Contract Administration Key to Addressing Growing Rental Housing Demand

By Dennis Shea

Over the next 20 years, powerful demographic trends, including the formation of new households by millions of young Millennials and the increasing diversity of the US population, will intensify the already-strong demand for affordable rental housing. In response, the US government must deploy scarce federal rental subsidies in the most effective and efficient manner possible, particularly as Washington grapples with a $20 trillion national debt.

One important solution is to rely on contractors to ensure that the US Department of Housing and Urban Development (HUD) receives the greatest possible return on its investment in affordable housing,

Federal rental assistance programs administered through HUD serve approximately 5.1 million low-income households, with three programs accounting for nearly 90 percent of all households assisted: resident-based housing choice vouchers (2.2 million households), project-based rental assistance (1.2 million) and public housing (1.1 million). Unfortunately, because of severe budgetary pressures, funding for HUD rental assistance programs does not match the need that exists: just one in four households eligible for assistance under these programs actually gets the help they need.

The result is a deepening rental affordability crisis. More than 11 million households spend more than 50 percent of their incomes on rent alone, and are considered “severely” rent-burdened by federal standards. Not surprisingly, most of these households rank among our nation’s poorest.

Supply and Demand

A major cause of these severe rent burdens is the mismatch between demand and supply. According to HUD, there are just 38 affordable rental units available for every 100 “extremely low-income” renters and 62 affordable and available units for every 100 “very low-income” renters.

I recently researched the role that contractors have played in enhancing the effectiveness of HUD’s second largest rental assistance program, project-based rental assistance. Under the program, HUD provides subsidies to property owners who, in turn, allow residents to live in the properties at affordable rents. Without these subsidies, some property owners would raise rents while others would fail to maintain quality housing standards. The result would be a diminution in the supply of affordable rental homes with fewer low-income households benefiting from the help that rental assistance can offer.

In 2000, a combination of factors—including HUD staffing constraints, internal reform plans and assertions of mismanagement by the HUD Office of Inspector General—led HUD to outsource certain services related to overseeing and administering the program to contractors known as Performance-Based Contract Administrators, or PBCAs.

Today, PBCAs perform critical functions for HUD such as preventing subsidy payment errors, ensuring that program rules and regulations are followed, providing timely payment of subsidies to property owners, and responding to health and safety issues.

The result? Over the past 17 years, PBCAs have saved HUD—and hence the taxpayers—billions of dollars, while helping to preserve thousands of units as part of the inventory of affordable rental homes.

Several things are key to the success of this contract administration:

• Contract administration has involved combining all tasks under a single PBCA that is accountable for each jurisdiction served. Retaining this holistic model of bundling tasks is essential to reducing improper payments and minimizing risk across the program.
• The single point-of-contact approach ensures the most efficient administration of the program. Property owners, residents and HUD know whom to contact because a single PBCA is responsible for all aspects of contract administration within its jurisdiction.
• Procuring the services of PBCAs through a competitive, market-driven approach increases the number of bidders, enhances the efficient administration of the program, and captures economies of scale—all resulting in savings to HUD and more cohesive program administration.

PBCAs have the potential to reduce costs even further, while spreading limited resources more broadly to programs beyond project-based rental assistance.

Congress and the administration should take note: With rental demand poised to soar in the coming years and the need for federal rental assistance expected to expand, contract administration should be a critical part of the solution.

Dennis Shea is the founder of Shea Public Strategies LLC.  He served as assistant secretary for policy development and research at the US Department of Housing and Urban Development in the administration of President George W. Bush.