HUD program expansion may lead to surge in housing bond issuance

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Affordable housing advocates are predicting a surge in the use of tax-exempt multifamily housing bonds from a new federal initiative to rehabilitate senior citizens housing.

The U.S. Department of Housing and Urban Development said Thursday it is expanding the Rental Assistance Demonstration program to Section 202 PRAC units that house senior citizens. Congress authorized the expansion in the 2018 fiscal year budget.

RAD is becoming increasingly used as part of financing packages that include private activity bonds for multifamily housing.

HUD estimates that 120,000 units at 2,800 properties will be eligible.

“I certainly don’t think all of them will do it, but a think a pretty healthy chunk of them will try to go through the multifamily bond and housing credit program,” said Garth Rieman, director for housing advocacy and strategic initiatives for the National Council of State Housing Agencies. “There’s no way to pin down a number, but I think it will be significant.”

There were 54,517 multifamily housing units either constructed, acquired or rehabilitated with tax exempt PABs in 2017, up from 36,485 units in 2014, according to Rieman’s organization.

Rieman said the increasing interest will put additional pressure on Congress to increase the volume caps for states issuing PABs for multifamily housing projects, funding for home projects and limits on Section 8 rental assistance.

The Rental Assistance Demonstration (RAD) was an Obama administration initiative to address the estimated $25.6 billion backlog in unmet capital needs in the public housing program by allowing local public housing authorities to convert their properties to either Section 8 Housing Choice Vouchers or Section 8 project-based rental assistance.

“PHAs are limited in their ability to mortgage, and thus raise private capital for, their public housing properties because of a federal deed restriction placed on the properties as a condition of federal assistance,” the nonpartisan Congressional Research Service noted in a report last month.

“When public housing properties are converted under RAD, that deed restriction is removed,” CRS said. “As currently authorized, RAD conversions must be cost-neutral, meaning that the Section 8 rents the converted properties may receive must not result in higher subsidies than would have been received under the public housing program. Given this restriction, and without additional subsidy, not all public housing properties can use a conversion to raise private capital, potentially limiting the usefulness of a conversion for some properties.”

While RAD conversions have been popular with PHAs and HUD’s initial evaluations of the program have been favorable, a recent U.S. Governmental Accounting Office study has raised questions about HUD’s oversight of RAD. GAO also raised questions about how much private funding is actually being raised for public housing through the conversions.

RAD, as first authorized by Congress in the 2012 fiscal year HUD appropriations law, was originally limited to 60,000 units of public housing.

Congress expanded the program to 455,000 units of public housing the 2018 fiscal year budget and further authorized an expansion of the program so that Section 202 Housing for the Elderly units can also convert.

Thursday’s announcement by HUD implements that expansion.

President Trump’s proposed 2020 budget requests that the cap on public housing RAD conversions be eliminated completely.

Congress, however, has not completed work on the 2020 budget for the fiscal year that starts Oct. 1.

Rieman wouldn’t predict whether Congress will remove the cap on RAD, but said some increase in the RAD program is likely.

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Private activity bonds Multifamily Tax-exempt bonds HUD Washington DC