The Department of Housing and Urban Development said yesterday that it will implement a series of new regulations designed to curtain cost increases in its troubled Section 8 subsidized housing program.
However, the issue of corruption and political favortism on the local level, the other major focus of questions about the program, apparently will be left to a generalized review of the program's effectiveness.
HUD Assistant Secretary Lawrence B. Simons expressed confidence that such a review would reveal any systematic problem with the program. "Frankly if there's corruption, it's got to distort the program" and would thus show up in the review, Simons said, noting also that his department will investigate specific allegations in case-by-case basis.
Section 8 is designed to encourage construction of low-income housing by lending developers most of the money they need and by guaranteeing them adequate revenues to cover the debts. In addition developers can generate quick up-front cash by selling shares of the projects to wealthy persons seeking tax shelters.
Tenants in Section 8 housing pay only 25 percent of their income. HUD pays the difference between that and the rent charged by the developer.
The system apparently has been effective in generating construction. Simons was proud to point to a sharp increase in the number of units started during the Carter administration years. Whereas when the administration came to office Section 8 construction was running at about 35,000 units a year, by 1977 the figure was 106,000 and in 1978, 159,000.
Critics of Section 8, however, have argued that the program is unnecessarily costly and encourages construction of what amount to luxury units for poor people.
The regulation changes Simons announced yesterday, first proposed in June and to be published in the Federal Register in the final form on Monday, are designed to meet these objections.
Under the new regulations, the amount of rental income that can be kept as profit will be restricted to 6 percent for projects for the elderly and 10 percent for family housing. There will be specific limitations on development costs, and rents will be restricted to comparable rates for the area unless the developer can show that costs require more.
Owners will also be required to remain in the program for the full term of their Section 8 contracts -- 20, 30 or 40 years. Originally, the owners could drop out after five years and convert their project to regular rental if they wished.
Finally, amenities will be limited.HUD wants to make sure it isn't paying for a lot of "pools, saunas, tennis courts for the elderly," Simons said.
However, Simons said, I would stress that while these changes will give the department better control on costs, we do not expect overall program costs to drop. The costs of producing housing under the Section 8 program are very much in line with the costs of producing similar unassisted housing units."
On other points, he said:
That the Federal Reserve Board "had no choice but to take the actions" it did in tightening credit over the weekend. "The action taken is a proper one" because of inflation.
That the administration is committed to seeing that housing will not shoulder "an undue share" of this anti-inflation fight. However, asked about President Carter's attempt to reassure the construction unions Thursday that they would not be hurt, Simons said "Hurt is a relative matter."
That if interest rates continue for a full year, "there may be a shrinkage of 5 to 10 percent" in the number of federally assisted housing starts, though he does not expect the crunch to last that long.
That HUD is "deeply concerned" about shrinkage in the nation's stock of rental housing, particularly through conversion to condominiums, and that officials there are wondering "whether increased federal intervention in the rental market" may become necessary.
Corruption and favoritism have surfaced as issues particularly in Rhode Island and New Jersey.
Developers in those states are chosen by state housing agencies to participate in the program, and newspaper investigations in both have turned up allegations that only those who are politically well connected or who make payoffs can get in.
Simons said yesterday that "corruption in a federal program, of course, is of concern" to his department, and he noted that HUD has its own investigative procedures and can work with local U.S. attorneys. However, HUD officials have emphasized in the past that their top priority is getting the housing built, not who builds it.