Is tumultuous change underway at HUD yet another reason for landlords to frown upon Section 8 tenancies?

Temporary freezes on federal funding and layoffs at the Department of Housing and Urban Development (HUD) have put landlords on edge, as housing providers worry that the guaranteed government subsidies they have come to expect might not be paid and the pool of applicants shrink. 

There has always been a love-hate relationship between landlords and Section 8. Reliable, steady rent payments, consistent tenant demand, and longer tenant stays can be appealing, especially during periods of economic downturn and stagnant or declining market rate rents.

Less endearing aspects of the program include reams of bureaucratic red tape, rent cap restrictions, mandatory inspections, and lease compliance challenges, among other potential drawbacks, which have made Section 8 tenancies less seductive.

Some clients gravitate towards tenants with a housing voucher, while other landlords want to run away from them like the plague. It’s a trade-off.

Has the calculus changed with Trump 2.0?

Elon Musk and the newly spawned DOGE (the Department of Government Efficiency) make daily headlines as they rip through a bloated federal government like a chainsaw, and HUD isn’t immune from the chopping block.

After peeling back the books, the bloodhounds at HUD have sniffed out $260 million in cuts and that number is expected to rise. According to some reports, up to half of the agency’s employees could be getting a pink slip. There is a concern that with such a large-scale reduction in staff, it will be difficult for HUD to send the payments to local housing authorities that in turn pay them directly to landlords.

When it comes to the chainsaw massacre, you won’t get any pushback from newly-minted HUD secretary Scott Turner. The former NFL player, motivational speaker, and executive diretor of the White House Opportunity and Revitalization Council in Trump's first adminstration said that working in concert with DOGE, the agency will be “deliberate about every dollar spent in serving tribal, rural, and urban communities across America,” vowing to “identify and eliminate all waste, fraud, and abuse.”

 

Guaranteed rental payments by Uncle Sam have always been the main attraction of participating in Section 8, but what if the “steady-drip” payments are put into question? 

Clearly, that will change the equation, and we are already beginning to see a crack in the trust between HUD and the housing authorities and between the housing authorities and the landlords. 

Any cuts to the program, or even delays in sending vouchers, can create hardships for qualifying low-income renters and disrupt the cash flow of housing providers who lease to them. 

On a positive note, Secretary Turner has vowed to work with builders to cut regulations and boost housing supply, telling the Leadership Council of the National Association of Home Builders (NAHB) that “the data tells us that we cannot keep running the same old plays and getting the same unacceptable results. Something has to change." 

While we expect that the seismic changes in store for HUD will disincentivize many landlords from participating in the Section 8 program, housing providers cannot summarily deny applicants with a voucher in hand. 

It is well established that a prospective tenant cannot be denied a tenancy on the grounds of using a Section 8 voucher, but many landlords did not get the memo. Many naive property owners and their agents with an aversion to Section 8 unfortunately tell rental applicants that housing vouchers are not accepted, and these discriminatory statements come back to haunt them. 

There is an attorney in the East Bay (we won’t name him here) who has carved out a lucrative practice suing housing providers and property managers who summarily reject Section 8 tenants, and they have their strategy down to a science. 

 

How the process plays out

Act one: The law firm utilizes the services of a “tester” who inquires about a published rental, asking if government subsidies are accepted.

Act two: The prospective tenant is informed that Section 8 is not an acceptable form of rent payment. They hang up the phone and call up the attorney.

Act three: The misinformed landlord or property manager receives a demand letter in the mail from the attorney alerting them that their client was discriminated against and that this matter can be settled by paying three times the published rent, plus an extra $5,000 for the time and trouble.

Act four: To avoid a costly lawsuit in court, the unsuspecting owner pays out the demanded dollar amount, and they learn their lesson the hard way. The landlord or their agent was not acting with malice or blatant discrimination, but they were simply ignorant of the law.

 

Other issues abound when renting to Section 8 tenants

  • Landlords are prohibited from solely relying on the credit history of applicants who receive government rent subsidies. Instead, the rental applicant needs only to demonstrate that there is an alternative, verifiable evidence of their ability to pay rent. Think pay stubs, bank statements, proof of government benefits, etc.

  • Keep in mind unique notice requirements when the tenant fails to pay the rent or violates other covenants of the lease.

  • Whenever domestic violence rears its head in subsidized rental units, there are a host of protections afforded to victims under the Violence Against Women Act (VAWA).

  • While every residential rental unit in California must be maintained in habitable condition, subsidized units need to pass higher inspection standards before Section 8 tenants move in.

  • Additional paperwork with a local housing authority and stronger “just cause” protections on the local level.

Efforts to overhaul the agency will attempt to balance fiscal responsibility with the overarching goal of creating and enforcing policies to help renters have access to affordable housing and a suitable living environment, but details are scarce now.

Suffice it to say that the upheaval in HUD's funding and regulatory regime will present challenges to landlords best approached with proper counsel keeping a pulse on new developments as the agency reinvents itself.