Just over a decade ago, the Department of Housing and Urban Development (HUD) proposed a simple but untested concept for boosting badly needed repairs to public housing. Take the same amount of underfunded public housing subsidies and convert them to project-based Section 8 contracts. Let those contracts leverage debt and equity just as other forms of assisted multifamily housing do. See what results.

Patrick Costigan
Patrick Costigan

That was the RAD bet—literally—or the Rental Assistance Demonstration, which has paid off way beyond initial expectations. Some recent HUD highlights from 10 years of RAD practice:

  • Public housing conversions have so far preserved and produced more than a quarter of a million low-income housing units with stably funded, long-term RAD Section 8 contracts. An additional 185,000-plus units are under application;
  • These conversions have yielded $19.2 billion in construction investment. Aided by newer RAD-Section 18 blends, recent average hard-cost expenditures exceed $252,000 per unit—enabling 12% of RAD conversions to support replacement housing construction;
  • Financing has included $9.5 billion in debt and another $11.5 billion in low-income housing tax credit (LIHTC) equity—much as other low-income housing; and
  • RAD has created over 365,000 direct and indirect jobs in cities and rural areas. New construction is happening in lower-poverty neighborhoods giving residents access to better schools, jobs, and amenities.
Greg Byrne
Greg Byrne

Demonstrated Success and ...

While RAD has more than proven itself, its uptake has recently slowed. Annual closed conversions have decreased from a pre-pandemic high of about 34,000 units to less than half that in 2023.
Why? Possibly the residual impacts of the pandemic. Perhaps the limited capacities of the small to midsize housing authorities (HAs) hesitant about moving from annual—if uncertain—enterprise-level grant funding to asset-based subsidies even if more stable. Maybe the conditions of the yet-to-be converted stock have made them too difficult to redevelop. Two underlying reasons compound matters:

  • Obsolete Projects. There are more than 200,000 public housing units constructed between 1930 and 1950 that are still in service today. They’re plagued by mid-20th century designs, construction standards, and mechanicals. Apartments are cramped with single baths, no air conditioning, and numerous health and safety issues. Many properties are poorly located and often riddled with environmental hazards. These conditions leave well over one-fifth of the remaining public housing stock either physically or functionally obsolete, requiring replacement or creative substantial rehab; and
  • Insufficient Rents. There’s also RAD’s initial “no additional cost” stricture by Congress that bases rents on inadequate public housing appropriations. As a result, the weighted average of RAD rents across markets remains about 88% of the fair market rents (FMRs) provided to other Section 8-based housing. While plenty of HAs have rents near or higher-than-average RAD rents, too many have lesser, unworkable rents. To help get at higher-cost projects, HUD in recent years nimbly tapped Section 18 Demo/Dispo authority to combine companion tenant protection vouchers (TPVs) set at market standards with RAD rents. Yet in most cases, blended rents still fall short of assisted housing FMR levels.

Extending the Reach

In a decade of practice, RAD has generated billions in additional capital for basic improvements as originally intended, and then some. It has also shown its limits in tackling the remaining public housing inventory, underscoring what it will take to fully restore and preserve it. Three priority actions are called for:

  • Obsolete housing should be considered obsolete. Instead of requiring expensive engineering analyses to determine obsolescence, HUD should recognize all public housing older than 50 years as de facto functionally obsolete. Other buildings determined as physically obsolete by local standards should be accepted by HUD as just that. Streamlining obsolescence approvals and award of companion FMR-based TPV awards can produce HUD efficiencies and reduce soft costs and construction timelines that enhance financial leverage;
  • All HUD-subsidized rents should be to FMR standards. While cleareyed about its limitations, HUD accepted a neutral-cost deal for RAD after failing to win FMR-level rents for public housing conversions with a bailout-fatigued Congress on the heels of the 2008-10 financial crisis. HUD decided then that it was better to start and show that even lesser-funded Section 8 contracts could generate substantial capital leverage for HAs, which they had been historically constrained in seeking. With that amply demonstrated, Congress should now enable HUD to mark RAD conversions to market, including appropriate adjustments for RAD’s early adopters. Doing so will capture substantially more leverage for supporting deeper-needs redevelopment; and
  • Additional capital. Beyond operating subsidies, all housing serving very low-income households requires a large measure of low-cost capital to pencil out. As HAs and their partners provide most of this housing, they are increasingly a stronger voice in seeking additional funds. They pushed for new green housing subsidies included in the recent infrastructure bill. They amplify calls for Congress to pass long-advocated expansion of LIHTCs and tax-exempt bond authority as well as to states and localities to redirect funding aligned to growing needs for homeless and actual workforce housing.

Next Step(s)

Focusing on physically and functionally obsolete properties as outlined above seems a good strategic next step. These developments have exorbitant energy and maintenance costs. Their land value and nearby property values are typically depressed given their chronic disrepair, which residents most directly endure.

Yet redeveloping them in a focused manner, particularly in mixed-income and mixed-use contexts, yields efficiencies and financial and social benefits. Capital leverage is typically maximized in large, multiphase developments, which also promise steady jobs; a rise in local tax receipts; and residents are afforded enhanced opportunities and improved safety and health outcomes.

Replacing obsolete housing is not an unmeetable cost. As Congress is mandated to provide them; funding for needed TPVs at 100% FMRs is an annual budget line item. That amount is offset by reduced public housing operating and capital fund expenditures when properties are converted to Section 8 contracts. Available development capacity and gap funding across markets further pace demand and actual outlays.

Given the payoff on RAD’s initial bet, now augmenting its cost-neutral deal in smart, strategic steps so that converted public housing is funded and can perform like all other HUD-assisted housing seems another good—and fair—bet to make.