Section 8 and California’s Budget Deficit
It seems like every 6 months, the California Legislature must deal with a $20 billion plus deficit.
In the real estate business, we are concerned about it for a large number of reasons, but this time there is a real problem with the Section 8 part of real estate that we have not heard of for some time.
Section 8 Assistance has been part of the real estate mix for some time. 2 years ago (yes, it was that long ago) there was an uproar by many people in neighborhoods complaining about the number of Section 8 renters in thier neighborhood. While Section 8 was a part of the problem, the number of renters had gone up considerably over the past few years due to the number of investors purchasing properties and renting them out as values soared. Section 8 was a minor portion of the problem and it was an easy target for homeowners. Employees were also very close mouthed about the rental problem and added to the fervor.
All of this brouhaha has subsided as property values shrank, investors lost thier homes, and the renters had to leave, replaced in the main by new homeowners who have purchased these properties at a substantial discount to their original prices.
Section 8 is still a part of the rental picture, even more so than during the times mentioned above. Section 8 rental requests are at very high levels and properties thatg take Section 8 is limited.
There are new problems for Section 8 housing that impact everyone. With the California budget problems, the amount of money that will be available to Section 8 will probably by cut in the next budget year. While this does not mean that people will necessarily be removed from the program (this may also occur as well), it will mean that people who seek Section 8 assistance will probably not have it av ailable to them. People who are removed from the program for violating terms will lose it as well.
This should free some housing for rental to those who are looking. It also may mean that the owners of these homes may not be able to keep them because the rental rates will also go down (Section 8 rental calculation methodology pays higher than market rents, this will be dealt with in another topic) and the rent is no longer guaranteed by the government.
The impact of this is that there may be more homes going on market, either as short sales but more probaly as foreclosures as the landlords can no longer afford the mortgage payments on properties that used to carry the mortgage.
The Governor has proposed a budget in the State for next year that hold the education budget steady but has an across the board cut of 10% in the remainder of the budget, this will include any mandated payments to the counties who need the money to operate the Section 8 programs. Additionally, property tax reduction over the past years has also reduced funds to the counties.
Section 8 Housing, a Federally mandated program, has some real challenges for the next budget year, none of which has an easy answer.