Analyzing Household-Level Access to Tenant-Based Vouchers and FHA Mortgage Insurance

Analyzing Household-Level Access to Tenant-Based Vouchers and FHA Mortgage Insurance

Stephanie Hawke, Economist, Housing Finance Analysis Division, Office of Policy Development and Research and Mariya Shcheglovitova, Extension Assistant Professor, University of Vermont

This series of three articles examines HUD's homeownership and rental assistance programs to:  

1. Compare household-level demographics among program participants (this article),
2. Compare neighborhood-level data to understand the geographic distribution of households participating in these programs (part 2 of this series), and
3. Identify key household- and neighborhood-level drivers of program participation disparities (part 3 of this series, forthcoming).

Although previous researchers have focused primarily on independent examinations of federal homeownership and rental assistance programs, we employ a combined dataset of Federal Housing Administration (FHA) mortgage and housing choice voucher (HCV) data to determine whom these programs are currently reaching and where they are helping program participants buy and rent homes. This comparative analysis allows us to better understand how federal homeownership and rental assistance programs can serve communities most in need.

In this article, we describe the populations served by the HCV rental assistance program and FHA mortgage insurance program. After providing some background, we summarize the history of the FHA mortgage insurance program and the HCV program to illustrate how their implementation over time has disproportionately served certain racial and ethnic groups. We then present results summarizing current socioeconomic data on recipients of tenant-based vouchers (TBVs) and individuals who purchase homes using FHA-backed mortgages.

Background 

Researchers, analysts, and policymakers have described the current U.S. housing market as in crisis. Housing costs are rising, cost-burdening nearly one in four homeowners and more than 80 percent of renter households earning less than $30,000 annually. A pandemic-era surge in rents triggered a spike in housing unaffordability; more than half of all renter households were cost burdened in 2022, a record high. Housing shortages and elevated prices and interest rates have led to record numbers of people experiencing homelessness and have put homeownership out of reach for many first-time homebuyers. These deeply uneven housing conditions exacerbate racial and economic disparities in access to housing. The Joint Center for Housing Studies of Harvard University reports that as of the first quarter of 2024, "46.6 percent of Black and 49.9 percent of Hispanic households own a home, as compared to 74.0 percent of white households and 59.6 percent of householders who are Asian or of another race."

HUD programs aim to ease the financial barriers to renting or owning a home. The HCV program supports very low-income renters through rental subsidies, and FHA insures low-downpayment mortgages, extending credit to borrowers who may not qualify for traditional mortgage products. As a result, FHA program participants are disproportionately low- to moderate-income and first-time homebuyers. These programs are crucial for supporting low-income households and first-time homebuyers as they navigate the housing crisis. However, although both programs aim to overcome persistent disparities in housing markets, the policies that shaped them may reproduce economic and racial inequalities.

Brief History of FHA and HCV: Housing Disparities

Federally insured mortgages emerged as a response to housing market and employment concerns following the Great Depression. The federal government created FHA in 1934 to facilitate the recovery of the housing market and support the creation of jobs in the building trades, which were among the industries hardest hit by the Great Depression. By issuing federally insured mortgages, FHA sought to overhaul the home financing market and make mortgages more affordable to borrowers. FHA increasingly became the primary insurer of low-downpayment mortgages for low- to moderate-income and first-time homebuyers.

By contrast, Congress formed the HCV program in 1974, 40 years after FHA's launch, as the Section 8 Housing Certificate program. The program sought to offer an alternative to place-based public housing programs, which had established deeply segregated housing patterns for poor Black families. HCV is now HUD's largest rental subsidy program, assisting more than 2.3 million families. Although both the HCV program and FHA-backed mortgages aimed to make housing affordable and accessible, the implementation of both initiatives exacerbated racial and economic inequalities in access to housing.

Properties qualified for FHA-backed mortgages based on appraisal standards established in the Underwriting Handbook. These standards based property valuations on the surrounding neighborhood and its residents. Appraisers calculated "owner occupancy appeal" based on the race, ethnicity, and class of neighborhood residents, stating that "[i]f a neighborhood is to retain stability, it is necessary that properties shall continue to be occupied by the same social and racial classes." Properties located in more socially and economically diverse neighborhoods received lower appraisal values and were less likely to receive FHA loans. FHA also promoted practices that segregated new developments; builders were advised to write restrictive covenants into all deeds to legally block specific groups of people from buying homes in newly constructed neighborhoods. Restrictive covenants explicitly prohibited the transfer of property to Black residents and other racial and ethnic minorities, effectively creating "white-only" communities. Between 1945 and 1959, less than 2 percent of all FHA-insured mortgages went to Black homebuyers. FHA changed its policies after World War II, resulting in more loans to Black homebuyers. However, these actions failed to spur significant change in the share of FHA mortgages to Black homebuyers as a proportion of total program participants. As late as 1960, Black homeowners accounted for only 2.5 percent of all outstanding FHA mortgages.

Although the Section 8 voucher program promised greater opportunities for low-income renters to live in wealthier, less segregated communities, racial disparities have also shaped the Section 8 program. HUD-sponsored research published in 1995 found a "pattern of racial segregation and economic isolation" in the Section 8 voucher program. Scholars attributed this to the programmatic structure and regulations governing the program, including limited time to search for housing with a voucher, limited resources and support during the housing search, and a lack of standard regulations to prevent landlord discrimination against vouchers as an income source. These programmatic constraints caused program participants to remain in lower-opportunity neighborhoods instead of using their vouchers to freely choose a housing location. In addition, qualitative research has found that Black voucher holders who move to historically White neighborhoods can face hostility from neighbors and local code enforcement ordinances that can leave them vulnerable to fines or evictions.

Today, Black voucher holders represent most HCV program participants. An analysis investigating the household economic conditions of White and Black individuals participating in federal rental assistance programs revealed that "Black families are more likely than white families to receive rental assistance at every income level." These findings emphasize the need to examine FHA and HCV data side by side to understand racial and economic disparities in federal housing assistance programs.

Data

Data for HCV program participants were extracted from HUD's internal database containing information collected through HUD Form 50058. This dataset contains entries describing demographic, economic, and program variables for all tenants receiving federal rental assistance. We focus our analysis on TBVs, which allow tenants to use their housing subsidy to rent a unit in the private market that meets HUD's housing condition, health, and safety requirements. These data indicate the race and ethnicity of the head of household participating in the TBV program but do not contain detailed demographic information for all individuals in the household. We report on head of household race independent of ethnicity, which the data report as Hispanic or non-Hispanic. Individuals identifying as Hispanic therefore may identify as any race, but an individual's race is designated when they identify as that race alone and non-Hispanic.

The data for the FHA-backed mortgage insurance program are derived from HUD's internal Single Family Housing Enterprise Data Warehouse. Noteworthy for our purposes is the fact that, if the race and ethnicity of the applicant are not self-reported, lenders visually assess the applicant and complete these fields without applicant verification. Recent changes to FHA data requirements have made reporting applicants' race and ethnicity optional. Although the demographic data of HCV program participants are consistently self-reported, the reliability of the FHA demographic data is less certain. Approximately 40 percent of the FHA race and ethnicity data for 2022 are missing, which affects our ability to draw conclusions about current demographic trends within the program. Throughout this article, we acknowledge how these missing data may influence our analysis and interpretation.

We combine TBV and FHA data into a novel dataset containing reported fields shared between the two programs. Our dataset includes mortgage applicant and TBV program participant race and ethnicity, age, monthly household income, and household size as indicated by the number of dependents. In total, there are 2,154,455 observations for 2022, 1,240,987 (approximately 57.6%) of which were from TBV and 913,468 (approximately 42.4%) of which were from FHA-backed mortgages. The FHA-backed mortgage dataset includes all loans endorsed within the 2022 calendar year through the FHA mortgage insurance program, including applications for both purchases and mortgage refinancing.

Findings

Current TBV and FHA data confirm that most individuals receiving FHA-backed mortgages and reporting their race are White homeowners, and the plurality of TBV program participants are Black renters (table 1). The disparity in the racial composition of participants in the programs is striking. Although near parity, or at least comparability, exists in the proportion of FHA and TBV participants who are White (39.21% and 33.88%, respectively), the difference in Black participation in these programs is pronounced. A significant 47.22 percent of TBV heads of household are Black, whereas only 12.35 percent of FHA borrowers are Black. This stark contrast underscores the differing racial dynamics within the programs.

Table 1. Race and ethnicity of primary borrowers receiving FHA mortgages and heads of households receiving tenant-based vouchers.  

Race/Ethnicity	FHA	TBV
Asian	1.56%	1.81%
Black	12.35%	47.22%
Hawaiian	0.20%	0.61%
Hispanic	13.6%	15.50%
Native American	0.42%	0.98%
White	39.21%	33.88%
MISSING	39.50% *	N/A

Source: Authors' analysis of HUD program data. 
*The high percentage of missing data is discussed in the "Data" section above. 

We also find differences in the household economic conditions of TBV program participants and homeowners receiving FHA-backed mortgages (table 2). These findings are expected because TBV program guidelines base eligibility on the applicant’s annual gross income. In general, the applicant’s annual gross income cannot exceed 50 percent of the median income for the county or metropolitan area where the applicant will use the voucher. By contrast, FHA-backed mortgages have no maximum annual income requirement. Although borrowers often qualify for these loans more easily than conventional mortgages — with lower downpayment requirements and more lenient standards for credit scores and preexisting debt — approved applicants still must supply the initial downpayment and a monthly income that allows them to make the mortgage payments. 

Overall, we find that most homeowners who receive FHA-backed mortgages earn a monthly income exceeding $2,500, and more than 30 percent of homeowners receiving an FHA-backed mortgage earn a monthly income exceeding $7,500, which translates into an annual income of at least $90,000. By contrast, 69 percent of TBV program participants earn less than $1,500 per month. Less than 5 percent of homeowners receiving an FHA-backed mortgage fall into this extremely low-income category. Further, FHA borrowers who fall into this extremely low-income category tend to be refinancing rather than applying for a new purchase mortgage. The income disparities between TBV program participants and homeowners who receive FHA-insured mortgages highlight a fundamental disparity in homeownership facilitated by mortgages, which may be out of reach for extremely low-income households who lack a downpayment or access to a stable monthly income for monthly mortgage payments. 

Table 2: Monthly income of households receiving FHA mortgages and households receiving tenant-based vouchers.

Monthly Income	FHA		TBV
	Purchases	Refinances
Less than $500	0.11%	13.07%	15.99%
$500–$1,500	0.90%	1.69%	53.87%
$1,500–$2,500	3.63%	6.14%	17.94%
$2,500–$5,000	28.6%	27.66%	10.86%
$5,000–$7,500	32.95%	25.95%	1.13%
More than $7,500	33.81%	25.48%	0.20%

Source: Authors' analysis of HUD program data.
Note: Tenant-based voucher program participants' annual income does not include income from housing subsidies or other economic assistance programs.

Differences in family composition may further exacerbate the economic disparities between federally assisted renters and homeowners. Our analysis reveals differences in the number of dependents per household (table 3). FHA families tend to be smaller than TBV households, with an average of 0.75 and 0.98 dependents per household, respectively. In addition, the proportion of FHA households with no dependents (approximately 65%) is higher than the proportion of TBV households with no dependents (55%). The combination of larger household sizes and lower annual incomes among TBV households suggests that the financial situation of these households is more precarious. The average adjusted annual income for TBV households is approximately $11,000 per dependent — considerably lower than that of FHA households, which stands at approximately $50,000 per dependent.

Table 3: Number of dependents per household among households receiving FHA mortgages and households participating in the tenant-based voucher program. 

Dependents	FHA	TBV
0	64.46%	55.61%
1	13.08%	16.55%
2	12.4%	13.03%
3	5.84%	8.34%
4	2.81%	3.97%
5	0.65%	1.54%
More than 5	0.76%	0.95%

Source: Authors' analysis of HUD program data.

Finally, because affordable housing is out of reach for many young adults, we examined the ages of current TBV program participants and the ages of borrowers who received their loan endorsement in 2022 (table 4). We find that most current TBV program participants are over age 45 (58.5%), and most homeowners are under age 45 when they receive an FHA-backed mortgage (60.3%). This finding aligns with longitudinal studies of the voucher program. In 2000, more than 60 percent of households participating in the HCV program were families with children. HUD's latest voucher program study, however, found that in 2020, households with children no longer represent most households receiving rental assistance, and the number of elderly heads of households increased by nearly 10 percent between 2010 and 2020.

Table 4: Age of primary borrowers receiving FHA mortgages and heads of households receiving tenant-based vouchers. 

Age	FHA*	TBV**
Under 35	31.58%	17.46%
35-45	28.71%	24.04%
46-55	18.77%	17.02%
56-65	10.44%	21.08%
Over 65	10.50%	20.39%

*Primary borrower age at loan origination in 2022.
**Head of household age in 2022.
Source: Authors' analysis of HUD program data.

Discussion

Although the share of Black homebuyers receiving FHA loans has improved, from less than 3 percent in the 1960s to more than 12 percent today, FHA-backed mortgages continue to disproportionately serve White homeowners, and the TBV program disproportionately serves Black renters. In addition, extremely low-income households have a much higher representation in the TBV program, whereas more than 30 percent of homeowners receiving an FHA-backed mortgage have a monthly income exceeding $7,500. Accounting for family size further exacerbates the economic disparities between federally assisted renters and homeowners. FHA families tend to be smaller and earn approximately $50,000 in annual income per dependent. By contrast, TBV families earn an average annual income of $11,000 per dependent.

Data on the age of individuals receiving federal rental and homeownership assistance raise the possibility that FHA-backed mortgages are a pathway to homeownership for younger generations. Persistent racial disparities in program participation, however, may reinforce the homeownership gap between Black and White households. Although evidence shows that economic security programs such as the TBV program increase financial stability and reduce poverty for participating households, rental assistance does not necessarily help dismantle systemic disparities in access to intergenerational wealth for extremely low-income families. The racial and income disparities between participants in federal rental and homeownership programs indicate that policymakers need to support additional pathways to homeownership for extremely low-income Black households, who are disproportionately represented in the TBV program.

The next article in this series will examine the geographic distribution of households receiving federal rental and homeownership assistance to trace historical patterns of housing segregation that concentrated White homeownership in suburban housing developments and Black renters in urban communities with concentrated poverty.