Should You Be Forced to Accept Section 8?

What if the government tells you that you MUST accept a tenant using Section 8 Housing Assistance?  What if I told you there is a bill in the California State Senate that would make this the case?

Senate Bill 1053 is currently circulating which would reclassify the financial assistance from Section 8 as “income”.  Denying a Tenant based on source of income is discriminatory and against the law.  This would essentially prevent Landlords from automatically denying Tenants with Section 8 vouchers with the notorious “No Sec 8” postings.

There is large opposition against this Bill for many reasons.  However, being in the property management business I literally get multiple calls and emails every day from someone new with a Section 8 voucher asking if I have any rentals available that accept Section 8.  Tenants with a Section 8 voucher have an extremely tough time finding housing and this has become a serious issue.  I cannot force my Landlord clients to accept Section 8 but I try my hardest to educate them on the program; and some end up accepting Section 8 Tenants.

So why is there so much opposition if this Bill would help people find housing?  There are four main issues surrounding this Bill and the Section 8 Housing Program.  Let’s dive in and dissect these issues one by one.  Stay with me.  My goal at the end of this is to educate you on both sides of the topic so that collectively we can come to a fair solution to this problem.

Problem #1 – Section 8 Tenant Have a Bad Reputation

I’ve been involved with property management since 2007 and since then, I’ve noticed approximately 80% of my Landlord clients tell me they do not want Section 8 tenants.  So I ask them why.  Most of their responses are, “well I’ve heard bad things about Section 8 Tenants.”  However, the majority of Landlords have never had direct experience with the program.

Over the years, Section 8 has developed a bad reputation through rumored stories.  I myself manage various Section 8 properties.  I experience no issues with the Tenants themselves in my Section 8 rentals.  How Section 8 has conjured this negative view I believe has been due to isolated situations that make great headlines and that type of news spreads rapidly.  If you point to a negative story about a Section 8 Tenant, I can equally point to a non-Section 8 horror story.  Picking the right Section 8 tenant is just like picking any other tenant not on Section 8… you need to have minimum requirements, screen them properly and pick the best qualified applicant

Problem #2 – Repairs Required to a Property

When a Landlord participates in the Section 8 Housing Program, an inspection of the property will be conducted.  If items are called out by the inspector, they will require repair prior to final approval of any lease agreement and payment to the Landlord.  This has been another big excuse by Landlords to not participate in the program. 

When conducting their inspection, Section 8 looks for safety and hazard items only.  They are not going to call out for updated carpet or other upgrades.  They will however call out an outlet in the bathroom that needs to be upgraded to a GFCI outlet.

My opinion is this… these are items that you, as a Landlord, should have repaired whether you rent to a Section 8 Tenant or not.  Items that are flagged as needing repair are “safety and hazard” items that expose you to liability damages should something happen to the Tenant.  So unless you don’t mind exposure to a lawsuit, then get the repairs done.  Have an expert inspect your property before you market the home for rent and make the repairs as soon as possible to prevent any delay from a failed Section 8 inspection. 

Problem #3 – Time Frame Required for Final Approval

In my opinion, the first two problems are easily fixable.  First one deals with educating Landlords and second one deals with standard repairs any Landlord should do regardless of Section 8 or not.  This third problem however is where things begin to really get complicated.  That is the time it takes to obtain final approval on the lease agreement and terms by Section 8.

When a Section 8 tenant is approved to rent by a Landlord, paperwork is initially filed with the Housing Authority.  It takes them 1-2 weeks to conduct their initial property inspection, it could take another week for repairs (this can be eliminated if repairs done in advance), then it takes another 1-2 weeks for paperwork to be completed in-house and approved.  However, after the paperwork is approved is when the Tenant can move in but most Tenants do not move in immediately because they have to give notice to their current Landlord.  Of course you might have the same scenario with a non-Section 8 tenant, but the coordination is more difficult with Section 8 Tenants because the final approval date is unknown and never consistant.

So this entire process can delay the Landlord from collecting rent from 2 weeks (very optimistic) to a staggering 5 weeks.  This is my experience in the San Francisco Bay Area.  It is longer in other parts of the State and Country.  With Bay Area rent prices that means a loss of $1,000 to $5,000 to the Landlord depending on the rent price.  That further reduces the rate of return the investment property yields which is the biggest motivating factor in investing in ownership of rental housing.

If SB 1053 will go as far as requiring Landlords to consider Section 8 Tenants, which would potentially force them into the program, it should also include regulation that would force the local Housing Authority to provide a quicker approval.  The entire approval process should take no longer than 7 days from when the initial paperwork is received; assuming no repairs are required.  Most Landlords, in my experience, would be willing to wait an extra 7 days for a program that guarantees rent and guarantees rent paid on time.

Problem #4 – Rent Limits Haven’t Kept Up With Prices

Let’s assume all three prior problems listed can be fixed, and I think they can, the biggest obstacle is Section 8’s limits on rent prices.  Section 8 has not kept up with the increase in housing prices.  It’s tough for Section 8 Tenants to find housing when their 2-bedroom voucher has a max limit of $1,550 and the average 2-bedroom rents for $1,800.  This is further complicated when you read the fine print of Section 8 that explains their limits also include ALL utilities figured into the limit price.  So in a scenario like this, Section 8 may only approve a contract rent price of $1,450 even though the stated limit is $1,550. 

This is purely a funding issue.  Section 8 needs additional funds to help cover the costs of rising rent prices but that can be difficult in a City like Richmond that is trying to figure a way to close it’s $11 Million deficit.  I’m also positive that if we did a full audit of Section 8 Housing Authorities that we would find a lot of wasted time and money.  There are ways to make the program more efficient and reduce cost.  Companies do this all the time and government agencies need this now more than ever.

CONCLUSION

SB 1053 solves half the problem.  We have a housing issue in which Section 8 tenants rarely find a home advertised for rent that accepts their voucher.  Yes, we should make Landlords consider Section 8 tenants but the program itself needs an overhaul prior to that.  Passing SB 1053 the way it is currently written is basically a mild form of rent control in which some Landlords would be required to provide housing at a much lower rate than what the market dictates.  We would be trading one type of Tenant for another, but the housing shortage will remain the same… only this time Landlords would be taking a giant cut in income. 

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