Section 8? Section 42? Section 202 with Section 8? Section 236? These are the short-hand descriptors commonly used in referring to the affordable housing programs in the US. With so many numbers, it can be hard to keep track of what they all mean!
The most ubiquitous of these numbered programs are Section 8 and Section 42. So what are these programs? How are they similar? How do they differ?
Section 8 is generally the name for HUD-subsidized housing programs. In Section 8, residents benefit from rents that allow them to usually pay 30% of their monthly adjusted income as rent, while HUD pays the difference between what a unit rents for on the open market (the contract rent) and what the resident can afford to pay (the tenant rent). These differences are paid to the landlord through a Housing Assistance Payment (HAP).
Section 42 is another name for the Low Income Housing Tax Credit program (LIHTC). LIHTC is a newer form of providing affordable housing and it is ultimately overseen by the IRS. Residents pay lower rents in LIHTC apartment communities because the developers of the communities received private investment dollars to acquire or construction the properties in exchange for federal tax credits. Beyond the federal credits, there is no direct subsidy involved.
Section 8 and Section 42 have the same goal: to create and to preserve affordable housing for eligible Americans. The procedures used by the programs to achieve that goal are also quite similar. Qualification for Section 8 and Section 42 is based largely on a household’s income, and they both use income limits set forth by HUD. Also, both programs identify and calculate sources of income and assets based on the parameters of the HUD Handbook 4350.3.
Where the programs differ lies in the details. The Section 8 program relies upon liaisons called Contract Administrators (CAs) or HUD Regional offices to process HAP payments from the federal government each month. These overseers are allowed to have some of their own policies and procedures surrounding some of the grey areas of the HUD Handbook. The Section 42 program, however, relies heavily upon State Housing Agencies (SHAs) to carry out its goals. SHAs have arguably more discretion to create policies and procedures for their own states. This discretion allows the SHAs to tailor the program to the unique needs of each state.
Section 8 and Section 42 use the HUD Handbook 4350.3, but the Section 8 program uses substantially more of it. For example, Section 8 programs allow for deductions from income that may reduce a household’s annual income each year at the time of the tenants “Annual Recertification.” If a tenant’s income changes during the year, a resident of a Section 8 community may request an “Interim Recertification,” which may change the amount of rent payable by the resident. The Section 42 program does not follow either of these provisions as it does not provide for adjustments to income or rent.
One of the most significant differences between the two programs is in the verification process. Though the Section 42 program indicates that verification standards outlined in the HUD Handbook 4350.3 are sufficient for the program, the standards are not necessarily the authority. SHAs have ultimate discretion in deciding what constitutes acceptable verification procedures. On the other hand, Section 8 properties must follow the HUD guidance on verifications.
The Section 8 program also uses the HUD Handbook’s standards with respect to the Enterprise Income Verification (EIV) system. This web-based application provides additional verification information via matching agreements between HUD, the Social Security Administration, and various other governmental agencies. The Section 42 program strictly prohibits the use of EIV because they have not agreed to the same matching agreement.
The issue of students’ eligibility arises in both programs. Students who are part-time or full-time and under 24 and have no dependent children are generally not eligible to move into their own Section 8 households unless they meet one of several specific exceptions. Should someone become a student in the course of tenancy and not meet one of the exceptions, that person and their household may remain in occupancy, but they will not be permitted access to any subsidy.
There is no such “safe harbor” provision in the Section 42 program. Households that are made up entirely of full-time students not meeting one of the LIHTC student eligibility exceptions are simply ineligible. Should a household become occupied entirely by students without qualifying for an exception during the course of tenancy, the household must vacate the property.
Differences between Section 8 and Section 42 abound, though both are effective programs in helping to meet the housing needs of eligible Americans. If you currently manage or work with a LIHTC/Section 42 program, your knowledge of the program will expand greatly if you enroll in and complete NCHM’s Tax Credit Specialist (TCS) class. If your property has Section 8 (or any other type of HUD subsidy), then attendance in NCHM’s Certified Occupancy Specialist (COS) is the right move. And if you are involved with a property that has both Section 8 and Section 42, we strongly suggest following up your attendance in TCS or COS with our Blended Occupancy Specialist (BOS) course where you will learn to manage multiple layers of compliance.
Section 8, Section 42, or both – attending NCHM courses ensures you will understand the details behind the numbers!