The article below has been published on HG.org here.  

As both a private landlord and landlord tenant attorney, I sometimes wonder what would happen if all of a sudden I stopped receiving checks from Section 8.  In other words, what would be the implications if the Federal Government suddenly decided to not only stop sending me my monthly checks, but to every other landlord with Section 8 tenants by either discontinuing or defunding the Section 8 housing program?  With the current political environment we are in, it is not too difficult to imagine a scenario in which Republican House members, under pressure from their Tea Party Constituents, target the Section 8 program in the near future.

Section 8 is the shorthand form of referring to Section 8 of the United States Housing Act of 1937 that authorizes the payment of rental housing assistance to private landlords on behalf of approximately 3.1 million low-income households.#  So basically it is a government subsidy for rental housing, much like food stamps is for food, for those who fall below certain income requirements.  In this program, tenants pay about 30 percent of their income for rent, while the rest of the rent is paid with federal money#.  The Section 8 housing program began during the Great Depression and is still popular today with both tenants and landlords, especially in New York City.  It was born from the progressive fantasy that housing is a “right”, thus guaranteeing all citizens, (and non-citizens) a place to live.  It is obviously popular with tenants because they have someone else pay most of their rent and it is popular with Landlords because payments from the Federal Government are seen as more secure than payments from private parties.

 

However, renting an apartment to a Section 8 tenant is a more complex procedure than renting an apartment to a purely private party.  Once enrolled, a Section 8 landlord is under a contractual obligation to ensure that the apartment meets strict requirements concerning its condition. These requirements are strictly enforced through annual inspections by a Section 8 housing inspector.

Nevertheless a majority of New York City landlords endure the overwhelming bureaucracy, including stringent renewal requirements, additional procedures concerning evictions, and stringent maintenance requirements for a reason. They endure these headaches in return for a “steady” check every month from the government. They believe that a check from the government is better than a check from a private citizen, and up to now, are probably correct.  Why else would investors prefer to buy U.S. Treasuries over Corporate bonds?  However, with over 14 trillion in debt it cannot be assumed that the status quo will remain the same. #  In fact, the Federal Government put a stop on all new Section 8 housing vouchers this past year siting both a lack of sufficient funds and overwhelming demand.#  Is this a precursor to a complete discontinuance ahead?  What will be the impact on both the housing market and the tenants if the Federal Government defunded and/or discontinued all Section 8 payments abruptly?

   

There is an old saying that you should not put all of your eggs in one basket.  However, it is in my personal experience that landlords, especially those in New York City, and in particular the outer boroughs, prefer Section 8 payments over private funds, and this preference has existed over the past decade. This is contrary to the public misconception that landlords discriminate against Section 8 tenants due to their “low income” status, tendency to be an ethnic minority, or other victim categories promulgated by the media.  This supposed “discrimination” lead the City of New York to pass a law forcing all landlords in its jurisdiction to accept all Section 8 tenants, thus now making a voluntary program involuntary. #  Nevertheless, even after the supposed “discrimination” against Section 8 tenants, landlords are known to hold properties with over 50% of their annual revenue coming from the Section 8 program (and to over 75% of revenue coming from one government program or the other once you consider SCRIE, DRIE, Social Services, and other government assistance programs.)  If this revenue was to cease, a cascade of both foreclosures and steep drop in multi-family housing values would occur in this highly leveraged field of real estate.

Therefore the factors of 1) increased preference of private sector landlords of government payments over private sector payments due to their perceived reduction in risk 2) increase in legislation forcing landlords to accept these payments and 3) increase supply of Section 8 tenants relative to the tenant pool have led to an inordinate reliance of the private real estate sector on the Federal Government not only to remain profitable but to remain solvent.  These factors lead to a trend already seen in many other sectors of society, where an industry is ever more reliant on government largess in order to stay afloat.  This ever increasing dependence can only lead to landlords and tenants overwhelming support for the continuance of this subsidy, with all its corresponding market distortions.

The real estate industry needs to envision a scenario where the funds run dry and the program is slowly phased out so as to avoid any existential shocks.  It is better to for the public to have this discussion now on the best method to slowly discontinue a wasteful subsidy rather than uncontrollable circumstances dictate an abrupt ending to a program milked by landlords and tenants for the past few decades, to their ultimate detriment.

The article below has been published on HG.org here.  

The crisis in public housing is the mere fact that public housing still exists. At a time where the federal deficit is soaring into the trillions and both city and state budgets are at the breaking point, governments, from the local to the federal level, still cling to the outdated concept of “public” housing.

What is public housing? Public housing is a form of housing in which the property is owned by a government authority, which may be central or local. Although various forms of public housing programs exist, the most common is a form of public housing called public assistance, which includes programs such as Section 8, SCRIE, DRIE, Mitchell-Lama housing, and Social Services.

Throughout the years, a significant amount of fraud in housing assistance programs like Section 8 and the “one shot deal” has been reported. However, these programs offer the advantage of having someone else actually maintain the housing premise benefiting the end recipient. This alleviates the need for the city to develop, own, and maintain physical structures that exposes the government to massive amounts of financial and legal liabilities that are normally associated with housing. These voucher programs give the city the benefit of being in the tenant’s shoes rather than the landlord’s, with all the rights and benefits associated with that position.

In a recent editorial in the New York Times called "The Crisis in Public Housing" dated November 4, 2010, the author argues that the crisis in public housing is the lack of funds needed for the innumerable government buildings upkeep. However, the author’s most basic premise of his article is wrong. Why is the government involved in housing in the first place? When did housing become a right? With all the competing needs of funds, such as education and transportation, programs that are in dire need of significant amount of money, how does providing housing to citizens more beneficial, when there is a ready supply of private apartments willing to meet their needs? Only the government can run railroads yet there are thousands of business owners willing to rent an apartment to anyone in need of one.

Government at all levels, and in particular, the City of New York, needs to remove itself from the real estate business. If the government makes the bold choice of moving away from being a landlord, it can focus on providing more important services like education and transportation. If the City of New York decides to sell its housing stock, through a public auction, it will receive billions of dollars in this still high real estate market. This sale will not only alleviate the financial burden of maintaining the properties, but the City will also relieve itself from the numerous lawsuits involved with owning such an extensive portfolio of apartment buildings.

These lawsuits range from basic slip and falls, lead paint exposure, neglect, to the new legal threat of mold.

In this time of fiscal restraint, tough choices need to be made. Society needs to decide where its priorities lie and the proper role of government. Providing affordable housing to the city’s less fortunate is a worthy and commendable goal, but with other more dire needs, the city can no longer afford to own and maintains thousands of decrepit apartment buildings at the expense of our children’s education and our city’s transportation.

ABOUT THE AUTHOR: Rosario Parlanti, Esq.
We represent entrepreneurs, start-ups and growth businesses in corporate transactions, commercial litigation, licensing, and real estate transactions. Our client relationships are rooted in our expertise in real estate management, investment, development, and other related businesses. We provide a cost-effective alternative to entrepreneurs, start-ups and growth businesses seeking to receive top-notch legal services and advice without the related exorbitant fees charged by larger firms for the same service.

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    But what are the effects of this program on the City and more specifically, on the Housing
Courts? My personal observations and experiences in housing court point to an undeniable conclusion:
Where a chunk of money is being given out freely, word travels. Quickly. Tenants hear about this “one
shot deal” and a particular person on the next floor’s rent being paid, and they want in. They ask, “How
do I get this money?” Don’t pay your rent, of course. Wow. Not only do you keep the money otherwise
that would have went to your greedy landlord, the City will pay your rent for you, letting you live in your
apartment rent free.

    However, all the One Shot Deal does is to encourage rent delinquency, thus overburdening
an already overwhelmed Housing Court in the City of New York. The social effects are obvious: it
encourages shirking of one’s personal responsibility, it encourages the mentality of getting something
for nothing, it encourages fraud, and it encourages an unhealthy reliance on government largess that
ultimately hurts the receiver of the funds in the end.

    Landlord’s might be inclined to think this money is a godsend. Well, who wouldn’t? A check
in the amount of thousands of dollar for a tenant who hasn’t paid rent in months is always welcome.
Especially since it is money they most likely would not have received if the program didn’t exist. But
with over 10 years experience in property management and Kings County Housing Court, the most
common result of receiving the One shot Deal is the fact that is just delays the inevitable. That same
tenant will be back in the court room, this time with the false hope that the government will once again
pay their rent. Regardless of the success of the tenant in having the government pay their rent once
again, the landlord is burdened with constant legal fees, lack of constant rent flow, and all the cost and
expense of chasing a tenant for their rent. And that is not mentioning that in the end, it is the landlord,
through his property and income taxes, whom provides the City with the funds that ends up paying his
tenant’s rent. Thus the circle is complete and no one is happy, other than the grant recipient and some
naïve liberal politician who thinks he is accomplishing good by causing this expense incentive that only
encourages unproductive and debasing behavior.