Rental Assistance Demonstration is a federal housing program that was enacted as part of the Consolidated and Further Continuing Appropriations Act, 2012,Public Law 112–55, enacted November 18, 2011 and is administered by the United States Department of Housing and Urban Development (HUD). Broadly, the purpose of the Rental Assistance Demonstration (or RAD) is to provide a set of tools to address the unmet capital needs of deeply affordable, federally assisted rental housing properties in order to maintain both the viability of the properties and their long-term affordability. It also simplifies the administrative oversight of the properties by the federal government. Specifically, RAD authorizes the conversion of a property's federal funding from one form to another, where the initial form presents structural impediments to private capital investment and the new form (project-based section 8) is not only familiar to lenders and investors but, since its enactment in 1974, has leveraged billions in private investment for the development and rehabilitation of deeply affordable rental housing.
RAD has been amended by four pieces of legislation: Consolidated Appropriations Act, 2014 Consolidated and Further Continuing Appropriations Act, 2015; Consolidated Appropriations Act, 2016. and Consolidated Appropriations Act, 2017. Initially, Congress capped the number of units that could be converted under RAD at 60,000, but by October 2014 it was reported that HUD had received applications to convert more than 184,000 units. In FY2015 Congress reauthorized RAD and increased the cap to 185,000 units. An independent assessment of the program from its inception through the autumn of 2015 found that, using existing resources of $250 million, the program had leveraged approximately $2.5 billion in capital investment. In FY2017, Congress again reauthorized RAD, once again increasing the cap, this time to 225,000 units. It was raised again in FY2018 to 455,000 units.HUD published a Federal Register notice on August 23, 2017, to address how this increase would be implemented.
Project-based section 8 funding platform HUD administers multiple rental assistance programs. RAD authorizes the conversion of assistance under several of these programs to project-based section 8 assistance, which may take either of two forms: Project-based rental assistance (PBRA) authorized under section 8 of the U.S. Housing Act of 1937Public Law 75–412, enacted September 1, 1937 ("the Act"); or Project-based voucher (PBV) assistance authorized under section 8(o)(13) of the Act. The project-based section 8 funding platform is characterized by a number of features that enable properties assisted under either the PBRA or PBV program to leverage capital investment. From an owner or developer perspective, the four most important features are: The availability of a long-term rental assistance contract (typically 20 years); The expectation that the contract will be funded fully (i.e., at levels specified in the contract), with monthly assistance amounts that are predictable, reliable, and stable over the course of the contract; The option to renew the contract on substantially the same terms; and The reduced administrative burden imposed by HUD. Essentially, a long-term project-based section 8 contract, known as a Housing Assistance Payments (HAP) contract, is something that an owner or developer may "take to the bank" as evidence of the ability to repay borrowed funds. In addition to assuring the borrower's ability to repay, the HAP makes the properties attractive to investors in the federal Low-Income Housing Tax Credit (LIHTC) program, through which equity capital investment is made available. (A default on borrowed funds could otherwise result in recapture of the credits, harming investors.)
The HAP contract also binds the owner to rent to income-qualified (i.e., low-income) households, with the subsidy covering the difference between 30 percent of a tenant's adjusted income and a predetermined and accepted contract rent. Thus a HAP contract enables an owner to serve low-income families, without compromising a property's financial viability.
Funding of PBRA and PBV contracts is subject to annual appropriations. To date, PBRA contracts have always been fully funded, meaning that Congress has never failed to appropriate adequate funds to the PBRA account to cover contracts funded out of that account.PBRA HAP contracts have occasionally been short-funded, with HUD obligating funding for fewer than 12 months out of a particular annual appropriation, but in these cases funding for the remaining months has been picked up in the next appropriation cycle. Even short-funded contracts have been fully funded (i.e., funded at the level specified in the contract). While funding appropriated by Congress for the Housing Choice Voucher (HCV) program (out of which the PBV program is funded) fluctuates from year-to-year, PHAs have every incentive and are in fact contractually bound (by the PBV HAP) to fully fund their PBV HAP contracts, which may leave them with tough choices (e.g., issuing fewer tenant-based vouchersA public housing agency receives funding for its entire voucher program, which may include both tenant-based assistance and project-based assistance. The amount of funding typically varies from year to year, depending on the level at which congressional appropriators fund the program. In any year in which funding is reduced from the previous year's amount, a PHA may be able to serve fewer families than it did the year before. or finding other ways to save on overall HCV costs).
Properties eligible for RAD conversion
Properties assisted under the following HUD rental assistance programs are eligible for RAD conversion: Public Housing; Section 8 Moderate Rehabilitation (including the Mod. Rehab. Single-Room Occupancy (SRO) program); and Rent Supplement/Rental Assistance Program. Each of these programs is described below, with a focus on the impediments to capital investment that RAD conversion eliminates.
Public housing
Enacted in 1937, the public housing program is authorized under section 9 of the Act.42 U.S.C. 1437g Section 9 assistance is administered locally by public housing agencies (PHAs), which receive funding from HUD to support the operating and capital needs of public housing properties. As of 2010,Picture of Subsidized Households, 2015 (based on Census 2010 geographies) there were 3,040 PHAs nationwide, administering a combined 7,340 public housing properties, comprising some 1,105,380 units. More than 2.2 million families are served by the program. Of these families, 32% are elderly (head of household or spouse is aged 62 or older), 21% include a family member with a disability, and 39% are households with children.
There is nothing akin to a HAP contract in the public housing program. Instead, funds flow to each PHA through an Annual Contributions Contract (ACC) between the PHA and HUD. Separate amounts for operating and capital assistance are allocated annually, by formula.Section 9(d)(1) of the Act governs the capital fund amount. The operating fund amount is established according to the formula in Section 9(e)(1) of the Act. The public housing program lacks all three of the key features of a project-based section 8 contract that enable owners of properties assisted with PBRA and/or PBV to leverage private capital investment:
Long-term assistance contract. The ACC is essentially a perpetual contract. Under the ACC, if a PHA accepts operating and capital fund assistance, it must use that assistance to serve low-income families.
Predictable, reliable, stable funding. The level of funding made available to PHAs from any one year to the next fluctuates based on the amount appropriated by Congress. Typically, agencies receive pro-rated operating funding (i.e., an amount less than the operating fund formula would otherwise dictate) and capital funding that is grossly inadequate to address repair needs, let alone replacement needs. In order to support their operations, PHAs have some flexibility to use capital fund monies for operating purposes. A report procured by HUD and published in June 2011 estimated that unmet capital needs across the public housing portfolio totaled nearly $26 billion.Capital Needs in the Public Housing Program
Option to renew on same terms. The concept of "renewal" does not apply in the public housing program, given the perpetual nature of the ACC. Instead, for as long as a PHA accepts operating and capital funding each year, it remains in the public housing program and must comply with "all applicable statutes, executive orders, and regulations issued by HUD, as they shall be amended from time to time."Annual Contributions Contract, Part A, Section 5 This means that as Congress enacts new laws that affect the public housing program, or as HUD issues new regulations, a PHA must comply with those laws and regulations, irrespective of any cost associated with doing so. In some respects, the terms of the ACC contract change as frequently as new laws are enacted and/or new regulations are promulgated.
Section 8: moderate rehabilitation Enacted in 1978,Housing and Community Development Amendments of 1978, enacted October 31, 1978 (Public Law 95–557) the section 8 Moderate Rehabilitation (Mod. Rehab.) program was intended to provide project-based rental assistance at levels that would support properties needing less than a substantial level of rehabilitation.The Housing and Community Development Act of 1974 (Public Law 93–383, enacted August 22, 1974), which authorized the section 8 program, permitted assistance payments on behalf of families occupying only new, substantially rehabilitated, or existing housing units. The authority for new Mod. Rehab. contracts (except for those intended to provide single-room occupancy (SRO) housing for homeless individuals) was repealed in 1990. Existing contracts are eligible for renewal under the Multifamily Assisted Housing Reform and Affordability Act of 1997 (MAHRAA), as amended,Enacted on October 27, 1997, as part of the Departments of Veterans Affairs and Housing and Urban Development and Independent Agencies Appropriations Act, 1998 (Public Law 105–65) which governs the renewal of all section 8 PBRA contracts.
The Mod. Rehab. program is administered by PHAs, who enter into HAP contracts with private owners. As of 2010, there were some 22,804 units with Mod. Rehab. assistance. These units served just under 49,000 people. Of families served by the program, 24% are elderly, 34% include a family member with a disability, and 21% are families with children.
Even though the program operates through a HAP contract, HUD practices and the renewal terms dictated by Congress disfavor private capital investment in Mod. Rehab.–assisted properties:
Long-term assistance contract. For a number of reasons, HUD has adopted the practice of renewing Mod. Rehab. contracts for only one year at a time.The first Mod. Rehab. contracts began expiring in FY95. In FY95 and FY96, expiring contracts were not renewed. Instead, assistance was provided for the tenants residing in the units covered under the expiring contracts. In the FY97 Appropriations Act, Congress required the Department, upon the request of the owner of a Mod. Rehab.–assisted project, to renew the expiring contract as project-based assistance for a period of not more than one year. When MAHRAA was enacted in 1998, renewal authority for Mod. Rehab. contracts was made permanent, and HUD generally continued the practice of renewing the contracts for only one year. Generally, a short-term contract is not something that an owner or developer can "take to the bank."