Behind the Numbers: Estimating the Cost of HUD's Housing Choice Voucher Program

Housing choice vouchers allow very low-income families to choose and lease or purchase safe, decent, and affordable privately-owned rental housing. Abt Global and its partners RSG, Phineas Consulting, Quadel Consulting, and JRD & Associates recently completed a landmark study of the Housing Choice Voucher (HCV) program, providing HUD with the first research-based estimates of how much it costs to administer the HCV program and a new proposed formula for funding the program’s administration by public housing agencies (PHAs). The HCV program is the federal government’s largest low-income housing assistance program, serving approximately 2.1 million households nationwide and administered locally by approximately 2,300 local, regional, and state PHAs.

Since the beginning of the program in the mid-1970s, the formula for allocating HCV administrative fees has largely relied on differences in fair market rents (FMRs), with agencies in areas with high FMRs getting a higher fee per voucher than agencies in areas with low FMRs. This allocation formula is based on the theory that FMRs correlate with wage rates and other costs of operation, but is not based on the actual costs of running the program. Moreover, since 2008, HCV administrative fees have been prorated to remain within the amounts authorized under HUD’s appropriations acts. Between 2008 and 2010, the administrative fee proration was 90 percent or higher, meaning that PHAs received at least 90 percent of the administrative fees they would have received if full funding were available. After 2010, the proration deepened, reaching 69 percent in 2013 before increasing to 80 percent in 2014. One of the goals of the Administrative Fee Study is to document the actual cost of administering the program to determine the appropriate level of funding.

The study estimated administrative costs at 60 high performing PHAs across the country using a combination of direct measurement of staff time on the program and detailed cost data collection. The time measurement was done using Random Moment Sampling (RMS) and smartphones, with staff providing detailed information on their work activities 12 to 15 times per day for a period of 40 days. In order to turn staff time into cost estimates, the team applied salary and benefits costs to the RMS data and also collected detailed information on each PHA’s non-labor and overhead costs. After calculating the per voucher administrative cost for each of the study PHAs, we used regression analysis to identify the PHA, market, and program characteristics that explained the observed variation in costs. This cost driver analysis formed the basis for developing a new administrative fee formula for the program.

The main findings of the study are as follows:

• PHAs have been significantly underfunded to run the HCV program. Only 2 of the 60 PHAs in the study received enough fees to cover their costs during the study period.
• The average cost of administering the program in 2013 was $70.03 per unit month per unit month leased. The average fee received was $51.64 per voucher unit month leased.
• The total administrative cost for the program is $1.835 billion for the July 1, 2013 through June 30, 2014 time period. This is about $375 million more than what HUD provided to PHAs under the existing formula during this period.
• The new proposed fee formula includes seven variables found to drive per voucher administrative costs: program size, local wage rates, local health insurance costs, the share of voucher households served that have income from wages, the share of voucher households served that are newly admitted to the program, the share of voucher holders living in high rent areas, and the share of voucher holders that live more than 60 miles away from the PHA’s headquarters.

The draft final report and proposed fee formula was published in April 2015, with the final report to be completed by fall 2015.

View the HCV Administrative Fee Study materials.