Guidance Issued on Voluntary & Mandatory Conversions of Public Housing Units

In November 2018, HUD’s Office of Public and Indian Housing (PIH) sent a letter to public housing agency (PHA) executive directors notifying them of their intent to reduce HUD’s public housing stock. Because Congress had failed to provide adequate funding for the public housing capital fund for many years, there was an approximate $50 billion backlog at that time in capital improvement needs. HUD cited that backlog as the need to provide PHAs with “additional flexibilities” so that they can “reposition” public housing. HUD’s immediate goal is to “reposition” 105,000 public housing units by September 2019.

In effect, repositioning means reducing the number of homes in the public housing stock. In the letter, HUD listed four means of repositioning public housing: the Rental Assistance Demonstration (RAD); the demolition of public housing; the facilitation of voluntary conversion of public housing to vouchers; and the retention of assets after a Declaration of Trust release. With two recent notices, HUD is starting to implement and provide guidance for converting public housing to vouchers.

Voluntary Conversions for Small PHAs

HUD’s Notice PIH 2019-05 sets forth a streamlined process for PHAs with 250 or fewer public housing units to convert their public housing to Section 8 assistance. PHAs can receive Tenant Protection Vouchers (TPVs), which must be offered to tenants as tenant-based assistance, but may be project-based if the tenants agree.

Voluntary conversions happen under Section 22 of the Housing Act. Under current regulations, a PHA seeking to voluntarily convert public housing to vouchers must submit a “conversion assessment” to HUD as part of its regular, annual PHA Plan process. A conversion assessment must have five elements:

• An analysis of the cost of continuing to operate the development as public housing, compared to the cost of providing vouchers.
• An analysis of the market value of the development before and after rehabilitation.
• An analysis of the ability of residents to use a voucher, given housing market conditions.
• An impact analysis on the surrounding community, including the effect of conversion on the availability of affordable housing as well as on the concentration of poverty in the neighborhood.
• A description of a PHA’s planned use of the property.

The conversion assessment must satisfy three conditions:

• Conversion won’t be more expensive than continuing to operate the development as public housing.
• Conversion will principally benefit the development’s residents, the PHA itself, and the community. Related to potential benefit to residents, the PHA must consider the availability of landlords willing to accept vouchers, as well as access to schools, employment, and transportation.
• Conversion won’t adversely affect the availability of affordable housing in the neighborhood.

However, with this notice HUD is exempting small PHAs from the conversion assessment requirement, except they must still provide an impact analysis. The PHA must still submit a “conversion plan” with its annual PHA Plan and conform to other Section 22 Voluntary Conversion requirements.

To qualify, the PHA must convert all of its public housing units through Section 22 and close out its public housing program after all the units are converted. PHAs without a voucher program must find a willing PHA with a voucher program to administer the vouchers. Applications are processed by the PIH Special Applications Center (SAC) and must include:

• Environmental review;
• Impact analysis, including the impact on available affordable housing, concentration of poverty, and other impacts on the neighborhood;
• Resident consultation;
• PHA Plan/Significant Amendment;
• Local government review; and
• Plan for the future use of the project.

Mandatory Conversions of Public Housing Units

Section 33 of the U.S. Housing Act requires PHAs to convert certain distressed public housing units to Section 8 tenant-based assistance if: (1) it would be more expensive to modernize and operate the distressed development for its remaining useful life than to provide tenant-based assistance to all residents; or (2) the PHA can’t assure the long-term viability of the distressed development.

Notice PIH 2019-10 provides guidance on the requirement that PHAs annually review their inventories to determine whether any of their public housing developments or parts of developments meet the criteria for required conversion from public housing.

Public housing units that meet all of the following conditions are considered distressed and subject to required conversion:

• The units comprise a general occupancy project;
• The development is on the same or contiguous site, and;
• The development has a vacancy rate at or above 12 percent for each of the last three years.

Certain units must be excluded from the vacancy rate calculation. These units include:

• Vacant units in an approved Section 18 demo/dispo application;
• Vacant units in which resident property has been abandoned, but only if state law requires the property to be left in the unit for some period of time;
• Vacant units that have sustained casualty damage (if the insurance claim has been adjusted);
• Units occupied by PHA employees;
• Units used for resident services; and
• Units the Field Office determines are intentionally vacant and don’t indicate continued stress.

If a development meets the threshold criteria for required conversion, the PHA must either submit evidence that a conversion plan isn’t required or submit a conversion. The PHA won’t have to undergo required conversion if HUD determines the reasons a property is distressed are temporary and unlikely to reoccur, or if the PHA is able to assure that the development can remain viable.

The PHA can assure the viability of the property by showing it can reasonably revitalize the property, reduce density, or achieve a broader range of household incomes to increase tenant rent. Ultimately, the PHA must be able to prove that it’s less expensive to operate the development as public housing than providing tenant-based assistance.

If a PHA can’t provide evidence that a conversion plan isn’t required, then it must submit an application to HUD’s Special Application Center. PHAs must also develop a conversion plan that removes the public housing units from their inventory in five years or less, unless the PHA applies for and receives an extension. The SAC application must include:

• The units proposed for required conversion;
• The PHA plan;
• Proof of resident consultation;
• The board resolution approving the conversion plan;
• Evidence of local government consultation;
• The status of any obligated capital funds for that project; and
• A description of the future use of the units, environmental requirements, and resident relocation activities.

If the PHA opts to convert the units through demolition and disposition, it isn’t required to submit a separate demolition/disposition application.

PHAs will be provided Tenant Protection Vouchers (TPVs) for displaced residents, subject to the availability of funding. HUD determines a PHA’s maximum TPV award based on relevant appropriations and HUD-issued guidance, including the year’s HCV funding implementation notice. PHAs may be eligible for the asset repositioning fee (ARF) for units approved for conversion, but PHAs aren’t eligible to receive demolition disposition transitional funding (DDTF).

If a PHA is removing the last of its public housing units through the proposed conversion, then the PHA must also submit a completed Form HUD-5837 to the SAC.