By Staci Canny, senior content marketing specialist at HAI Group and IMCA committee member
Interested in learning about insuring multifamily affordable housing? Whether you’re an agent looking to specialize in a new niche or you’re just getting started in the industry, we’ve pulled together a list of terms you should know. You may face unique challenges in this industry, but as you help your customers protect and preserve affordable housing, which is a necessity for millions of people, you’ll also likely find the work highly rewarding. Let’s dig in.
- Department of Housing and Urban Development (HUD): This is a cabinet-level government agency led by a secretary who is appointed by the president of the United States. HUD’s purpose is to provide housing and community development assistance to ensure that Americans have access to “fair and equal” housing. HUD develops programs to reduce homelessness, support homeownership, and increase affordable housing availability.
- Public housing authority/public housing agency/PHA: Whichever name you use (they are interchangeable), a PHA is government-owned housing for eligible low-income families, the elderly, and individuals living with disabilities. There are roughly 3,000 PHAs across the country. People who live in public housing are referred to as “residents.”
- Executive director (ED): This is the top leader at a public housing authority, equivalent to a president/CEO in the private sector.
- Affordable housing: Housing programs in the United States have long measured housing affordability in terms of percentage of income. In the 1940s, the maximum affordable rent for federally subsidized housing was set at 20 percent of income, which rose to 25 percent of income in 1969 and 30 percent of income in 1981. Over time, the 30 percent threshold also became the standard for owner-occupied housing, and it remains the indicator of affordability for housing in the United States. Keeping housing costs below 30 percent of income is intended to ensure that households have enough money to pay for other nondiscretionary costs; therefore, policymakers consider households who spend more than 30 percent of income on housing costs to be housing cost burdened. Once an individual qualifies for affordable housing, they are given a voucher, and it is up to them to find a property that accepts these vouchers. Some apartment buildings have units reserved for voucher holders, while some private landlords may own homes and accept vouchers.
Government Housing Programs
- Section 8: This is a federally funded rental assistance program for helping very low-income families, the elderly, and people who are disabled afford decent, safe, and sanitary housing in the private market. The federal government pays a private landlord the difference between the reduced rent that a tenant is required to pay and the fair market rate for the unit rented. Within this program, there are two types of vouchers that tenants can receive to rent a unit in the private market: 1) housing choice voucher (HCV) or 2) project-based rental assistance (PBRA) voucher.
- Housing Choice Voucher (HCV): Local public housing agencies administer HCVs to eligible recipients, and it is up to the recipient to find a unit to rent in the private market that accepts HCVs, as long as it meets the program’s requirements. Rent is subsidized by the PHA administering the voucher. Therefore, a recipient pays no more than 30 percent of their monthly household income for rent, while the PHA pays the landlord the difference between this and the unit’s fair market rent.
- Project-Based Rental Assistance (PBRA) Voucher: Local public housing agencies administer PBRA vouchers to eligible recipients, but unlike HCVs, these vouchers are tied to a specific apartment building unit or rental home. Therefore, PBRA voucher recipients do not get to select a unit of their choice. Rent is subsidized by the PHA administering the voucher. Therefore, a recipient pays no more than 30 percent of their monthly household income for rent, while the PHA pays the landlord the difference between this and the unit’s fair market rent.
- Low Income Housing Tax Credit (LIHTC) Program: This government program is designed to incentivize private investors to develop affordable housing by offering a federal income tax credit as an incentive to make equity investments in affordable rental housing.
- Moving to Work (MTW) Program: This is a HUD initiative that enables PHAs to create and test innovations to help residents become self-sufficient, increase housing choices for low-income families, and boost the cost-effectiveness of the agency.
- Rental Assistance Demonstration (RAD) Program: This program enables PHAs and private owners to convert public housing and certain types of project-based rental assistance to project-based Section 8 contracts. By doing this, they can access a wider variety of capital sources, including private capital, to help them tackle deferred maintenance issues that threaten the property’s long-term sustainability.
About HAI Group
HAI Group® is the marketing name for a family of companies founded by and dedicated to housing and headquartered in Cheshire, Connecticut. Recognized as a pioneer of affordable housing insurance programs, we also help protect, preserve, and promote the sustainability of affordable housing with a wide array of products and services that support the challenges housing organizations face. Besides insurance, they include risk management consulting, training, research, and advocacy. For more information, visit http://www.housingcenter.com.
- Contract: The terms and conditions of an insurance policy are spelled out in a contract. The contract addresses questions like: “What kinds of losses are insured?” “When do payments begin?” and “What happens if the insurer and the insured don’t agree?”
- Commercial liability policies: In housing, this coverage protects a housing organization and its employees from third-party claims of bodily injury or damage. For example, people can slip and fall on the property, an employee can feel that they were libeled or defamed by a coworker, or a resident can be injured because of the actions of hired maintenance staff. Liability policies do not cover personal property.
- Commercial property policies: In our industry, this refers to coverage that protects a housing organization from damage to their buildings and contents due to a covered claim. Policyholders can buy coverage for theft, vandalism, or damage to their property if it’s struck by cars, planes, or other moving objects. They can also insure against smoke damage, water damage, or a loss of profits or income. Coverage is customized to each organization, and there are limitations depending on many factors, such as the age of buildings, location, and the history of past claims.
- Admitted Insurance Carrier: An admitted carrier must comply with all state regulations in which they provide coverage. If the carrier fails financially, the state insurance department will step in and pay customer claims as needed.
- Non-Admitted Insurance Carrier: A non-admitted carrier doesn’t necessarily comply with all state regulations in which they provide coverage. If the carrier fails financially, there is no guarantee that customer claims will be paid. Policyholders can’t appeal to the state insurance department if they feel their case was mishandled. Using a non-admitted company could benefit a business with risks that a standard insurer won’t cover, such as a housing organization along the Gulf Coast with a high risk of hurricane damage. Even in this category, highly ranked non-admitted carriers do exist and can be a safe option.