Unprecedented recapitalization and redevelopment opportunities for public housing agencies

Public housing agencies (PHAs) just got an extraordinary boost from the Department of Housing and Urban Development (HUD). A recently issued notice expands the blend between Rental Assistance Demonstration (RAD) and Section 18, giving PHAs more options than the previous “75/25 blend” allowed under PIH 2018-04, where 75% of their units in a covered transaction converted under RAD and the remaining 25% converted under Section 18.

The notice comes on the heels of a significant change to the Low-Income Housing Tax Credit (LIHTC) program when the fourth COVID-19 relief act was enacted in late December. The legislation made the credit rate fixed for tax-exempt bond transactions at 4% from the previously floating rate, giving PHAs access to almost 30% more equity in their housing units.

The confluence of the notice and the LIHTC increase is further bolstered by historically low interest rates, in addition to the 2020 RAD rents released by HUD in December which came out with higher-than-expected rents in many cases.

RAD background and breakdown

HUD’s notice expands the popular RAD program, which launched in 2012 “to preserve and improve public housing properties” and tackle billions of dollars of deferred maintenance backlog by leveraging public and private financial sources. As of November 2020, the RAD program had created more than $10 billion in construction investment for the “improvement and replacement” of 140,000 public housing units, according to HUD.

Notice 2021-07 expands the RAD/Section 18 Construction Blend and the RAD/Section 18 Small PHA Blend.

With the construction blend, HUD approves the percentage of units eligible for Section 18 disposition based on its hard construction costs proposed for the construction or rehabilitation of the covered project compared to HUD’s published Housing Construction Costs (HCC) for the market.

Example: For a project completing a $60,000 per unit rehabilitation, equating to 66% of the HUD-published HCC for the market, HUD will approve 40% of the units for Section 18 disposition.

Note:

• Units must be either newly constructed or rehabilitated without the use of 9% LIHTC