Subsidized vs. Non-Subsidized Housing: Understanding the Key Differences

Many renters experience difficulty meeting their financial obligations and high rental fees can put a strain on low-income earners. The U.S. Department of Housing and Urban Development (HUD) administers programs such as the Housing Choice Voucher (HCV) program and subsidized rental projects that reduce the rental rate for low-income households. Income and credit scores play a significant role in qualifying for a lease and non-subsidized units.

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People with low and moderate incomes may qualify for a government program to help them find an affordable place to live. Housing acquired through such a program is known as subsidized housing. Non-subsidized housing comprises the homes for rent on the open market.

Subsidized Housing Meaning

Subsidized housing is housing that's acquired with the assistance of a government housing program. These programs are usually administered by the Department of Housing and Urban Development. If you qualify, then the government will pay a percentage of your rent to the landlord, or give indirect assistance through some form of tax break.

Another type of subsidized housing is nonprofit cooperative housing complexes, commonly known as projects. These homes are offered to elderly and disabled people and families on a low income at heavily discounted rents.

Understanding Direct Subsidies

The HCV program provides a monthly payment on behalf of the tenant. Applicants must meet strict guidelines regarding income, resources and assets, for example, to qualify for the program. Approved units must meet guidelines regarding the physical condition and leasing agreement. Tenants may decide to move and use the voucher for a new leasing contract.

The HCV program also offers recipients the opportunity to purchase a home. The subsidy continues over a specific period – 15 years, for example – of an approved mortgage.

Subsidized rental projects are typically owned by the public housing authority, which rents units to applicants who meet the guidelines. Applicants must meet the income qualifications and possess a steady income. Once the tenant decides to move, the subsidy remains with the property.

Ins and Outs of Indirect Subsidies

The Low Income Housing Tax Credit (LIHTC) program provides an indirect subsidy in the form of tax breaks. This program encourages developers in the private sector to offer a percentage of rentals to tenants who meet the guidelines. The federal government awards tax credits to qualified developers who, in turn, sell the credits to investors to raise funds to finance the real estate, according to HUD. As a result, the developer can offer rentals at a rate below market due to savings.

Understanding the Unsubsidized Market

Properties within the unsubsidized market are basically your regular private rentals at rental rates comparable to the surrounding market. Market rentals do not offer direct or indirect subsidies. Tenants must qualify by meeting the minimum annual income and credit requirements.

Typically, renters with strong credit scores and reliable, equitable employment are qualified for the unsubsidized market, but some unsubsidized properties may offer a break in the form of a reduction. Unsubsidized and reduced properties supply units at a rate slightly below market. These properties may have the same credit and income requirements as market units. Renters who cannot afford market rent but do not qualify for subsidies have an option for decent housing.