Skip to main content

Revisiting Opting In, Opting Out

HUD USER Home > PD&R Edge Home > Research

Revisiting Opting In, Opting Out

Front Cover of Opting In, Opting Out

Maintaining an adequate supply of affordable housing is among HUD’s main priorities, which the agency strives to achieve through a number of policies and programs. To meet this preservation goal, however, researchers and policymakers need to understand why some HUD-assisted properties leave the affordable market.

In 2006, HUD published Multifamily Properties: Opting In, Opting Out and Remaining Affordable, which examined the loss of housing units from HUD’s portfolio of affordable properties. The report focused on Section 8 project-based rental assistance and the Section 236 and 221(d)(3) Below Market Interest Rate (BMIR) mortgage subsidy programs. By looking at housing data between1998 and 2004, researchers were able to explain why some property owners would choose to not renew Section 8 contracts or prepay their subsidized mortgages (known as “opt-outs”), thus converting their affordable housing units into market-rate units. The report found that property owners were more likely to opt out of the affordable housing market if the owners were for-profit corporations, if their properties primarily served families, or if the properties’ rents were low compared with the Fair Market Rent (FMR) for the area.


In Opting In, Opting Out a Decade Later, part of the Office of Policy Development and Research’s Multidisciplinary Research Team series, researchers updated the 2006 report with point-in-time, property-level datasets from 2005 and 2014 to address the following questions:

  • Do basic characteristics such as location, ownership, physical attributes and neighborhood characteristics explain differences in the prevalence of opt-outs/prepayments and opt-ins?
  • How have the patterns and trends in opt-outs and prepayments changed in recent years?

After conducting a cross-tabulation study and a multivariate regression analysis, the researchers determined that their findings were not too dissimilar from those of the original report.

Major Findings

  • Between 2005 and 2014, the Section 8 portfolio was stable. In 71 percent of cases, property owners actively decided to opt in and renew their Section 8 assistance contracts. In addition, a significant number of developments continued to receive Section 8 assistance without needing to renew their contracts.
  • Section 236 and Section 221(d)(3) mortgage subsidy programs largely wound down during the observed period; by 2014, these loans were terminated due to either prepayment or maturity. However, properties that had both a mortgage subsidy and a Section 8 contract in 2005 were likely to continue as Section 8 properties in 2014 even if their mortgages matured or were prepaid.
  • Opt-outs and prepayments were more likely to occur in properties that had low ratios of rent to FMR (indicating that owners would rather place the units on the open market), were owned by for-profit companies, or were designated for occupancy by families (as opposed to seniors or disabled residents). These variables, however, were much less influential than they were at the time of the 2006 report.
  • Other factors that contributed to opt-outs or prepayments were strong neighborhood rental markets, strong regional home sales markets, lower physical inspection scores, and the prevalence of partial rather than full coverage of units in developments with rental assistance contracts.

In addition to looking at Section 8 and Section 236/BMIR properties, the updated study also looked at properties with Section 202 Direct Loan subsidies combined with Section 8 rental assistance and those that were eligible for conversions under the Rental Assistance Demonstration (RAD). Among owners of Section 202 housing that had a Section 8 contract come up for renewal, 96 percent opted to renew the Section 8 contract. In roughly half of these properties, however, the Section 202 loan was terminated, suggesting that a large portion of this inventory is transitioning to new forms of financing. The few properties whose owners did not renew their Section 8 contracts were likely to be small properties built in the 1980s. Under the RAD program’s Component 2, properties with rental units under older assistance programs such as Rent Supplement and the Rental Assistance Program can convert their units to project-based Section 8 vouchers. The report found that 63 out of 321 eligible properties converted to Section 8 rental assistance in 2014; most of these were older, larger proprieties located in suburban areas.


Preserving the existing stock of affordable rental units is key to maintaining a healthy supply of affordable housing. With a number of HUD programs and contracts set to expire in the coming years, preservation advocates must assess what factors make owners of HUD-assisted proprieties renew or opt out of rental assistance contracts. Studies such as this one may help policymakers develop strategies to maintain a healthy stock of affordable housing.

Advocates, however, should not to restrict their focus only on properties with traditional risk factors such as those seen in the 2006 and updated reports; they must be careful not to assume that other properties are immune from opt-out risk. Although the original and updated study showed that properties that are prone to opt outs exhibit similar characteristics, a number of factors not observed in the two studies could contribute to the risk of loss of affordable HUD-assisted housing in the coming years. Further research should be done to better understand the current and future environment for preservation and the risk of loss to the HUD-assisted housing inventory.


Ray, Kim, Nguyen, & Choi, 2015, p. 1

Published Date: August 11, 2015

The contents of this article are the views of the author(s) and do not necessarily reflect the views or policies of the U.S. Department of Housing and Urban Development or the U.S. Government.