Section 8 Moderate Rehabilitation for Single-Room Occupancy Dwellings

In March 1990, PD&R completed a review of the results of the first grants made in 1988 under Section 8 Moderate Rehabilitation Program for Single-Room Occupancy Dwellings for Homeless Individuals (Section 8 SRO program). The report summarized uses of $35 million in SRO grants as reported by the 21 PHA grantees and the sponsors of 30 projects (some PHAs had more than one SRO project) funded in the first round of the program in FY88. PD&R monitored the program and, through calls to PHAs and project sponsors, collected information on tenant and project characteristics, developmental and operational costs, and support services.

PROGRAM DESCRIPTION AND ADMINISTRATION

The Section 8 SRO program was created under the Stewart B. McKinney Homeless Assistance Act and was signed into law on July 22, 1987. The purpose of the program was to provide funding to rehabilitate existing structures to create SRO housing for homeless individuals of very low income. The initial authorizations were $35 million for FY88 and $45 million for FY89 (see Table 1, page 4 for later appropriations). Funds were made available through a national competition.

An SRO is a residential building that provides a small (on average 140 square feet) private room for one individual. Each room is usually furnished with a bed, chair, and space for clothing storage. Sometimes, a desk, sink, small refrigerator and/or microwave may also be provided. Common or shared spaces are usually bathrooms, living rooms, kitchens, laundry facilities, and at times, meeting rooms. Although once a common form of housing, SROs have largely disappeared -- casualties of urban renewal. Recognizing that the need for affordable, basic housing was increasing, particularly for single, very low-income individuals, Congress, as part of the McKinney Act, moved to reinvigorate the provision of SROs as one viable alternative to homelessness.

Funding was limited to applicants who could demonstrate the need for and capacity to create SRO housing efficiently. Initial applicants for the FY88 funding were limited to PHAs that had experience with the parent Section 8 Moderate Rehabilitation Program. Demonstrated capacity to undertake SRO projects included the existence of candidate structures, site control, and commitments of additional funding needed to complete the project. Although provision of supportive services was not a requirement of the SRO program, the availability of such services to clients was a factor in project selection. An additional provision was that rehabilitation activities could not permanently displace existing tenants, and this provision put a premium on vacant or partially vacant buildings.

In the first round of funding, 21 PHAs received funding for 30 projects that created 1,024 SRO units. PHAs contracted with nonprofits or for-profit organizations to develop and operate the SROs. Seventy-three percent of project sponsors were nonprofits, and 27 percent were for-profits. More than half the organizations, (60 percent) had 6 or more years of experience in homeless or elderly housing programs.

Although most projects (66 percent) were located in what were considered economically depressed areas, they were evenly distributed among residential, commercial, and mixed-use neighborhoods. Most (53 percent) of the buildings designated for use as an SRO under the program were considered by the PHAs to be in "bad" or "poor" condition, which, given the program's nondisplacement requirement, is not surprising, because many were either vacant or partially so.

A typical SRO structure was three stories tall and contained just under 20,000 gross square feet. In many instances, a sponsor acquired a building through either a local government donation or via tax delinquencies or condemnation. Most structures used for the SRO program were former residential hotels, although prior uses included a dry cleaning establishment, YWCA/YMCAs, a school, a nursing home, and a mortuary. In most cases, 90 percent of the building was used for Section 8 SROs, with the remaining area consisting of market-rate SROs, social service offices, and commercial uses such as a grocery or laundry. Seventy-one percent of the SRO projects were managed by the sponsor agency, and the remaining 29 percent were contracted to another entity.

PROGRAM IMPLEMENTATION, FUNDING, COSTS, AND ACTIVITIES

The 30 projects provided a total of 1,024 units, of which 92 percent, or 940 units, were completed by the time of the HUD study. The original target of 6 months for completion of the rehabilitation was achieved by only about half (47 percent) of the project sponsors. Within 1 year, 84 percent had completed rehabilitation. Notwithstanding apparently successful rates of completion, project sponsors declared the 6-month deadline unrealistic, given the complexities of the development and financing processes.

The cost of developing an SRO project includes the acquisition of land and building, rehabilitation, and purchase of furnishings. The acquisition, rehabilitation, and development costs for a typical SRO unit averaged approximately $23,000; $6,900 for acquisition and $16,100 for rehabilitation. The statutory limitation on rehabilitation costs was $14,700, which was exceeded in slightly more than 25 percent, or eight, of the projects. Private and local subsidies were used to defray some rehabilitation costs, keeping projects within statutory limits. In approximately one-third of all cases (27 percent), cities or sponsors contributed the SRO land and buildings, significantly reducing the overall costs of acquisition. The average cost of furnishing an SRO unit was $1,000, however, many items were donated by businesses and churches. Furnishings were not covered by Section 8 SRO assistance.

In addition to contributing approximately 14 percent of the development funding themselves, SRO project sponsors drew on several funding sources. Local governments (34 percent), State governments (18 percent), and private lenders (30 percent) furnished the greatest proportion of development funds. In 24 percent of all projects, foundations contributed a loan or grant subsidy. SRO projects also received a variety of other forms of assistance. Local governments gave tax credit or abatement subsidies to 60 percent of all projects.

The average operating cost for an SRO was $9.78 daily, $298 monthly, and $3,570 yearly. Included in the cost were debt service, management, utilities, maintenance and replacement, insurance, property taxes, and "other." Although debt service was proportionately the single greatest operating cost (38 percent), management costs, which averaged 25 percent, were also significant. In contrast, management costs for a typical apartment complex are in the 5 to 10 percent range. The higher management costs for SROs arose largely because of the unique problems the homeless pose -- high rates of unemployment, mental illness, and substance abuse, among other problems. Management services, including security, were required at many facilities around the clock. Alternatively, development costs for a typical SRO are approximately 40 percent of the cost of constructing and managing a medium-quality motel or hotel room, and far less than half the cost of an efficiency/studio apartment.

SROs are an affordable form of housing. Under program rules, Section 8 SRO contract rents are to be equal to or lower than 75 percent of the fair market rent (FMR) of an efficiency unit. A comparison of SRO FMR showed 36 percent of all rents to be below the SRO FMR, and 57 percent were at the SRO FMR. In FY 1988, the average unit contract rent was $299 per month, and the average Section 8 payment was $232 per month.

Although it was not required by the SRO Section 8 program, approximately half (47 percent) of all the sponsors provided some support services. All sponsors that furnished supportive services onsite were nonprofits. Those services ranged from household management skills to health exams, from substance abuse counseling to job counseling and literacy training. SROs also gave residents a fixed address to which essential income benefits such as pension checks, social security, and other general assistance materials could be sent.

IMPACTS ON POPULATIONS SERVED

The typical Section 8 SRO resident was a low- income, middle-aged, unemployed or unemployable male who had formerly lived on the streets or in a shelter. Seventy percent of all Section 8 SRO residents were men. The male/female ratio of 70/30 is fairly representative of national estimates of male/female ratios among the single homeless.

Section 8 SROs had a significantly larger white population (54 percent) than was represented in the national sheltered population (42 percent), while 34 percent of the SRO population was African American, compared with a national estimate of single African American homeless of 44 percent. The SRO program and national estimates of homeless Hispanic individuals was identical, at 10 percent.

Most Section 8 SRO residents were between 26 and 45 years of age (49 percent), followed by those in the 46- to 62-year-old age bracket (32 percent). Only 9 percent were 63 or older, and only 10 percent were under 25 years of age. About two- thirds of the program's residents were either unemployed (35 percent) or unable to work because of a disability (35 percent). Not surprisingly, SRO residents were extremely poor individuals and had an average income of no more than $222 per month or $2,664 per year. Consequently, program residents paid a modest $2.20 per day, or $67 per month of the average contract rent, because regulations decreed that tenants would pay up to 30 percent of contract rents, and these averaged $299 a month.

Section 8 SROs were serving the population they were created to serve, which was homeless individuals who came directly from the streets or from emergency and transitional shelters. Seventy- four percent of all SRO residents fit this profile. It was frequently found that SRO residents with common characteristics shared an SRO facility. Many sponsors observed that mixtures of homeless persons with widely varying problems made it difficult to establish a cohesive SRO resident community. Residents were often involved in maintenance of their Section 8 SRO projects, performing such tasks as cleaning, painting, and gardening.

Among project sponsors, there was near-universal agreement that as an alternative to the streets or emergency and transitional shelters, the Section 8 SRO was effective. It provided affordable, secure housing on a relatively permanent basis. A drawback that most directly affected SRO populations was the resident selection process. Although designed to be efficient, it was lengthy and often resulted in homeless individuals again becoming lost to the streets and to emergency shelters. A second major issue mentioned by project sponsors was the importance of support services, which they believe are often critical to successful functioning of a Section 8 SRO resident group.

Many project sponsors responded that lack of preservation policies will make the SRO an endangered form of affordable housing in many communities. And, yet, it provides an effective housing alternative for many homeless individuals. A resident of a Section 8 SRO in Brooklyn, New York, testified:

"Today we are living in a residential neighborhood, sharing and caring for each other. It's a start to getting one's life back together again...."