Affordable Housing Finance

HOUSING POLICY

Washington Update

HUD Releases Draft of Bill for Rental Housing Initiative

AFFORDABLE HOUSING FINANCE • June 2010

BY BARRY G. JACOBS

The Department of Housing and Urban Development (HUD) has released a draft of its transforming rental assistance (TRA) legislative proposal to allow public housing authorities (PHAs) and other owners of subsidized housing to convert to longterm Sec. 8 assistance through projectbased vouchers (PBVs) or a new project- based contract (PBC) program.

The administration included $350 million in its fiscal 2011 budget for the first phase of the program, which would cover the conversion of an estimated 300,000 units.

The TRA program would be authorized through a new Sec. 8(m) of the U.S. Housing Act of 1937, and terms for the PBCs would be established through a new Sec. 8(n). The legislation would also revise the PBV program in Sec. 8(o) (13) to accommodate the transformation initiative.

The legislation includes a tough one-for-one replacement requirement if a conversion reduces the number of subsidized units in a project through, for example, demolition or conversion to market-rate housing in a mixed-income project.

There could be no overall reduction in the number of families receiving rental assistance, and most units removed from the subsidized inventory would have to be replaced with hard units. If the market has consistently high vacancy rates and vouchers are easy to use, including in neighborhoods of opportunity, an owner could replace up to half of the converted units with tenant-based vouchers. However, HUD estimates that fewer than 10 percent of current project-based units would meet these criteria.

Replacement housing would have to reflect the number of bedrooms needed to adequately serve returning tenants, applicants on waiting lists, and future housing needs. Off-site replacement units couldn’t be located in areas of minority concentration or in areas of extreme poverty, except in revitalizing neighborhoods.

Owners of converting properties would have to agree to serve income-eligible tenants at affordable rents for specified periods. Converting public housing would be subject to at least a 30-year use agreement, and other properties would be subject to use agreements for the remaining term of any prior restriction or the term of the rental assistance contract, whichever is longer.

Owners who choose not to renew the rental assistance contract after the expiration of the use agreement could not sell their property without giving HUD or its assignee an option to purchase. This option wouldn’t apply to projects converted from a projectbased Sec. 8 program with a long-term contract except by mutual agreement. Tenants of properties converted under Sec. 8(n) would get vouchers if a contract isn’t renewed.

Sec. 8(n) contract terms would be 20 years for converting public housing projects and at least the term remaining on the existing contract, or up to 20 years, for other properties. Contracts could be extended for up to 20 years.

Sec. 8(n) rents would be set at the level requested by the owner, up to the rents for comparable units. Rents generally couldn’t exceed 110 percent of fair market rent, though HUD could approve rents up to 120 percent of comparable market rents. Below-market rents would be permitted for projects that are physically and financially viable at such rents. Contract rents would be adjusted annually and re-benchmarked to market at least once every five years.

For properties converted to projectbased vouchers, PBV assistance could be provided for the greater of 25 percent of the units or 25 units. The limit wouldn’t apply to properties serving elderly families or households eligible for onsite comprehensive social services. The maximum PBV contract term would be extended from 15 to 20 years, to provide uniformity with Sec. 8(n).

Residents of properties converted to Sec. 8(n) contracts would have the right to move after a period of at least 24 months, subject to the availability of funds. PHAs administering vouchers as well as public housing would have to make up to one-third of their turnover vouchers available to families who exercise their mobility option. The current right of tenants with PBV assistance to move after one year with the next available voucher wouldn’t change.

HUD drops hold-harmless policy

HUD has dropped its hold-harmless policy for Sec. 8 income limits effective with the release of the fiscal 2010 limits for its housing subsidy programs.

The hold-harmless policy ensured that income limits wouldn’t go down in an area even if HUD’s formula for calculating the limits indicated a reduction. The department announced last year that it would end the policy in 2010.

In eliminating the hold-harmless policy for Sec. 8, HUD said it will limit any reductions in income limits to 5 percent per year. In addition, the maximum annual increase in the income limits will be the greater of 5 percent or twice the change in the national median family income.

The hold-harmless policy for lowincome housing tax credit and bondfi nanced projects will remain in effect since it was established by a statute in the Housing and Economic Recovery Act of 2008.

Barry G. Jacobs is editor of Housing and Development Reporter, the nation’s premier source for in-depth, factual coverage of all aspects of affordable housing and community development. The two-part publication includes informed reports and insightful analyses in “HDR Current Developments,” and an up-to-date compilation of essential documents in the “HDR Reference Files.” Jacobs is also the author of the annually updated HDR Handbook of Housing and Development Law. For more information, call (800) 723-8077.