Random Ammo: Section 8 Housing Expanding to Upscale Neighborhoods

August 2, 2010 Wall Street Journal

Welcome to Paradise - Dawn Wotapka

The houses in Paradise, a community

in Henderson, Nev., are typical of the

upgraded homes some tenants rent using

a government subsidy.

HENDERSON, Nev.—When Shawnetta Newburn left her drug-infested St. Louis neighborhood in search of a better life for her family in Las Vegas, she didn't expect to live in a house with frills worthy of a McMansion.

But Paradise awaited.

That's the name of the gated community where Ms. Newburn, a single mother who makes $10.50 an hour as a pawn-shop cashier, rents a three-bedroom townhouse with soaring ceilings, a gas-fueled fireplace and an oversize walk-in closet in the largest bedroom. The master bath even includes an enclosed toilet room, a feature popular in mini-mansions.

"The only time I ever saw that was on TV or something," she says during a tour of the approximately 2,000-square-foot home. "I never thought I'd have anything like this." The development has a kidney-shaped swimming pool.

Her previous apartment in St. Louis resembled public housing, she says, and her three sons were crammed into one bedroom. After her refrigerator caught fire, her landlord replaced it with an outdated brown model. She now has gleaming-white appliances.

Ms. Newburn can thank the housing bust. She participates in a government program for low-income families that subsidizes about half of her $1,400 monthly rent. The program, known as Section 8, has for decades put families in functional but basic homes and apartments, sometimes in less-than-desirable communities.

But overbuilding during the housing boom has left so many homes available that landlords, desperate for renters, are wooing Section 8 recipients, whose government subsidies, delivered electronically, guarantee the landlord gets paid. As a result, Section 8 recipients suddenly have a housing smorgasbord.

Plenty of average housing stock remains in many places, but in certain markets, there are also more upscale selections. On the website GoSection8.com, landlords nationwide tout boom-era showpieces—replete with "great rooms," backyard swimming pools and built-in stainless-steel barbecue grills—that once sold for hundreds of thousands of dollars. Las Vegas has been one of the nation's hardest-hit real-estate markets.

Some renters are getting pickier. "More and more, I'm seeing tenants turn down places," says Arman Davtyan, owner of seven Las Vegas properties rented to Section 8 tenants. Instead, they're going for "another property that's either bigger or in a better area or has more bedrooms," he says. "Before, they tended to take whatever they could get."

Though some neighbors have long contended that government-subsidized tenants increase crime and depress property values, some now say that having a house occupied is better than leaving it vacant, which attracts vandalism and other problems.

In Antioch, Calif., a San Francisco bedroom community where the number of Section 8 listings has skyrocketed in recent years, residents have mixed emotions about the new tenants. "I would concede, I wouldn't be happy with an empty house," says Walter Ruehlig, a longtime resident of Antioch. "It's kind of like, 'What poison do you choose?"'

But resident Natalie Wilson says Section 8 tenants brought big changes to Antioch, including fights, loud parties and litter. She helped launch a neighborhood-watch program. "If a block has five Section 8 homes, are you going to want to move into that neighborhood? No," says the middle-school registrar. "You don't want to live next to a Section 8 house."

Tensions have run high in Antioch. Section 8 tenants complained they were being harassed by police and filed a federal lawsuit in 2008, which is still winding through the courts.

In Paradise, officially known as Paradise Court, relations between neighbors are more peaceful, Ms. Newburn says. Kye Jensen, owner of a townhome behind Ms. Newburn, says a concern is how any renters will affect property values.

Denise McCrae is looking for an apartment near Newport News, Va. Her current apartment in Philadelphia has a red brick dining-room floor and industrial-style windows. She longs for a dishwasher and a washer and dryer.

Several rental listings around Newport News spotted on GoSection8.com have impressed her. One that stands out is a townhouse with a community weight room and a "theater area" with a big-screen TV for residents. Another perk: central air conditioning, which she now lacks. "I was like, 'This can't be Section 8 at all,"' Ms. McCrae says. "This is beautiful."

The change marks one of the most dramatic shifts since the 1974 creation of Section 8, nicknamed after its location in the U.S. Housing and Community Development Act. The $18.1 billion Housing and Urban Development program offers more than 2 million families the chance to live outside of housing projects. Recipients pay a certain percentage of their income, typically no more than 30%, each month.

Landlord participation is voluntary, and the home must pass an inspection. With no official centralized location for available properties, it is impossible to know how many units are available, though the count appears to be rising. When GoSection8.com was launched in 2004, a few hundred listings occurred monthly. Now, 700 or more can come daily, says Richard Cupelli, the site's president. "The amount of new owners that are seeking Section 8 tenants is through the roof."

Mr. Cupelli warns that landlords who buy the cheapest house in the worst neighborhood are no longer guaranteed a tenant. "You better not be buying the garbage," he says.

While some of these new landlords are homeowners who can't sell or those trying to avoid foreclosure, many are investors scooping up bargain-priced units for the rental income.

Last year, Mr. Davtyan, who rents to Section 8 tenants, paid $60,000 in cash for a four-bedroom house in North Las Vegas. He charges rent of $1,436 each month, giving him a profit of about $15,000 per year after insurance and property taxes, he says. He also paid $60,000 for a six-bedroom house in central Las Vegas 18 months ago that once commanded nearly $300,000. It rents for nearly $1,700 a month.

"It's the most lucrative way to go right now," he says. "Nowhere else does your money make that kind of return."