The National Housing Law Project (NHLP) prepared a memorandum that reviews and analyzes the long-term affordability provisions of the Rental Assistance Demonstration (RAD). Although the statute authorizing RAD clearly intended for public housing units to remain affordable after converting to Section 8 rental assistance, NHLP indicates that there are two significant risks to long-term affordability. One is the danger of Congress failing to appropriate sufficient Section 8 funds. The other risk is that a Housing Assistance Payment (HAP) contract is terminated due to foreclosure or the owner’s breach of contract.
RAD is intended to preserve and improve low income housing by enabling public housing agencies (PHAs) to leverage Section 8 rental assistance contracts to raise private debt and equity for capital improvements. RAD has two components. The first allows up to 185,000 public housing units to be converted from their existing public housing assistance to project-based Housing Choice Vouchers (PBVs) or to Section 8 project-based rental assistance (PBRA) by September 30, 2018.
The second component allows private properties assisted through the Rent Supplement (Rent Supp), Rental Assistance Program (RAP), and Moderate Rehabilitation (Mod Rehab) programs to convert an unlimited number of Tenant Protection Vouchers (TPVs) to PBRA, or as of the FY15 Appropriations Act, to PBVs. In addition, the FY15 Appropriations Act allows Mod Rehab Single-Room Occupancy (SRO) properties funded under the McKinney-Vento Homeless Assistance Act to convert to PBV or PBRA.
NHLP’s memorandum focuses on public housing RAD conversions. It lists five key RAD documents that contain long-term affordability protections for converted projects and the tenants living in them. They are the statute, Notice PIH-2012-32 REV-2, the RAD Use Agreement (Form 52625), the Housing Assistance Payments Contract for Project-Based Section 8 (Forms 52620 and 52618), and the RAD Rider to the Section 8 Project-based Voucher Assistance Contract (Form 52621). The memorandum states that the Use Agreement between the owner and HUD and the HAP contract are the two primary mechanisms for implementing the long-term affordability requirements. The memorandum describes each.
HUD is required to offer to renew PBV or PBRA contracts when they expire after 15 or 20 years, and that the owner is required to renew contracts. In addition, converted public housing developments must be owned by a public entity or a nonprofit. However, a for-profit entity may own a development if RAD conversion involves use of Low Income Housing Tax Credits, but only if the PHA retains a strong interest in the property.
NHLP stresses that these protections are not absolute guarantees. Affordability could be compromised if Congress fails to provide adequate Section 8 funding, or if HUD terminates a HAP contract due to an owner’s breach of contract. The memorandum focuses the latter. If an owner defaults on a contract, HUD may transfer the HAP contract, along with the Use Agreement, to another entity for use at another property, or HUD may terminate the HAP contract. When the HAP contract is terminated, new owners are subject only to the Use Agreement’s default affordability requirements, which only require rents be no greater than 30% of 80% of the area median income, a rent level that few residents of RAD-converted public housing units could afford. NLIHC identified this problem with the proposed RAD Notice (see Memo, 4/27/12).
Finally, NHLP points out that while most public housing tenants whose homes convert to PBV or PBRA under RAD will continue to pay 30% of their adjusted income for rent, some may experience different rent levels as a result of a change in utility allowance for tenant-paid utilities. Some residents who live at tenant-metered public housing properties will experience a change from the public housing utility allowance level to the utility allowance levels used for PBV or PBRA properties. In some instances, a public housing development that has an owner-paid master-meter utility system may switch to a tenant-meter system as a result of RAD-financed substantial rehabilitation or new construction, which could lead to tenants paying more for rent, even with a utility allowance.
NHLP’s memorandum is at http://nhlp.org/files/NHLP-RAD_LTAffordability%20%28final%29.pdf
Basic information about RAD prior to REV-2 is on page 4-21of NLIHC’s 2015 Advocates’ Guide, http://nlihc.org/sites/default/files/Sec4.07_Public-Housing-Rental-Assistance_2015.pdf