Despite recent implementation challenges—scaling up, working with slightly reduced FY 2014-based rents for public housing conversions, and the layering on additional requirements and review processes in the most recent revised notice—HUD and Housing Authorities are making RAD work beyond expectations and producing impressive results across the country.
The RAD Collaborative, organized by CLPHA in partnership with National Equity Fund and with support from HAI Group, has helped make that progress happen.
If you have not yet read the summary of RAD results as of the end of 2015, click here for HUD’s “RAD January 2016/Issue 15 Newsletter for a well-presented review.
The overall data to-date seem to put to rest any lingering “Can RAD Work?” questions. Proof-of-concept is in hand:
- Housing Authorities are readily using RAD—quite effectively: the 185,000 units of available authority for public housing conversions have been allocated and the queue is growing. Housing authorities and their partners have already converted 27,000 units under RAD in 258 projects.
- Cost-neutral Section 8 contracts can leverage substantial debt & equity: over $1.7 billion in new capital has been raised for construction improvements so far. Extrapolated to all 185,000 units of RAD authority, over $12 billion in funding could potentially be generated to make a sizeable dent in public housing’s capital backlog—even if the backlog has substantially grown beyond HUD’s now-dated $27 billion estimate.
- Less-than-FMR RAD Rents are proving surprisingly elastic: while about one-third of Housing Authorities have RAD Rents at or above their local FMRs, two-thirds do not. Yet regardless of RAD–to-FMR rent margins, Housing Authorities are using long-term Section 8 contracts to fill in gaps and meet varied needs even in high-cost markets. With considerable leadership from Mayor Lee, the San Francisco Housing Authority is preserving nearly all of its aging public housing inventory not recently rebuilt using RAD to leverage reasonable public investment and $1 billion in private capital. Likewise, the Cambridge Housing Authority in Massachusetts is preserving its entire 2,129-unit inventory with smart and replicable financing tapping 4% LIHTC acquisition and rehab credits with tax-exempt bonds. The Housing Authority of the City of El Paso impressively knit together tax-exempt bonds, 4% LIHTCs and applied 9% LIHTCs where most needed in an effort to preserve and replace 6,100 units of its public housing. Plus, RAD is enabling Housing Authorities to replace obsolete or highly-deteriorated housing with newly constructed housing—often tapping multiple sites to reduce densities or access better neighborhoods. About 17% of closed RAD transactions are new construction—which residents seem to be cheering (see “RAD Case Studies” .) And no HOPE VI or Choice Neighborhoods timeline or lottery-like award is required!
- HUD is gearing up to handle increased scale: HUD’s new Recapitalization Office, with the support of PIH, FHEO and the Office of the General Counsel, is focused on improving and streamlining the review and approval process. The RAD Collaborative has had productive meetings with HUD staff to identify ways to improve the speed and transparency of multi-office reviews.
While RAD’s strong results are the best answer to many early questions, other emerging, less obvious outcomes are equally if not more encouraging. First, of likely interest to policymakers of all stripes, RAD is preserving and re-capitalizing much needed existing stock by making better use of public funding already on the table. Beyond its statutory requirement to use only current-level ACC subsidies when converting to Section 8 contracts, nearly 3 in 10 RAD conversions are tapping 4% LIHTC credits and tax-exempt bond authority that is not fully used each year in nearly every state. Plus, nearly one-sixth of all transactions are now using FHA insurance to enhance their financing, which prior to RAD, Housing Authorities used hardly at all.
Second, RAD allows Housing Authorities to be more pro-active stewards of their housing assets well into the future. Over one-third of RAD conversions to date have not required immediate financing. Yet long-term, renewable Section 8 contracts require—and for the first time give agencies the resources—to properly maintain and budget for long-term replacement reserves. They can now plan when to recapitalize and upgrade their properties with RAD contracts already in place when it makes the most sense. Fewer properties will likely suffer from year-to-year neglect owing to limited Capital Funds, accumulate capital repair backlogs, and ultimately be lost to demolition. While RAD’s limited scope and resources cannot cure all of what ails our aging public housing stock, it seems to be delivering a strong ounce of prevention.
One clear preventative benefit—whether undertaken as part of larger rehab work or addressed more gradually through budgeted reserves—is that RAD lets Housing Authorities undertake energy-saving improvements to older properties and incorporate state-of-the-art practices into new construction and substantial rehabilitation projects. Along with the environment, residents and agency budgets both benefit.
Another upshot of injecting more than $1.7 billion of construction funding into new projects, is decent jobs. According to standard multipliers, every $1 million of construction activity generates an estimated 20 jobs in local economies. So with just under 15% of RAD’s authority closed to this point, 34,000 jobs have already been created. If RAD continues on its current pace of generating construction capital across all 185,000 units of its current authority, it could potentially generate nearly a quarter-of-a million jobs in short order. That’s quite an economic stimulus effect—all at no additional public cost.
Preserving and replacing critical housing, energy-efficiency, new jobs and additional housing options for residents who previously had few all seem a promising start to something that just a few years ago was simply thought to be RAD!
Patrick Costigan is a Strategic Advisor to the RAD Collaborative