Law in Order

from Summer 2022 Window Magazine

by Austin Apartment Association

President’s Perspective

The Warren Report

SOURCE OF INCOME: GONE BUT NOT FORGOTTEN

By William S. Warren,

Warren Kalyan Law Firm

Many in the rental housing industry are fluent in the language of protected classes. The lesson is well known that one cannot discriminate against another in the context of housing because of one’s presence in a protected class. Wherever you are in the United States, there are at least seven protected classes of which to be aware.

Never wanting to be outdone, the City of Austin adds six more protected classes. It is Austin’s seventh, one which only held that title for 263 days, which is the topic of this Law in Order: The Warren Report: Source of Income.

On December 11, 2014, the City of Austin amended its fair housing ordinance to prohibit source of income (SOI) discrimination throughout Austin. To demand, however, that all residential landlords lease to a person or family, regardless of their source of income, was problematic on many fronts. Challenges and litigation immediately followed.

According to the NMHC/ NAA Viewpoint, published by the Joint Legislative Program of the National Multifamily Housing Council (NMHC) and the National Apartment Association (NAA), the federal Section 8 program, which is at the core of source of income legislation, has been plagued with inefficiencies and onerous bureaucratic requirements. Owners who participate in the Section 8 program, Viewpoint states, are subject to often cumbersome program restrictions, such as repetitive unit inspections, resident eligibility, certification, and other regulatory paperwork. All of these, Viewpoint says, make it more expensive for apartment firms to operate their communities.

With strong urging and encouragement from the Austin Apartment Association, the Apartment Association of Greater Dallas, and the Texas Apartment Association, Senate Bill 267 was crafted, vigorously debated, and eventually enacted by the 84th Texas Legislature, Regular Session. When the Texas governor signed SB 267 into law, effective September 1, 2015, it quashed the December 2014 Austin SOI ordinance. No longer enforceable was the City of Austin ordinance that required Austin landlords to accept as residents otherwise qualified, low–income applicants who were planning to pay at least a part of their rent with funds obtained through a section 8 voucher.

The passage into law of SB 267 resulted in the addition of Section 250.007 of the Texas Local Government Code (LGC). In less than a year after its enactment, therefore, Austin’s ordinance, which created a seventh local protected class, was firmly ushered out. At the time, moreover, Austin was the only city in Texas with a so–called “source of income” ordinance.

LGC Section 250.007 states, in pertinent part, that a municipality or county may not adopt or enforce an ordinance or regulation that prohibits an owner, managing agent, or other person, with the right to lease or rent to another a housing accommodation, from refusing to lease or rent to a person because such person’s lawful source of income to pay rent includes funding from a federal housing assistance program. State law pulled rank on a local ordinance in a major way.

Stated another way, Texas told Austin that its December 2014 source of income ordinance could not be enforced. At the time, Austin was the only municipality or county in Texas with an ordinance making it actionable discrimination to reject an applicant based upon the applicant’s source of income. The new Texas law made sure that one “source of income” ordinance had been enough; and to

William S. Warren,

Warren Kalyan Law Firm

eliminate ambiguity, it pre-empted Austin’s 263-day old “source of income” ordinance, which had made irrelevant a tenant’s proposed method of paying rent.

Five years later, Texas remains somewhat of an outlier on the issue of source of income considerations when evaluating a prospective tenant. As of November 13, 2020, there are now 84 jurisdictions nationally that prohibit discrimination against Section 8 Housing Choice Voucher (HCV) holders. Of the 50 states, only 10 (plus the District of Columbia) have SOI discrimination protection for Section 8 HCV holders.

In addition, at least 14 counties (all of which are in states with no SOI discrimination protection for Section 8 HCV holders) now have laws in place making it discriminatory not to accept low–income applicants for residency, who are planning to pay part of their rent with a Section 8 voucher, as long as the applicants have met other appropriate tenancy qualifications.

On top of that, there are at least 56 cities (none of which are in Texas), which now have laws making denial of tenancy, based upon the applicant’s SOI, an act of discrimination.

While it may have been true, in 2014 and 2015, that the City of Austin prohibited source of income discrimination in all residential rental units, that is no longer the case. Stated another way, a residential landlord in the City of Austin may now refuse to accept low–income applicants as residents if those applicants are planning to pay part of their rent with a Section 8 voucher.

Source of income, carrying the clout of a protected class, no longer exists and affects residential housing providers in the City of Austin. But while SOI in Austin may be gone, it is not forgotten.

SB 267, now codified in the Texas LGC as Section 250.007, does create an exception. Specifically, Section 250.007(b) states that the current Texas law does not affect a local ordinance or regulation that prohibits the refusal to lease or rent housing accommodation to a military veteran because of the veteran’s lawful source of income to pay rent. Military veterans exist as a specifically carved out exception; and all a veteran’s lawful sources of income to pay rent must be favorably

considered by a prospective landlord when a veteran applies to lease residential property.

The City of Dallas, in fact, in Section 20A-4 of its anti-discrimination ordinance, makes it an actionable offense if a person, because of the source of income of a veteran, attempts rejection of the applicant due to SOI considerations. A Dallas apartment owner and operator is prohibited from refusing to rent to a veteran who is utilizing an HCV voucher.

Remember, it is state law which creates and permits this “veteran’s exception.” It does this despite a statewide prohibition, in the same statute, against a municipality or county adopting or enforcing an ordinance making rejection of an otherwise qualified applicant, due to source of income used to pay rent, an act of discrimination. A veteran’s source of income cannot be used to create adverse housing consequences to a veteran. Nor can it be used to deter a veteran from accessing government funds to assist with rent payment.

Noteworthy is the fact that Dallas enacted its controversial SOI ordinance after the State of Texas enacted its controversial law.

In January 2020, the National Apartment Association published an article entitled “Source of Income: Loophole in Texas Law?”. NAA updated this article on December 15, 2020. The NAA commented that when LGC Section 250.007 became effective, it contained the exception addressed above. This exception, noted NAA, would require housing providers to accept Veteran Affairs Supportive Housing (VASH) vouchers, Housing Choice Vouchers (HCV), or any other lawful source of income from veterans.

NAA then focused on Dallas’s definition of the term “source of income”. In Dallas, the term means “…lawful, regular, and verifiable income from whatever source derived (including housing vouchers and other subsidies provided by government or nongovernmental entities, child support, or spousal maintenance). That definition governs the sources of income of a veteran, applying to rent housing, which must all be considered by the prospective landlord.

The 2020 source of income article

At least 14 counties (all of which are in states with no SOI discrimination protection for Section 8 HCV holders) now have laws in place making it discriminatory not to accept low–income applicants for residency, who are planning to pay part of their rent with a Section 8 voucher, as long as the applicants have met other appropriate tenancy qualifications.”

Some of the landlords in the study noted, they felt voucher tenants were better for key reasons, including their perception that voucher tenants were more grateful than market tenants, and therefore more respectful of the rental property.” published by NAA contains a very interesting comment. NAA states that “despite the state pre-emption, in a place like Dallas that passed SOI protections, the law is ambiguous and being interpreted to mandate that owners accept [all of a] veterans’ “lawful sources of income,” including VASH vouchers or HCV vouchers.

What about Austin? We know the Austin SOI ordinance from 2014 is not enforceable. How is a veteran’s rental application to be scrutinized? Due to the exception in state law (i.e., in LGC Section 250.007[b]), Austin veterans are still protected from source of income discrimination. The protection for veterans, however, does not come from the no longer enforceable city ordinance. Rather, the veterans’ protection stems from state law.

According to the City of Austin, veterans can still file a housing discrimination complaint based on source of income with the City of Austin, if such veterans are denied the opportunity to rent or lease because they intend to use vouchers received from HUD or Veterans Affairs to subsidize their rent. In Austin, unlike in Dallas, the exception for veterans is not addressed by local law. The Austin “exception” is, therefore, no different than source of income protection offered to any veteran anywhere within Texas, except Dallas.

Why is source of income “protection” so controversial in so many areas? Why do only about 20% of states have laws in place which prohibit discrimination based upon source of income? Does it really matter to a landlord where the money to pay the rent comes from?

On May 30, 2018, The Poverty and Inequality Research Lab, of Johns Hopkins University, published “Urban Landlords and the Housing Choice Voucher Program: A Research Report.” This study investigated the role of landlords and low-rent housing markets located in Baltimore, Cleveland, and Dallas, and the role landlords play in shaping the residential experience of low- and moderate-income renters, especially households in the HCV program. The study was based on interviews and observations of a sample of 127 landlords and property managers, 73% of whom accepted housing choice vouchers.

The five named (and very talented) authors of the report provide some interesting and pointed comments focused on the question from above: “does it really matter to a landlord where the money to pay the rent comes from?” The authors noted how

the landlords they studied face a common set of challenges and barriers to profitability, including rent collection, vacancies and turnover, unexpected costs, and financing. Sound familiar?

The authors of the report also identified three key factors they said can influence a landlord’s preference for voucher tenants: (1) financial motivation (i.e., rental payments are received more reliably when they participate in the voucher program), (2) landlords’ perception of tenants (i.e., landlord prejudices and experiences with subsidized tenants play a key role in the decision whether to participate in the HCV programs), and (3) interactions with the Public Housing Authority (PHA) during contract signing and the frequent property inspections (i.e., the bureaucratic factors).

The Urban Landlords report identified above stated that for the landlords studied, the tenants themselves mattered quite a bit in the decision to rent through the HCV program or not. Between 51% and 74% of the sampled landlords mentioned that the tenants themselves were a factor in their decision whether to rent to voucher holders or not. Landlords noted that they worried about tenants’ “quality” for a variety of reasons. A “bad” tenant, the program participants said, can vandalize a rental property, force time-consuming and unprofitable evictions, generate citations (e.g., [Austin] Code Compliance) that a landlord needs to pay, and cause any number of other headaches. On the flipside, some of the landlords in the study noted, they felt voucher tenants were better for key reasons, including their perception that voucher tenants were more grateful than market tenants, and therefore more respectful of the rental property. Many Austin landlords participate in Section 8 and accept and happily lease to recipients of government housing assistance. Speaking very generally, how does Section 8 work? To begin with, there are “tenant-based vouchers” and “project-based vouchers” within the housing choice voucher program. Both programs are overseen through public housing agencies (PHA’s). In the Austin and Travis County area, there are five such housing agencies, according to affordablehousing.com; and all offer Section 8 (HCV) vouchers.

Families seeking housing assistance apply to a local PHA which administers the tenant-based voucher program. After application, an eligible family is typically placed on a waiting list. All five of the Austin area housing agencies have waitlists which are currently closed. When a family rises to

the top of their respective waitlist, the PHA issues a housing choice voucher to the family. It is then the responsibility of the family to find a unit that meets their needs.

If the family finds a unit that meets the housing quality standards, the rent is reasonable, and the unit meets other program requirements, the PHA executes a housing assistance payments (HAP) contract with the property owner. This contract authorizes the PHA to make subsidy payments on behalf of the family.

The PHA typically pays the owner the difference between 30% of adjusted family income and a PHA determined payment standard, or the gross rent for the unit, whichever is lower. The family may, in its own discretion, choose a unit with a higher rent than the payment standard. If they do, however, the family will pay the difference.

There are also project-based vouchers. These are component of a PHA’s housing choice voucher program. PHA’s are not allocated additional funding for project-based voucher units. The PHA, on the contrary, must use its tenant-based voucher funding to allocate project-based units to a project. According to HUD, projects are typically selected for project-based vouchers through a competitive process managed by the local PHA.

All affordable housing programs have income eligibility requirements to ensure that assistance is targeted to moderate– and low–income residents and families. How are the income levels calculated? First, the income of all adult members of the household is included when doing the calculation. Sources of included income are wages from employment, net income from self–employment, monthly Social Security or disability checks, food stamps, and child support. Income from assets can also be included in calculating household income.

Sources of income not included in the calculation are income of children under age 18, college financial aid, income tax refunds, lump-sum payments from such things as insurance claims, inheritance, and settlement payments arising from litigation.

On top of that, to keep assisted housing affordable for lower–income households, HUD includes an allowance for reasonable utility costs in its definition of rent. The utility allowances can vary widely, from less than $10 to over $200 for a resident household per month.

According to HUD, to qualify for an HCV the family’s income, in general, may not exceed 50% of the median income for the county or metropolitan area in which the family chooses to live. By law, a PHA must provide 75% of its voucher funds to applicants whose incomes do not exceed 30% of the area median income.

Housing vouchers function by placing the choice of housing in the hands of the individual family. A housing voucher holder is advised of the unit size for which it is eligible, based on family size and composition. The housing unit selected by the family, according to HUD, must meet an acceptable level of health and safety before the PHA will approve the unit. The PHA is required to inspect the dwelling and determine that the rent requested is reasonable.

A family which receives an HCV can select a unit with a rent that is below or above the payment standard. The housing voucher family must pay 30% of its monthly adjusted gross income for rent and utilities. If the unit rent is greater than that, the family must pay the additional amount.

The HCV program is flawed and plagued by bureaucratic nightmares. But on the heels of the COVID-19 pandemic, and during a worsening housing affordability crisis, it can have some appeal to owners and residents alike. The May 30, 2018 “Urban Landlords and the Housing Choice Voucher Program: A Research Report” remains interesting, informative, and recommended reading about a hot and persistent housing topic.

Austin’s seventh local protected class, source of income, was shortlived and enforceable for only 263 days before preemption by state law. Yet the fact remains that it, like many of life’s most interesting memories, may be gone but certainly not forgotten!

CMY

According to HUD, to qualify for an HCV the family’s income, in general, may not exceed 50% of the median income for the county or metropolitan area in which the family chooses to live.”

The year 2022 marks BILL WARREN’s 42nd year of practicing law. His law practice focuses on a variety of issues and cases, the majority of which address the concerns of those active in the multi-family industry. He founded and manages Warren Kalyan Law Firm. In addition, he serves as Of Counsel for the Texas Apartment Association and as Legal Counsel of the Austin Apartment Association. Bill is also a Credentialed Mediator in Texas. He writes and speaks regularly, and as author of Law In Order: The Warren Report he has had over 120 articles published. His topics cover all nature of issues pertaining to rental housing, from onsite to the boardroom to the courtroom. Bill has been Board Certified in Civil Trial Law by the Texas Board of Legal Specialization for 30 years, and is also a Fellow of the College of the State Bar of Texas. He can be reached at Warren Kalyan Law Firm, 1011 Westlake Drive, Austin, Texas 78746, (512) 347-8777, or through his firm’s website at www.WarrenKalyan.com.

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