DCHA Wants To Change How Much Rent Its Vouchers Pay. Landlords And Lenders Are Skittish

A group of apartment owners is sounding the alarm over a proposal by the D.C. Housing Authority to change the amount of rent its housing vouchers cover.

The proposed change has already had an impact on the District’s multifamily market, even though it isn’t final, making banks more reluctant to lend to affordable projects and pushing some developers to consider building market-rate-only projects, industry insiders say.

The Housing Choice Voucher Program paid $441M to landlords in 2021 on behalf of roughly 19,000 voucher recipients, according to DCHA. The system today calculates a voucher’s value based on the neighborhood in which it is used. The proposed change would instead set the boundaries by ZIP code and cover 110% of the fair market rent for that area, a standard set by the U.S. U.S. Department of Housing and Urban Development.

Proponents of the change say it would make the voucher system more fair to landlords and renters in lower-income parts of the District, while some landlord groups say they stand to receive significantly less per voucher, jeopardizing their ability to pay their mortgages and their tenants’ ability to stay in their homes.

“It’s already started. The capital markets have already been disrupted,” said Ben Soto, the owner of Premium Title & Escrow LLC and a member of EagleBank’s board of directors. “If you were a lender and you’re lending to a multifamily asset that has voucher tenants, and you’re now hearing that they’re going to reduce rents significantly like this, wouldn’t you change your lending habits, too?”

DCHA officials say the voucher system now pays landlords in some parts of the District up to 187% of the fair market rent for D.C., and that the system currently overpays landlords by $21M a year.

The DCHA Board’s next meeting is Wednesday, when some groups have been telling their members that the changes could be implemented. In an interview with Bisnow, DCHA Executive Director Brenda Donald said nothing would be changed before the next fiscal year begins in October. 

"I’ve told some landlords just please relax right now," Donald said. "There have been some that have been a little bit more outspoken than others, but they don’t have all the facts."

The number of landlords impacted by the policy change is unclear. DCHA admitted at a meeting May 5 that its data on voucher recipients is flawed, noting that, in some cases, apartments that had multiple bedrooms were logged in their records as having zero bedrooms. 

Donald told Bisnow the issue of incorrect bedroom numbers has been corrected, but her staff has encountered additional data issues that they’re still trying to clean up before settling on final numbers.

“There have been mistakes,” DCHA Deputy Director Victor Martinez said at the meeting.

There are several effects a change in rent standard could have on the voucher program. Most concerning to landlords is the possibility that the amount DCHA is willing to provide for existing contracts could be reduced, effectively leaving tenants or landlords to cover the difference in rent.

Donald said it’s possible existing contracts would be left alone, and instead only new contracts would be affected by a change to the rent standard. The agency could gradually lower how much it pays to properties currently receiving above the new standard over several years until they’re in line, although Donald cautioned that everything in the policy is still fluid.

DCHA plans to host working groups with landlords of different sizes throughout the summer to get feedback and plans to submit a final recommendation to the board at its September meeting. The engagement process has already begun – DCHA is meeting with multiple landlord groups on June 10, two days after their monthly meeting.

To assuage concerns, the agency also shared a fact sheet on May 27 answering frequently asked questions about the changes they are proposing. 

But those answers left some scratching their heads. The sheet said 64% of current voucher recipients would see the total they receive go up under the new standard, but that’s a different proportion than what some have previously heard from DCHA, said Russell Brown, a landlord and chairman of the Housing Providers Association, an organization representing apartment owners in the District.

The lack of clarity has some landlords worried they won't get answers until they can see the data themselves.

“This is the main reason that my businesses were pretty upset,” Brown said. “They're told one thing and they look online and see a different thing.”

If landlords see a reduction in rent received from DCHA at all, they want that change to be gradual to avoid losing income, said Katalin Peter, vice president of government affairs for the Apartment & Office Building Owners Association.

Peter said she can understand that DCHA wants to standardize rents and ensure no owners earn disproportionately more or less than their peers. But she cautioned that in a market that has only just recovered from the pandemic, any additional unpredictability could force landlords to choose between housing their voucher tenants and earning a profit.

“Even if they did what they were addressing and the outcome in certain places was to price out an existing tenant … that’s not the goal of the program,” Peter said.

Other landlord groups are less concerned about the change’s effects. Dean Hunter, CEO of the Small Multifamily Owners Association, sent an email to his members urging calm on May 26.

“A few large corporate landlords, who are gaming the system, are the only providers who will see significant reductions,” Hunter wrote in the email.

Hunter told Bisnow the effect on most landlords would be “nominal” at worst, and echoed DCHA’s contention that nearly two-thirds of landlords could see their rent received through the voucher program increased as a result of the change.

“The sky is not falling,” Hunter said. “I have complete confidence in Brenda Donald.”

Whatever the result of the change, lenders are already skittish, said Soto, who, in addition to serving on EagleBank’s board and running his title insurance company, owns D.C.-based Paramount Development.

He said that if the change were to go through, some buildings that heavily rely on voucher recipients could lose enough of their cash flow to default on their loans. Properties could be devalued, leading to a reduced tax assessment, he said, which could hurt District revenues and potentially impact the amount of money D.C. spends to finance new affordable housing.

“Where does the property tax go to these days? … In part to the Housing Production Trust Fund, which is revenue that goes to increasing affordable housing in the district,” Soto said. “In some ways, the housing authority would be cutting off their nose to spite their face.”