HUD’s New Demo/Dispo Notice Could Be a Game-Changer for Combining RAD & Non-RAD PBVs

HUD issued a notice in March updating its policies regarding demolitions and dispositions of public housing (Section 18 demo / dispos).  See HUD Notice PIH 2018-04.  While the notice discusses several aspects of demo/dispo policies, one of the biggest updates in policy is to the allowable justifications for disposition.  This notice supersedes HUD Notice PIH 2012-7, which had greatly limited the allowable justifications, basically allowing approvals only if justified by obsolescence.  The justifications set forth in the new notice create some exciting possibilities, particularly for PHAs contemplating RAD conversions. 
Among the policies set forth in the new notice, HUD will approve Section 18 disposition for:
  • 25% of a project converting through RAD.  Previous HUD policies had tried to keep Section 18 dispositions and RAD conversions separate. Since RAD rents are generally lower than rents allowed under the traditional project-based voucher (PBV) program, PHAs have been trying to find ways to boost NOI of RAD projects, including using Section 18 to generate tenant protection vouchers (TPVs), then combining RAD and non-RAD PBVs in a project.  This notice provides a way to do just that.  It green-lights Section 18 approval for up to 25% of a project if the rest of the project is going through RAD and substantial rehabilitation or new construction is planned without the use of 9% LIHTCs. 
  • PHAs with 50 or less public housing units.  HUD will approve Section 18 dispositions to close out a PHA’s public housing stock, whether it is a small PHA with 50 units or less in total or a larger PHA that has converted its other units through RAD and has only 50 units or less remaining. 
  • Scattered site units.  Non-contiguous buildings, each with four or fewer units will be approved. 
  • Projects where re-development provides increased efficiency.  This justification disfavored under previous policies, PHAs may now argue redeveloping certain projects into project-based rental assistance (PBV or PBRA) allows them to be operated more efficiently, benefiting residents.  However, if a PHA uses this justification, HUD will limit the availability of TPVs to only 25% of the project. 
It is worth noting that Section 18 disposition approval does not automatically result in TPV approval.  TPVs must be applied for separately, are limited to occupied units, and are not guaranteed.