market rate; they are able to make projects financially feasible while still providing housing units that are affordable to low-income households.

Current limitations of Project-Based Section 8 Vouchers

Project-based Section 8 vouchers have a lot of potential as a policy but are limited in their usefulness because of policy constraints. Local public housing authorities are allocated a certain amount of Section 8 vouchers and they can assign up to 20% of their allocated vouchers to be project-based vouchers. This limits the development of affordable housing units and leads to public housing authorities seldom allocating Section 8 vouchers to be tied to a housing unit. If project-based Section 8 voucher is to be used as a potential policy to incentivize developers to create more affordable housing, the program will have to be expanded to allow for more units to be built through the program, and it will need to be separated from the administration of traditional Section 8 vouchers.

Arguments in Favor of Expanding Project-Based Section 8 Vouchers

• Project-based Section 8 vouchers can be used to develop mixed income housing developments, or a community where the residents are not of the same economic class. Many believe that mixed-income communities can help alleviate poverty, increase property values, and promote social tolerance. Mixed-income communities, as opposed to social housing in a separate area from high-income communities, can also reduce the stigma of public housing projects and address issues like education inequality.
• The main alternative to project-based Section 8 housing is the low income housing tax credits (LIHTC) which can sometimes fail to support the lowest income households. The rent in properties using low income housing tax credits are calculated by taking 30% of the area median income, which is the midpoint of residents’ income in a region. This measurement can be inflated if a region has high income inequality, raising the area median income to a point where 30% of that income in a month is too high for households living in poverty. Project-based Section 8 vouchers are based on the individual household’s income, making the amount of rent they are required to pay under the program more realistic for households in poverty.

Those in favor of expanding project-based Section 8 vouchers point to the fact that the infrastructure to administer such an expansion is already in place and would not involve developing a bureaucratic process. 

Arguments against expanding Project-Based Section 8 Vouchers

Cost is the main barrier to expanding project-based Section 8 housing. Covering partial rent for millions of households would increase the amount that the federal government spends on rental assistance, which was $51 billion in 2019. In addition project-based Section 8 vouchers do not have the same flexibility for households compared to traditional Section 8 vouchers. If a household must move for whatever reason, they will lose their benefits. While this consistency allows for the creation of more affordable housing units, it can also harm households accessing the programs.