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How Does Section 8 Affect Property Values?

In my previous post, I discussed the Basics of Section 8 Housing. What the types are, who qualifies, limitations of the program, and tenant composition. If you haven’t had a chance to read that, I’d recommend you start there before reading this by clicking here. Now that we have a basic understanding on Section 8, the big question is how does Section 8 affect property values? When homeowners hear that an apartment is taking Section 8, or there is a home nearby accepting Section 8, they have an adverse reaction of fear for their property values. A lot of this is stigma, but what do the numbers say?

How Does Section 8 Affect Property Values?

Let’s take a look at a few points:
  • Neighborhood Composition
  • Public Perception
  • Market Supply
  • What the Numbers Say

Neighborhood Composition

When talking composition, we are referring to a couple things. What is the ratio of Section 8 to standard housing in an area, and what is the current affordability of the area? And we can break those two points down even further to complicate things even more!

So long as the concentration of Section 8 is low, the affects are almost non-existent. Another thing to consider is if the building of Section 8 homes is replacing run-down properties. The restrictions and rules on building Section 8 homes is pretty strict. So a lot of new builds end up actually being better than what was previously there. To complicate things further, the management of the Section 8 unit can also affect values. Non-profits tend to have positive impacts due to sustained, quality management. For-profits have slightly smaller positive impacts due to their interest in the investment of the property. Public housing is mixed, but are best if small and scattered throughout an area.

For the affordability aspect in a given area, it’s equally complicated. Section 8 seems less likely to have a negative impact when in a high-value, low-poverty, stable neighborhood. So long as the above caveats are observed, the impact is either negligible or even positive. Conversely, neighborhoods with high poverty rates can either tip toward higher or lower values depending on the crime rate. When home owners are concerned about safety, the affects are negative. If home owners feel mostly secure, the effects seem to be positive. The last group would be distressed and depopulated neighborhoods. They actually have a positive affect so long as larger numbers of homes are introduced and there is quality management. However, in larger cities, the impact seems to be marginal at best.

Public Perception

This is probably the most important point. Not because it has a lot of bearing on values, but because it causes emotional reactions. As I stated before with composition, things like crime rates and poverty are a concern for people who are picking an area to live. Section 8 comes with a stigma that the tenants are going to be more prone to criminal activities, and are poor. A lack of money causes people to kind of turn down their nose at others. But as discussed in The Basics of Section 8, understanding who’s using the programs helps to dispel preconceptions of the tenants.

The problem is that the perception of risk associated with Section 8 is more powerful than the knowledge provided by research.

I can’t stress enough how if you are someone looking in a high-value, low-poverty, stable neighborhood; the presence of well managed Section 8 housing in low quantities will not affect your property values. I’m going to cover this a bit more in market supply, but your higher end areas that have some dots of Section 8 here or there just won’t affect you. Plus, with the better management, tenants are screened and tend to be of higher quality. Just because they are low-income, it doesn’t mean they are criminals.

The problem is that the perception of risk associated with Section 8 is more powerful than the knowledge provided by research. You can see this best when looking at support for the programs. People tend to support affordable housing as a concept. But when plans put it in place become more real and concrete, that support dramatically drops. Ironically enough, once it’s in place, the negative perceptions decrease as people forget about it because no affects actually become realized.

Market Supply

We all know that supply and demand drives the value of a property. Areas that have a very hot market almost completely ignore the presence of Section 8 or other low-income housing. If you are in a slower market, then public perception and some of the previously discussed variables can come into play. Interestingly enough, when the market is booming no one seems to care about Section 8 anymore. When people are having to compete to get into a house, the property values go up. This upward drive in appreciation causes the values to ignore Section 8 so long as the concentration, crime rates, and poverty levels are low in that area.

The previously discussed points of composition and public perception melt away in a hot market. This is just my opinion, but it’s likely because people tend to be drawn to the dramatic. And when properties are hard to get, they don’t have time for drama or the sensational over-blowing of what’s probably a non-issue to begin with. To oversimplify, a hot market negates the affects of Section 8 in an area.

What the Numbers Say

Everyone knows I’m not a fan of Trulia. But they did a great study using HUD data and property values from their site. They tracked 20 of the most expensive housing markets in the US over a period of 10 years. Using that data, they plotted the median price per square foot of properties before and after the introduction of “low-income” projects. They identified properties within 2,000 feet (about 6 blocks) of the low-income projects. They then used properties 2,001-4,000 feet (about 6-12 blocks) from the same projects as a comparison group. Looking at all 20 metro areas, there is no difference before or after the introduction of low-income housing. Not only that, but there’s no decline in appreciation rates.

Final Thoughts

I’m going to plainly state my bias here (something I avoided in my previous article). I’ve always been against the expansion of low-income housing. I’ve also been biased and even somewhat prejudiced against the idea and the tenants of those properties. I knew the concepts, rules, and regulations behind Low Income Housing and how everything worked. But I’ve never had to worry about how it affects property values because it’s just not something that ever came up.

So when people in my neighborhood (I live in a more affluent neighborhood) were concerned over rumors of Section 8 housing in the area, I decided to research more. Ironically enough, the rumors in my area are completely unfounded, but just the mention of it sent out a ripple of unrest and concern (going back to public perception). I’m not saying there are not problem neighborhoods, because there absolutely are.  But the numbers actually paint a different picture than the idea of the slums.

Let’s recap the numbers I discussed in The Basics of Section 8.  38.4% of people are disabled, up to 52% are female head of households, 51% move out of low income housing within 5 years, and 73.4% move out within 10 years.  All that to say that if your neighborhood matches factors I posed above, Section 8 is most likely not going to affect your property values.

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