HUD Issues Final Changes to Section 202, 811 Requirements Permitting LIHTCs

Last year, HUD proposed a rule to modify Section 202 Supportive Housing for the Elderly Program and 811 Supportive Housing for Persons with Disabilities Program regulations. The most significant part of the proposed rule dealt with program regulations governing mixed-finance developments or those projects that receive funding from both the low-income housing tax credit (LIHTC) and Section 202/811 programs.

Recently, HUD published the final rule amending regulations governing these programs, and this rule is set to take effect on July 22 [24 CFR Part 891, Docket No. FR-5167-F-02]. The changes are intended to increase the private development community’s involvement in creating mixed-finance properties. The published changes streamline requirements for mixed-finance Section 202 and 811 developments by allowing developers to use LIHTCs more effectively with these programs; removing restrictions on the portions of developments that aren’t funded through capital advances; extending the time of availability of capital advance funds from 18 to 24 months; lifting barriers on participation in the development of the projects; and eliminating burdensome funding requirements.

Three significant changes were made to the proposed rule at this final rule stage. First, the definitions of ‘‘substantial rehabilitation’’ and ‘‘repairs, renovations, and improvements’’ were removed, which also means the removal of the $6,500 threshold and the minimum useful life of 55 years.

Second, the definition of ‘‘rehabilitation’’ that was originally in part 891 was restored. The final rule also added that an improvement of an existing structure requires 15 percent or more of the estimated development cost to rehabilitate the project for a useful life of 40 years. The useful-life period begins upon execution of the capital advance agreement.

Third, the final rule allows as eligible units two-bedroom resident units, so long as a portion of the units are financed by other sources. Resident units may be two-bedroom units if the square footage in excess of the one-bedroom size limits is treated as excess amenities.