RAD Notices Expand Preservation Tools for Low-Income Housing

In 2012, as part of the FY 2012 HUD Appropriations Act, Congress authorized the Rental Assistance Demonstration (RAD) to help preserve and improve low-income housing. Administered by HUD’s Office of Multifamily Housing Programs, RAD allows public housing agencies (PHAs) and owners of private, HUD-assisted housing to leverage Section 8 rental assistance contracts in order to raise private debt and equity for capital improvements.

RAD has two components. The first deals with public housing and the Moderate Rehabilitation (Mod Rehab) program; the second pertains to the Rent Supplement (Rent Supp) program, Rental Assistance Program (RAP), as well as the Mod Rehab program.

First Component

RAD is a voluntary demonstration program. The first component initially allowed up to 60,000 units of public housing and Mod Rehab program units to compete for permission to convert their existing federal assistance to project-based Housing Choice Vouchers (PBVs) or to Section 8 project-based rental assistance (PBRA) by Sept. 30, 2015. HUD proposed to limit the number of Mod Rehab units converted under the component to 1,250 units.

The FY 2015 Appropriations Act raised the cap on the number of public housing and Mod Rehab units that can be converted from 60,000 to 185,000 units and extended the deadline for PHAs to apply for RAD conversion. On Dec. 9, 2015, HUD announced that RAD reached its 185,000 unit limit, having given preliminary approval for 185,000 public housing units, the maximum allowed by Congress, to convert to either PBVs or to PBRA. At that time HUD had a waiting list of 10,946 public housing units that could be considered for RAD conversion if some of the projects with preliminary approval were withdrawn or revoked. The FY 2017 Appropriations Act further raised the cap on the number of units that could be converted under RAD to 225,000 and extended the application deadline to Sept. 30, 2020.

Once converted under RAD, the amount of the public housing Capital Fund and Operating Fund a specific development had been receiving is used instead as PBVs or PBRA. PHAs considering RAD can choose to convert public housing units to one of two types of long-term, project-based Section 8 rental assistance contracts. Project-based vouchers are Housing Choice Vouchers that are tied to specific buildings; they do not move with tenants as regular “tenant-based” vouchers do. If public housing units are converted to PBVs, the initial contract must be for 15 years (but could be up to 20 years), and must always be renewed. HUD’s Office of Public and Indian Housing (PIH) would continue to oversee the units. If units are converted to PBRA, the initial contract must be for 20 years and must always be renewed. HUD’s Office of Multifamily Programs would take over monitoring.

Voluntarily converting some public housing to Section 8 may be advantageous due to Congressional underfunding of public housing. Underfunding leads to deteriorating buildings and the loss of units through demolition. If a long-term rental assistance contract is tied to a property, private institutions might be more willing to lend money for critical building repairs. Congress is more likely to provide adequate funding for existing Section 8 contracts than for public housing. Therefore, some units that were public housing before conversion will remain available and affordable to people with extremely low and very low incomes because of the long-term Section 8 contract.

Second Component

There is no limit to the number of units that may be converted under the second component, and there is no competitive selection process for it. The FY 2015 Appropriations Act permanently extended the ability to convert under the second component. With this component, owners of Mod Rehab properties have an alternative to the competitive process of the first RAD component. They may seek HUD permission to convert Enhanced Vouchers (EVs), which tenants are entitled to when a Mod Rehab contract expires, to PBVs.

The second RAD component initially allowed Rent Supp, RAP, as well as Mod Rehab projects to convert tenant protection vouchers (TPVs) to PBVs if a property’s contract expired or terminated due to mortgage prepayment after Oct. 1, 2006, or before Dec. 31, 2014.

The FY 2015 Appropriations Act eliminated the Dec. 31, 2014, deadline, permanently extending the ability to convert under the second component. The FY 2015 Appropriations Act allowed properties with contracts that have not expired or terminated to convert to PBRA or PBV.

Owners must notify residents of an intent to convert TPVs. There must be a briefing to inform residents about the differences between PBVs, PBRAs, and EVs (for Mod Rehab) and TPVs (for Rent Supp and RAP), including different rights, potential impact on rent payments, and mobility provisions. Residents must be informed that they may remain in their unit with an EV or TPV and cannot be forced to move for rejecting a PBV or a PBRA. Residents must have an opportunity to comment at the briefing.

Notice to Implement FY 2018 Appropriations Act Provisions

The first of two notices HUD recently released implements certain provisions from the FY 2018 Appropriations Act, namely:

Cap increase. The notice officially raises the RAD first component cap to 455,000 units and extends the application deadline to Sept. 30, 2024. PHAs on the waitlist that have submitted Letters of Intent have 60 days to submit a full RAD application.

Increased rent. The first notice explains that any of the 125,000 units currently on the RAD waitlist that HUD approves for conversion before Jan. 1, 2019, will have contract rents based on those units’ FY 2018 Capital Fund Formula Grant, the FY 2016 Operating Fund level, and tenant rents. RAD conversions that HUD approves after Jan. 1, 2019, will have contract rent levels based on those units’ FY 2018 Capital Fund, FY 2018 Operating Fund, and tenant rent levels.

In addition, PHAs that have RAD awards based on an earlier RAD rent base year (e.g., FY12, FY14, or FY16) may withdraw a project and reapply to obtain RAD rents based on the policy in place at that time. For example, if the withdrawal and reapplication take place after Jan. 1, 2019, the project may secure FY 2018 RAD rents. Consistent with the FY 2018 Appropriations Act, the first notice allows multi-phase RAD awards made after March 22, 2018, to submit an application for the final phase by Sept. 30, 2024.

No rescreening, comparable market rents. For “Second Component” RAD conversions that apply to the Rent Supp, RAP, Mod Rehab, Single Room Occupancy (SRO), or Section 202 PRAC programs, this notice clearly states that current households cannot be rescreened or evicted because they were over-income at the time of the conversion. In addition, Rent Supp and RAP properties converted under RAD to PBRA that are in HUD-defined high-cost areas will have initial rents set at comparable market rents.

Supplemental Guidance Notice

The second notice, FR-6106-N-01 (Housing Notice 2018-05 /PIH-2018-11) supplements the existing RAD Notice PIH 2012-32/H-2017-03 REV3 and formally announced five additional changes to the RAD program.

Expanded rent-bundling. The RAD rent-setting flexibility applied to multiple projects referred to as “rent bundling” is expanded to allow PHAs to blend the subsidy between RAD PBVs and non-RAD PBVs. The rents of non-RAD PBVs are reduced by the equivalent increase of the RAD PBV rents. PHAs can now take the total budget authority available from RAD and non-RAD PBV sources and more simply distribute it in a way that makes the most sense. 

Utility allowances. PBV owners now join PBRA owners in being able to boost rents from post-rehab utility savings. PHAs may establish project-specific utility allowances for RAD projects. If conversion results in the reduction of utility costs, the RAD contract rent paid to the owner may be increased by a portion of the utility savings. Owners of projects with only RAD PBV units can make an election; owners of PBV projects that include RAD and non-RAD units must first request a PBV waiver.

Homeless preference fee boost. HUD will allow a 25 percent increase in the allowable development fee for owners who adopt a waitlist preference for households exiting homelessness or permanent supportive housing (PSH). The preference must apply to at least 25 percent of a property’s units. The homeless or PSH households must be referred by the Continuum of Care (CoC), and the PHA or owner must have an agreement in place with the CoC.

RAD/Section 18 combo rules. The demolition and disposition of public housing is authorized under Section 18 of the Housing Act of 1937. For projects using a Section 18-RAD combo, the notice reaffirms RAD’s one-for-one unit replacement requirement (subject to the de minimis allowance) and requires RAD relocation and right-to-return protections. In other words, HUD won’t approve a proposed RAD conversion if a PHA intends to use Section 18 regulations to dispose of other units at the project that would have the effect of undermining RAD’s basic one-for-one unit replacement policy. Also, if a PHA is seeking Section 18 approval to dispose of 25 percent of the units at a project so that 100 percent of the units rehabilitated or replaced through RAD can be operated under project-based assistance, RAD relocation rules apply to residents of Section 18 units, including resident notice and meeting requirements, the right to return, and receipt of relocation assistance and payments.

Streamlined small PHA conversion process. Very small PHAs with fewer than 50 units will have a streamlined conversion process if certain eligibility requirements are met:

• The RAD conversion or Section 18 disposition or demolition will remove all the PHA’s public housing units;
• The RAD conversion doesn’t involve any rehabilitation, new construction, or relocation; and
• The PHA has an overall Public Housing Assessment System (PHAS) score of at least 75, has a Physical Assessment Sub-System (PASS) score of at least 30, and doesn’t have a PHAS “substandard” designation or a PHAS Capital Fund “troubled” designation.