More landlords seek low-income vouchers as rent competition spikes, PHA fine-tunes program

When The HOW Group built the Wister Court Apartments over a decade ago, it was meant to be used as student housing for La Salle University.

But in the wake of the COVID-19 pandemic, the number of students living off campus plummeted, and the real estate company needed a new income stream for this East Germantown property.

So the HOW Group, which has never developed subsidized affordable rentals, began working with the Philadelphia Housing Authority (PHA) to market Wister Court units to low-income tenants with Housing Choice Vouchers. Formerly known as Section 8 vouchers, they cover 70% or more of each eligible family’s rent.

“These units are very large in size, so we took that as a good opportunity to work with PHA,” said Kelli Tomczak, vice president of property management at the HOW Group. “There’s a few students that continue to live there, but the majority are voucher holders.”

The HOW Group is not alone. The pandemic-era building boom has created fierce competition among newly built market-rate apartment building owners, sending vacancy rates spiking and slowing rent growth.

As a result, developers and landlords who previously had little experience with the voucher program have been increasingly interested in guaranteed rental income from the federal government.

At the same time, the Philadelphia Housing Authority has been ramping up a campaign to get more voucher holders into higher income areas of the city. It helps that since 2018, they have been able to base the dollar-value of vouchers by zip code, allowing them to meet market-rate rents in pricier areas. Then in 2021 PHA began more aggressively courting developers and property owners who had never used the program.

Since 2021, 2,000 new landlords have begun working with the program. Over 4,000 additional units across the city are now home to voucher households as a result. An ongoing collaboration with the Building Industry Association (BIA), a trade group that represents residential developers, brought in roughly a fifth of those units, with more coming.

“We are seeing a significant shift,” said Kelvin Jeremiah, PHA’s president. “The [abundant] supply is one factor. But I think the primary factor has been that PHA is paying a market-rate rent.”

The Section 8 voucher program was created by Richard Nixon’s administration as a market-oriented alternative to public housing built and run by the government. Instead, eligible low-income tenants could find housing on the private market, and get their rent subsidized.

The policy has always had problems. The biggest is that Congress never even came close to providing enough funding to meet the need. Only a fourth of those eligible for vouchers receive them.

As a result, PHA only covers 19,500 households with vouchers in Philadelphia, a city of 1.5 million people where a fifth of the population lives in poverty. The waitlist is currently closed, again, with 9,100 households on it even after a lottery process last year that saw many thousands more than that turned away.

Another problem is that while tenants could theoretically move anywhere, many landlords in higher income neighborhoods either refused to accept them or were constrained by rent levels that were well below market rate in pricier areas. As a result, the program often reinforced segregated housing patterns.

Philadelphia and a handful of other large cities tried to address this by making it illegal to discriminate against voucher holders. But the law is difficult to enforce and, some argue, the recent changes made by PHA and the apartment building boom have made a bigger difference in getting voucher holders into newer units.

“You’re always supposed to accept a voucher,” said Harrison Finberg, principal with Fairhill Property Group, who began courting voucher holders in 2022. “But there’s a big difference between conceivably accepting someone who comes to you, versus actively marketing to that segment of the market — which is what’s happening now.”

That’s because in 2018, PHA got the power to set different rents for vouchers depending on the area. That meant voucher holders were more likely to be able to afford rent for a unit in Chestnut Hill, where a one-bedroom apartment averages $2,350, and not just in neighborhoods like East Germantown, where average rent is far lower.

“Gone are the days you might have expected [us] to pay 80% of the market rate,” said PHA president Jeremiah. “We’re paying 100% of the market rate and, in some instances, because of the amenities, the location, the type of units, and the services being provided to residents, we can go even higher.”

While PHA was fine-tuning the voucher program and courting landlords, developers were building the most multifamily units in Philadelphia’s recent history which drove intense competition for tenants.

“A lot of owners are having a hard time depending on where they’re located, especially in Fishtown or Kensington,” said Finberg. “I know people who have buildings in those areas whose business plan probably wouldn’t have worked if they were only relying on market tenants last year, because of the COVID glut of units.”

Philadelphia’s rental vacancy rate passed 10% this year, up from 5.7% in 2021. In Northern Liberties’ 19123 zip code, a third of units built in the last four years are vacant.

That’s why the HOW Group started advertising one of their Fishtown properties, built in 2022, to voucher holders too.

“It’s a location where a lot of new units are coming online…and owners are fighting over the same pool of people,” said Tomczak of HOW. “By accepting vouchers at that property, we were able to expand our prospect base and provide a brand new home to somebody in a great location.”

PHA’s outreach campaign to landlords and developers also played a role. The authority has met with developers and addressed common stigmas, said Building Industry Association president Mohamed “Mo” Rushdy.

For instance, PHA frequently hears concerns from landlords that voucher holder tenants might be more likely to cause property damage, especially families with children — something Tomczak and Finberg say they haven’t seen play out. So PHA offers insurance against tenant-caused damage, Jeremiah said.

Also in response to property owner concerns, PHA streamlined the inspection process, which historically could take months, and largely hadn’t been digitized. The authority is also offering a sign-on bonus to cover the month of rent landlords sometimes missed due to inspections.

Renter advocates say voucher holders still face discrimination from landlords, and that more change is needed — especially because the apartment glut won’t last forever.

“Hopefully, landlords who may never have rented to a voucher holder before will realize the program is not as scary as they might have thought,” said Rachel Garland, co-managing attorney of the housing unit at Community Legal Services.

Rushdy estimates over 1,000 new construction units will be seeking to participate in the voucher program in the coming months. His own company, the Riverwards Group, has 420 units coming in Kensington that he plans to market to voucher holders.

“It’s new construction, it’s amenities, it’s a gym, community rooms, and open space,” said Rushdy. “Conventionally, you’ve seen older buildings, run-down buildings, and that’s who participates in Section 8. We’re trying to change that, we’re trying to make a point that it can work.”