HUD’s Office of Inspector General (OIG) audited the department to determine whether HUD had adequate oversight of the physical condition of the public housing units that converted to non-Federal Housing Administration (FHA)-insured project-based vouchers (PBV) under the Rental Assistance Demonstration (RAD) program. The audit finds that HUD’s light-touch monitoring left thousands of converted public housing units in disrepair and many reserve accounts short of cash.

Created in 2012, RAD was designed to address the immense capital needs of the aging public housing stock by allowing public housing agencies (PHAs) to shift their properties to long-term Section 8 assistance and attract private investment for repairs and rehabilitation. At the time, the capital needs were estimated at over $26 billion.

RAD conversions are intended to preserve affordable housing by shifting funding mechanisms, not tenants. While the structure changes from traditional public housing to project-based vouchers or rental assistance contracts, tenant protections are supposed to remain intact. PHAs and owners are still required to maintain housing in compliance with Housing Quality Standards (HQS) and establish replacement-reserve accounts to ensure long-term upkeep.

OIG’s latest audit found that HUD performed limited monitoring of RAD PBV projects after conversion and never developed a reliable system to track their physical or financial health. Instead, it relied on PHAs, who often owned the converted units, to oversee themselves.

Monitoring Gaps

Under RAD, PHAs can convert public housing units to Section 8 contracts while committing to maintain or improve property conditions and ensure the long-term viability of the housing stock. For non-FHA-insured PBV conversions, HUD’s expectation is that PHAs as the contract administrators will carry out most of the day-to-day oversight, while HUD retains high-level accountability.

However, the OIG audit found that once conversions closed, HUD didn't routinely track whether RAD obligations were being met. Field offices lacked standardized tools for monitoring RAD PBV projects until a limited pilot initiative began in 2022, and only nine of 38 field offices had reviewed even one RAD PBV project in the previous five years.

HUD also weakened oversight by eliminating a rule in June 2024 that had required independent inspectors to send HQS inspection reports directly to HUD for PHA-owned projects. This reduced HUD’s visibility into the condition of sites where the same agency served as both landlord and contract monitor.

Audit Findings

The audit uncovered significant weaknesses in HUD’s oversight, ranging from basic health and safety failures to gaps in financial compliance. The key deficiencies identified include the following:

Widespread HQS failures. The audit included physical inspections of 190 units across 28 RAD PBV projects administered by three large PHAs. Over 74 percent failed to meet HQS, and more than 60 percent of those failures involved at least one life-threatening condition—such as blocked egress paths, missing or nonfunctional smoke detectors, or exposed wiring. Based on these findings, auditors estimated that at least 1,760 units across the 28 projects would fail HQS today, with more than half of them posing life-threatening risks.

Underfunded and poorly tracked reserves. Reserve-for-replacement accounts are required under RAD agreements to ensure funding is available for major repairs. The audit revealed that 12 of the 28 projects had underfunded reserve accounts, with gaps ranging from $4,900 to over $1 million—totaling at least $2.6 million in aggregate shortfalls. Some projects also failed to adjust deposits for inflation or adequately document $1 million in reserve fund withdrawals, undermining HUD’s ability to assess long-term sustainability.

Missing or unverified inspection reports. For PHA-owned converted units, HUD often lacked documentation showing that HQS inspections had been completed, especially after the requirement to send reports to HUD was eliminated. In some cases, inspectors could not confirm that units were inspected at all before HUD continued paying housing assistance.

No central oversight system. HUD has no unified database that tracks RAD PBV units’ physical conditions, inspection dates, reserve balances, or owner withdrawals. This information gap means that RAD PBV projects are rarely selected for routine oversight, even as the total number of units in this category has grown by more than 40 percent in just two years.

OIG Recommendations

A long-planned data collection effort to track reserve balances and HQS compliance was still not operational as of mid-2025. In the interim, HUD has relied on voluntary surveys that don’t provide the consistency needed to ensure accountability. Without such a compliance infrastructure or system, HUD “did not have a basis to judge whether families resided in decent, safe, and sanitary housing or whether reserves could cover future capital needs,” the audit concluded.

OIG issued 10 formal recommendations aimed at strengthening HUD’s oversight of RAD PBV projects. These recommendations address both immediate compliance issues such as missing inspection records and underfunded reserves and longer-term structural fixes, including standardized procedures and improved data collection. Here are some of the most critical recommendations:

• Targeting RAD PBV projects for regular inspection and review by HUD field offices;
• Verifying that replacement-reserve accounts are properly funded and adjusted for inflation;
• Recovering or documenting the $1 million in questionable withdrawals;
• Standardizing language about reserve requirements across RAD business documents; and
• Accelerating the rollout of a comprehensive data-tracking system that includes inspection results and financial compliance metrics.