Patrick Costigan
Patrick Costigan

When he took over as secretary of the Department of Housing and Urban Development (HUD) in 2009, Shaun Donovan was determined to change the policies that had let our public housing stock—and the political will to support it—so badly atrophy. Its neglect was evident even if the need for it was less appreciated. By then a $26 billion backlog of needed capital repairs to the public housing stock had accumulated, effecting the demolition of over 10,000 units a year from the inventory over the previous decade. Yet as stock was lost, hundreds of thousands of the elderly, disabled, and eligible families continued to seek refuge in public housing, and still do today. Most wait on lists for years for apartments to open up, sometimes in long lines when they actually do. More than 270,000 families are on the waiting list of the New York City Housing Authority alone.

Secretary Donovan believed—along with many others before him, including the Millennial Housing Commission—that a different approach to funding public housing was needed. Given structural budget pressures, just beating the same drum in Congress for increases in enterprise-level funding for public housing’s operating and capital needs year after year wasn’t working. Instead, Donovan pushed to get housing authorities on the same playing field as every other form of affordable housing. He wanted them to be able to fully access private capital and other already-available public funding to maintain and improve their properties when needed. Plus, he insisted on offering public housing residents more options beyond public housing tenancy.

By the end of 2011, Donovan’s pushing, with key stakeholders pulling, resulted in Congress approving the Rental Assistance Demonstration, or RAD. Although it does not fully realize what HUD and stakeholders sought, as a start, RAD does afford housing authorities access to additional capital and offers residents expanded housing choices in the bargain that Donovan sought.

Promising Start

Rolled out in an initial notice in March 2012, with additional authority granted by Congress in early 2015, RAD has enabled housing authorities to convert public housing operating and capital funds to long-term Sec. 8 contracts—no additional funds were appropriated—as the means to generate additional financing resources. As some of the demonstration’s initial applications were given final approval and went to closing within a year’s time, RAD has been effectively at work for three years, we can begin to see how RAD is measuring up to its original charge:

· Housing authorities are readily using RAD—and reasonably quickly. The 185,000 units of available authority—available to approximately 15% of the public housing stock—for converting public housing funds to Sec. 8 contracts has been completely allocated, and the queue is building. What’s more, housing authorities have already closed on financing—many with the array of debt and low-income housing tax credits (LIHTCs) typical of other affordable housing projects—for nearly 30,000 units across 273 projects. This is roughly a 16% sample of RAD’s current authority, and these projects closed at a relatively strong pace, considering that other affordable housing projects take more than a few years to get to closing and that any new initiative must align itself to established financing processes and timelines.

· Cost-neutral RAD Sec. 8 contracts are leveraging substantial debt and equity. Already, over $2 billion in new capital has been raised for hard-cost improvements, net of other soft costs. Extrapolated to all 185,000 units of RAD authority, over $12 billion in capital funding for construction could be potentially generated. Even if less than the extrapolated amount, RAD’s ability to generate billions in new capital resources from only currently available subsidies is beginning to make a sizeable dent in public housing’s capital backlog. By this primary yardstick, RAD is evidencing a remarkable proof of concept.

· Nearly all rehabs are energy efficient. Beyond addressing deferred needs, RAD is also affording housing authorities the ability to make energy-saving improvements in both older properties and new construction of replacement housing. Whether undertaken as part of an initial construction project or addressed more gradually through budgeted reserves, state-of-the art energy improvements help agency and resident budgets along with the environment.

· Even no rehab assures better stewardship of public assets. RAD enables housing authorities to be more proactive stewards of their housing assets well into the future. Over one-third of RAD conversions to date have not required immediate financing. Yet long-term, renewable Sec. 8 contracts require—and for the first time provide agencies the resources—to properly maintain and budget for long-term replacement reserves. They can plan when to recapitalize and upgrade their properties when it makes the most sense. Fewer properties will likely suffer from year-to-year neglect owing to limited capital funds, accumulate capital repair backlogs, and ultimately be lost to demolition. While RAD’s limited scope and resources can’t cure all of what ails the aging public housing stock, it seems to be delivering a strong ounce of prevention.

· Residents seem pleased with refurbished and new units. After enduring years of deferred maintenance, deteriorating apartments, forced relocation due to property triaging and demolition, and/or long waits for hoped-for improvement programs that didn’t materialize, residents seem mostly delighted with the first trickle of newly renovated apartments coming on line under RAD. Although anecdotal so far, resident comments in HUD-compiled case study interviews range from some who were naturally nervous about moving to different locations being thrilled with their new units and property amenities, to those marveling at new kitchens and bathrooms, and excited children writing thank you letters to their housing authorities about their new homes.

· And if residents become less pleased, they have more options. If residents in RAD-converted properties prove unsatisfied or simply need to move for any reason—perhaps for a job opportunity or better school choices—they can do so by requesting a Housing Choice Voucher to move elsewhere after one or two years of tenure. While funding was not available to make this so-called “choice-mobility” provision more manageable for administering agencies, it for the first time affords public housing residents a viable affordable housing option beyond the confines of their current public housing.

· RAD makes better use of available resources. Beyond its statutory requirement to rely only on the current levels of public housing operating and capital funds when converting to Sec. 8 contracts, three in 10 RAD conversions are tapping 4% LIHTCs and tax-exempt bond authority that is not fully used each year in nearly every state. An increasing number of 4% LIHTC transactions are in the pipeline. Plus, over 15% of all transactions are using Federal Housing Administration (FHA) insurance to enhance their financing, which prior to RAD, housing authorities used hardly at all. Making better use of public funding already on the table to help preserve much needed housing is of likely interest to policymakers of all stripes.