An updated HUD Notice, PIH 2021-17, revises guidance on the public housing demolition and disposition authority pursuant to Section 18 of the U.S. Housing Act of 1937, known as “Section 18.” Up to 80% of units in a Rental Assistance Demonstration (RAD) project may now be eligible for Section 18 authority. Section 18 units generate Tenant Protection Vouchers (TPVs), which typically can be project-based with rents at up to 110% of the area’s Fair Market Rent (FMR), instead of more-limited RAD rents, subject to certain limitations.
The updated notice has two new key components: (1) More units in projects meeting hard construction cost thresholds are eligible for Section 18 and (2) a new option for public housing authorities (PHAs) with fewer than 250 units makes up to 80% of that PHA’s units eligible for Section 18.
Since 2018, RAD projects planning substantial rehabilitation have been eligible to receive Section 18 authority, and therefore TPVs, which can be project-based at rents up to 110% FMR. This has been known as the 75-25 blend, because projects have gotten RAD rents for 75% of their units and Section 18 authority for 25% of their units if their rehab costs were at least 60% of the HUD-determined Housing Construction Cost (HCC) amount for a given jurisdiction. The updated guidance increases eligibility from 25% to 40% of units at this rehab threshold.
Projects involving more rehabilitation could get more Section 18 units. Rehab equal to 90% of the HCC would allow 60% of units to receive Section 18 in most areas. In “high-cost areas,” 80% of units could be eligible for Section 18. High-cost areas are defined as those where the local HCC exceeds 120% of the national average.
In addition, projects doing less rehabilitation are now also eligible for Section 18. Projects with hard construction costs of at least 30% of the HCC can receive Section 18 for 20% of their units.
RAD/Section 18 blends would continue to be processed primarily through HUD’s Office of Recapitalization (as the 75/25 blends had been).
A new authority allows PHAs with 250 public housing units or fewer to receive Section 18 authority, and therefore TPVs, for up to 80% of units in a RAD project. This conversion must be part of a plan to close out the PHA’s public housing portfolio. This creates a new option for PHAs currently exploring HUD’s Streamlined Voluntary Conversion program (also known as “Section 22” or “SVC”). While SVC converts public housing assistance to tenant-based vouchers and requires a PHA to take particular steps to secure tenant consent to project-basing, this new RAD-Section 18 option may allow PHAs to convert directly to project-based assistance.
The boost from these new tools also comes shortly after HUD announced the 2020 RAD rents, which generally increased RAD levels from the previous 2018 levels.
The foregoing has been prepared for the general information of clients and friends of the firm. It is not meant to provide legal advice with respect to any specific matter and should not be acted upon without professional counsel. If you have any questions or require any further information regarding these or other related matters, please contact your regular Nixon Peabody LLP representative. This material may be considered advertising under certain rules of professional conduct.