The Rental Assistance Demonstration (RAD) program is leveraging $9 in capital for every $1 of public housing funds, according to a new assessment of the federal program.
Authorized in 2012, RAD allows public housing authorities (PHAs) to convert their public housing units to project-based Sec. 8 contracts, a move that provides the properties with a more stable and long-term funding platform. This is critical because it puts the housing authorities in a better position to leverage additional financing to perform needed capital improvements.
“I was pleased the report confirmed my gut instinct, which is the concept of RAD is working,” says Tom Davis, director of the Department of Housing and Urban Development’s (HUD’s) Office of Recapitalization. “The second point that is noteworthy is the nine-to-one leverage for every dollar of public housing funds. That’s a high-leverage ratio.”
RAD comes at a time when approximately 10,000 distressed public housing units are removed from operation each year. A 2010 study prepared for HUD estimated the backlog of capital needs among the nearly 1.2 million public housing units to be approximately $26 billion, with each subsequent year accruing an additional $3.4 billion in capital needs. Federal appropriations have been unable to keep pace with these growing capital needs.
RAD is an important tool to help the nation deal with its affordable housing crisis, according to Davis.
“The bottom line of the report—that this is an approach that makes sense and is working in this budget-constrained environment that we’re in—is really powerful,” Davis says.
Through fall 2015, 423 PHAs submitted 1,078 applications for RAD conversion. This is 14% of all PHAs and 16% of all public housing developments, according to HUD’s Rental Assistance Demonstration Interim Report.
HUD has made awards up to the 185,000-unit cap set by Congress, and thousands of units are on a waiting list.
The interim report also found that:
- As of October 2015, 185 projects with 19,255 public housing units had reached closing—completed the conversion process—with $2.5 billion in financing;
- Of the $2.5 billion in total financing, only $250 million came from public housing funds;
- 63% of RAD projects studied are undergoing some level of rehabilitation;
- 19% of RAD projects are being demolished and rebuilt;
- 18% of RAD projects do not have immediate capital needs but are converting for other reasons such as establishing a strong capital reserve;
- On average, the closed projects studied in the report are undergoing $60,877 per unit in construction costs; and
- RAD is most popular with large and medium PHAs (those with at least 250 public housing units). Only 8% of small PHAs are participating compared with 29% of medium PHAs and 48% of large PHAs.
While the interim report focuses on activity through last fall, HUD has continued to complete RAD conversions. The number of units that have reached closing is now approximately 39,500.
In fiscal 2017, HUD is requesting that Congress eliminate the current 185,000-unit cap on public housing units that can convert without additional HUD subsidy. Eliminating the cap will allow every PHA that wishes to participate the opportunity to leverage capital, as this report has demonstrated is possible. The report also highlighted that some public housing properties with more serious capital needs will not be able to be sufficiently improved without additional subsidy, which is why HUD is also proposing to provide $50 million to help local public housing agencies finance the deeper recapitalization of tens of thousands of units of public housing.
A second phase of HUD’s evaluation will focus on how successful RAD is at improving the physical and financial conditions of federally assisted properties and how tenants have been impacted. The report will also update findings from the interim report as more data becomes available.
