Rental rehabilitation funded by Community Development Block Grants costs more than it needs to and may not benefit the target group--low-income renters--according to a study released this week by the General Accounting Office, the auditing arm of Congress.

The study, conducted in response to a request by Senate Banking Committee Chairman Edwin Garn (R-Utah), evaluated block grant programs in 73 communities, including Montgomery County, Md., and Arlington County, Va.

Low-income renters are experiencing serious problems finding adequate, low-cost housing, yet most communities spent more money in the last three years on homeowner rehabilitation programs than for rental rehabilitation, the GAO reported. The number of rental units affordable to households with incomes below $10,000 dropped by 5.6 million between 1977 and 1980, while the number of renters with incomes below $10,000 fell by only 1.8 million.

Of those rental units rehabilitated, the average cost for repairs per unit in 71 communities was a little more than $7,000, with CDBG money supplying slightly more than half. Rehab costs in New York and Chicago far outdistanced the other communities, averaging $16,571 per unit, with CDBG picking up more than $6,500 of the tab.

Repairs on these rental units often exceeded necessary changes to correct substandard conditions or to extend the useful life of the housing structure, the study says.

One result of the repairs was a jump in rent. Twenty-one out of 22 communities said rent for rehabilitated units increased once repairs were completed, rising between 5 and 50 percent in those communities.

Of the larger sample group, more than 60 percent of the 73 communities had some form of rent constraint, the most popular method being the Department of Housing and Urban Development's fair market (Section 8) rents. Yet, 18 of 22 communities said lower-income renters in their jurisdictions probably could not afford local fair-market rents without additional help.

Most communties did not keep records on tenants after the rehabilitation was completed, but San Diego did. Rent for rehabilitated buildings in San Diego increased 26 percent, on the average, and almost 60 percent of the tenants from the rehabilitated buildings moved within two years.

Communities administering rental rehab programs tend to be concentrated in older areas of the Northeast and West and generally have had little experience in designing, implementing and evaluating these programs. To make grants easier to obtain, these communities generally based their awards on a formula, rather than on a project-by-project basis. This method tends to increase the costs in attracting landlord participation in rental rehabilitation programs, the study found. The result may be windfalls to investors and fewer rehabilitated units.

Montgomery County, however, tailors subsidies to match individual project needs. The county, which provided full and partial loans at interest rates ranging from 0.0 to 11 1/2 percent and spent $1.1 million to rehabilitate 215 rental units, only supplied the subsidy necessary to secure an individual investor for a project, according to the director of the Montgomery County Housing and Community Development Department.

The study concludes that, if the primary purpose of rental rehabilitation was to provide housing for low-income households, then the cost must be controlled or rent subsidies permanently supplied for the rehabilitated unit.

To improve the amount of information available on projects once rehabiliation is completed, the GAO also recommended creation of a program evaluation and congressional oversight committee, with project owners or local governments collecting demographics, local governments reporting periodically to the Department of Housing and Urban Development and HUD reporting to Congress with the consolidated information.