Maximizing rental income and quality: The RAD/Section 18 blend explained

The Rental Assistance Demonstration (RAD)/Section 18 blend positively impacts public housing by increasing rental income through higher Section 18 rents and supports better financing options for new construction and rehabilitation projects. This blend offers public housing authorities (PHAs) greater flexibility in converting units, leads to improved housing quality for residents and streamlines administrative processes by allowing submission of one application to the Office of Recapitalization, which coordinates with the Special Applications Center. In addition, both Rental Assistance Demonstration Program (RAD) and Section 18 units are covered under a single contract. By leveraging these benefits, PHAs can enhance financial stability and provide better living conditions for their communities.

In 2012, the U.S. Department of Housing and Urban Development (HUD) launched RAD. This voluntary program allows PHAs to convert Section 9 subsidies to Section 8. Section 18 of the U.S. Housing Act of 1937 directs Public Housing Authority actions to demolish or dispose of a public housing project. In 2018, HUD introduced the RAD/Section 18 blend, which combines RAD and Section 18 activities. By using this option, a percentage of units are converted under RAD while another percentage is disposed of under the Section 18 program. The goal is to create higher rental income for the project, as Section 18 rents, which are set at reasonable rents not exceeding 110% of fair market rents, are generally higher than RAD rents.

The recent advancement of using RAD/Section 18 blends brings more opportunities for PHAs. PHAs can convert to Project-Based Vouchers (PBV) or Project-Based Rental Assistance (PBRA) using a RAD/Section 18 blend. This allows the rental assistance to be tied to specific units, rather than tenants. Both RAD and Section 18 units are covered under one RAD Housing Assistance Payment (HAP) contract and a single RAD Use Agreement. All units in a blend conversion are included in a single blended rent schedule and must follow RAD relocation and right-to-return requirements. In a recent update from December 2024, HUD increased the number of units eligible for Section 18 to up to 90% in some cases, providing more units with higher contract rents to support increased financing. This is a big advantage for public housing authorities.

There are two types of RAD/Section 18 blends:

1. RAD/Section 18 construction blend

The percentage of units eligible for Section 18 disposition is based on the hard construction costs for new construction or rehabilitation compared to HUD’s published housing construction costs (HCC) for the market area.

2. RAD/Section 18 small PHA blend

Available to any PHA with 250 or fewer public housing units under its Section 9 Annual Contributions Contract (ACC). PHAs converting through this blend are eligible for 90% of Section 18 units and 10% of RAD units. Requirements include submitting a plan to convert all public housing units and close out the Section 9 ACC. If it is a PBV conversion, the PHA must be a voucher authority, or they must partner with a contract administrator who manages at least 250 housing choice voucher (HCV) units, unless otherwise determined by the HUD field office.

With the increased percentage of Section 18 units available under additional criteria, now is a great time to explore the RAD/Section 18 repositioning path. Baker Tilly has extensive experience working with PHAs across the country on both RAD/Section 18 Construction blends and RAD/Section 18 Small PHA blends. Connect with a team member today.

Source:

• Notice PIH 2024-40 (HA)