“Abhorrent” but “not surprising”: Rental industry reacts to Section 8 fiasco

Last spring a woman called Brooklyn brokerage 3Location3 about a Clinton Hill studio for rent. When she asked if she could pay the $1,403 rent with her Section 8 voucher, the answer was unequivocal: “No.”

The caller explained that she was in a shelter with her daughter and urgently needed housing. Still, the agent was unmoved.

“It’s the owner. She won’t take any programs. She doesn’t take them in any of her buildings,” the agent explained.

Mention of the federal rent subsidy triggered rejections in 48 percent of 477 recent calls recorded by testers posing as prospective renters, the New York Times reported. Most of the units inquired about were in predominantly white, high-income neighborhoods. The subsidy is for low-income tenants.

The testers were hired by the watchdog group Housing Rights Initiative for an investigation into discrimination against Section 8 voucher holders in New York City. The findings are now the subject of a sweeping lawsuit filed in federal court Monday that cited nearly 50 incidents.

The suit accuses 88 landlords and brokerages including Compass, the Corcoran Group, R New York and Winzone Realty of income discrimination, violating fair housing laws and perpeutating the city’s segregation problem.

HRI’s findings are “deeply disconcerting,” said a spokesperson for the Department of State, which is reviewing the allegations, as is another state agency, the Division of Human Rights.

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The regulators could fine the defendants and revoke the licenses of brokers and agents under a law passed last summer in response to Newsday’s investigation of racial steering on Long Island.

In response to HRI’s findings, lawmakers criticized the industry for turning away vulnerable New Yorkers in need of housing.

“I think what we saw here is a lot of landlords and brokers who either didn’t know about it, or were looking the other way when it comes to obeying the laws,” said Manhattan Council member Keith Powers, whose bill to extend income-discrimination protection to applicants in buildings with three or more units became law last fall.

“Wakeup call” for industry

Asked to comment on the lawsuit, brokerage heads and a group representing mom-and-pop landlords condemned income discrimination.

They noted, however, that poor training and delays by the city’s Section 8 administrator, the Housing Authority, result in apartments sitting empty for several months while voucher-bearing tenants wait to move in and pay rent. That creates a financial incentive for landlords and agents to break the law, sometimes unwittingly. With little oversight, they often get away with it.

In the wake of the suit, several industry leaders called for more training and oversight of agents. Bess Freedman, CEO of brokerage Brown Harris Stevens, called the suit “a wakeup call” that the industry needs better education, practices and enforcement.

The state requires licensed real estate agents and brokers to undergo 22.5 hours of continuing education every year, with three hours dedicated to fair housing laws. But a program like Section 8 requires more, industry insiders say. One real estate executive who spoke on the condition of anonymity said agents should get a refresher at least twice a year.

Sarah Saltzberg, head of Bohemia Realty Group, called the incidents in the complaint “gross” but “not surprising.”

“We are all for rooting out these bad actors and calling them out,” she said, but added, “The real problem [is] that there is a serious lack of understanding of how these programs work.” For that reason, she said, an investigation such as HRI’s was inevitable.

“It was literally like, ‘When is this going to happen?’” she said. “We [could] see this train coming from a mile away.”

To prevent violations by her firm, she searched extensively for education materials and paid a lawyer $10,000 to write a booklet on program requirements. But it only prompted more confusion among her staff. So, three years ago, she changed tactics.

Saltzberg, whose firm handles rentals largely in upper Manhattan, dedicated a small group of agents to deals involving vouchers. It worked: Bohemia was not named in the suit and last year helped more than 30 people in the city’s shelter system find housing, she said. It now counsels other firms on working with voucher programs.

For landlords, accepting a Section 8 voucher can be time-intensive and entail lowering the rent, according to Jay Martin, executive director of the Community Housing Improvement Program, which represents thousands of small landlords in the city.

Martin called the probe’s findings “abhorrent,” but said he believes most violators are “discriminating against the voucher, more so than they’re discriminating about the people themselves.”

Heather Huff, who runs Bohemia’s programs unit, said completing a lease under the Section 8 program takes three or four months because of correspondence and unit inspections.

According to the New York City Housing Authority, delays are typically caused by incomplete paperwork, units failing inspection or the rent being too high. A spokesperson for the agency said it is “committed to processing Section 8 vouchers in a timely manner.”

NYCHA’s goal is to complete its first rental inspection within five business days of receiving a complete application, and during the pandemic it has been letting landlords self-certify apartments. If a unit fails inspection for a non-life-threatening reason, tenants can still move in and the landlord has 30 days to cure the problem.

Source of income is a protected class under federal, New York state and city anti-discrimination laws. HRI argues in its suit that discrimination against tenants with Section 8 vouchers is effectively racial, as 82 percent of voucher-holders are Black or Hispanic.

Though no CHIP members are defendants in the case, Martin called the suit a “good opportunity” to address the administrative delays that incentivize owners to illegally reject vouchers.

“There are so many stories of property owners who have been trying to take vouchers, trying to place tenants … who have consistently run [into] problems,” he said. “I could say these people are just terrible people … if I knew these vouchers were pristine.”

He recalled landlords spending weeks finalizing a lease only to discover the rent allowance was less than expected or that the apartment does not meet Section 8’s specifications. The program requires at least one bedroom of 80 square feet or more for each family member, among other mandates checked by inspectors.

Designed to fail

Another stumbling block is that Section 8 does not cover broker fees. The renter must find a no-fee apartment or pay the fee out of pocket. Fees are often about two months’ rent — more than most Section 8 recipients can afford. That deters some agents from working with them. (The Department of State is trying to ban the practice of requiring tenants to pay the broker.)

Saltzberg called it an example of how the system is “set up to fail,” although at the moment, most landlords are paying the fee because they are struggling to fill apartments.

HRI’s suit claims that Takee Brockman, an agent at Bold New York, refused in 2019 to consider a prospective Section 8 tenant for an Upper East Side studio asking $1,600 a month because the program wouldn’t pay Brockman’s commission.

“I’m not going to rent this apartment [to you] because I can’t get paid on it, and I’m not going to lose. That’s just taking money out of my pocket. That just doesn’t make sense,” Brockman told HRI’s undercover tester. “You can’t rent the apartment without me.”

Bold, which was recently acquired by Compass, declined to comment, as did Compass. Brockman was not immediately available for comment.

Both Martin and Saltzberg also noted that market-rate rents are often more than Section 8 pays, putting users at a further disadvantage.

The maximum subsidy for Section 8 vouchers is $1,900 for a studio, for example, not including utility allowances. The median rent for a studio in February was $2,200 in Manhattan, $2,096 in Brooklyn and $1,896 in northwest Queens, according to Douglas Elliman.

“If the program was more competitive with the rest of the market, these things would not be issues,” said Saltzberg. “[Lawmakers] have to put their money where their mouth is.”

Powers said he supports increasing the value of housing vouchers. State Sen. Brian Kavanagh, who chairs his chamber’s housing committee, said he was open to discussing ways to improve the programs, but that its shortcomings do not excuse violations by landlords and brokers.

“You don’t need to lower the [rent] in order to participate in a subsidy program, but you can’t decline to rent an apartment … because the person is trying to pay with Section 8. That is just squarely illegal,” he said.

The rejections noted in HRI’s complaint all involved apartments with rents under Section 8’s limits.

While noting the pitfalls of Section 8, most in the industry admit the violations HRI found represent the tip of the iceberg. At the same time, Martin maintained that landlords and brokers generally try to do the right thing.

“The majority of folks,” he said, “are functioning within a system that needs to be improved.”