It’s no secret that the U.S. is facing a major housing shortfall, the multifamily sector alone needs to add 4.35 million apartment units by 2035 just to meet projected demand, and that’s bad news for housing affordability. Competition for housing has become more intense, driving up prices and making it more difficult for low-income households to find affordable options. Of course, less housing stock equals higher rents, which creates more wealth for landlords. But the reality is much more complicated.
As the housing crisis deepens, pressure is mounting for policymakers to address the issue. A recent survey published on behalf of the National Association of Home Builders revealed that the majority of Americans want the federal government to take initiative in the production of more housing, and that overwhelming support has reached the White House. The Biden administration just released its 2024 Fiscal Year budget request, and quite a bit has been set aside for affordable housing initiatives. While the proposal will likely be deemed too extravagant for the Republican-controlled House, it’s still an opening bid for Congressional bargaining as both sides negotiate the final budget.
The 176-page proposed budget outlines trillions of dollars worth of spending, with $111 billion set aside for housing and development-related tax proposals. Key highlights of this spending include $10 billion for state and local governments to increase supply, $3 billion for competitive grants to support rent relief, and $385 million for Tenant Protection Vouchers (which is a massive increase from last years’ budget). Tenant Protection Vouchers provide monthly rent subsidies on behalf of the government to eligible households, and with the increased voucher funding, even if the funding gets whittled down somewhat during Congress’ adjudication, it’s big news. Not only do more vouchers cast a wider safety net for low-income families in need of housing assistance, it’s major for influencing the country’s overall housing stock as the increased funding will make Rental Assistance Demonstration (RAD) conversions, the process of converting public housing properties to long-term Section 8 rental assistance contracts with private owners, more accessible.
RAD is a federal housing program created by the U.S. Department of Housing and Urban Development (HUD) to provide a way for public housing agencies (PHAs) to turn the management of decaying public housing properties to the private sector to facilitate much-needed upgrades and even redevelop the sites altogether to potentially create more housing stock. It was established back in 2011 as a way to address the challenges facing the U.S.’s public housing system. The Obama administration created the program in an effort to leverage private financing to support the preservation and modernization of public housing properties, while also increasing the availability of affordable housing for low-income households.
Under RAD, public housing agencies can enter into partnerships with private entities, such as developers or property managers, to convert their public housing properties to long-term Section 8 rental assistance contracts. This allows PHAs to leverage private financing to make capital improvements to their properties, which can help to address deferred maintenance and modernize housing units.
The RAD program allows for two types of conversions: the conversion of public housing units to Section 8 contracts without a change in ownership, and the conversion of public housing units to Section 8 contracts with a change in ownership. In the first type of conversion, the PHA retains ownership of the property and enters into a Section 8 contract with the Department of Housing and Urban Development. The Section 8 contract provides a reliable source of funding for the ongoing maintenance and repairs of the property. Private investors can then invest in the property, providing the funding needed to address the capital needs of the property. In the second, the PHA transfers ownership of the property to a private entity or a nonprofit organization. The new owner enters into a Section 8 contract with HUD and assumes responsibility for the ongoing maintenance and repairs of the property. Private investors can then invest in the property, providing the funding needed to address the capital needs of the property.
The RAD program provides several benefits for PHAs and private investors. For PHAs, the program provides a reliable source of funding for the ongoing maintenance and repairs of public housing units. For private investors, the program provides an opportunity to invest in affordable housing and generate a return on investment.
RAD about housing
Since its inception, the RAD program has been implemented for several large-scale developments, with one of the most recent being the Monroe Gardens project in Arizona. Monroe Gardens, which debuted in 2021, replaced a 38-unit public housing complex with 78 updated units for low-income families. The location was previously a 1960’s-era public housing complex full of claustrophobic apartments that had little to no insulation and exposed plumbing. Under the RAD program, the Monroe Gardens property received millions in renovations and improvements, including new roofs, windows, plumbing, and electrical systems, as well as upgrades to the community center, playground, and other common areas. The original buildings were demolished and replaced with a community center surrounded by four three-story apartment buildings that were stocked with modern appliances and energy-efficient lighting. Since the renovations were completed, Monroe Gardens has been widely praised as a success story for the RAD program. The property has attracted new residents, and the improvements have helped to revitalize the surrounding community.
The program has its perks for landlords as it provides additional financing for maintenance and repairs, but what are the impacts to the residents? Researchers from Columbia University recently examined the impact that the RAD program had on the tenant experience through a series of in-depth resident interviews in exchange for a $25 gift card. The overall feedback was wildly positive. “They’ve really, really improved and upgraded, as far as the outside and inside,” said one tenant during the interview process. “So now when I tell people, ‘Oh, I live in the projects,’ they’re like, ‘Oh, those are nice.’”
There are an abundance of RAD success stories, but the program is not without its criticisms. Opponents of the RAD program see it as the first step towards privatization of public housing because it involves transferring public housing properties from the ownership of public housing authorities to private entities such as for-profit companies, nonprofit organizations, and public-private partnerships. By transferring ownership to private entities, critics argue that the government is relinquishing control over public housing and allowing private entities to profit from it.
In 2021, non-profit news organization The City investigated tenant complaints across several Manhattan and Brooklyn developments placed into the RAD program, and found a slew of allegations that both contractors and building managers had botched promised upgrades. “City building inspectors have repeatedly cited one contractor for multiple violations at a Brooklyn RAD development, while outside investigators uncovered toxic mold lurking in dozens of apartments of a development about to go into private management,” the report says. The investigation found that one of the reasons for this abuse came down to a lack of oversight and accountability for the program. While the RAD program includes requirements for landlords to maintain and improve their properties, there may not be enough resources dedicated to ensuring compliance, leading to some landlords neglecting their responsibilities and not investing in necessary upgrades.
Nevertheless, enthusiasm for the program is evident in the Biden administration’s budget request. On top of the aforementioned requests, the budget also asks for an additional $112 million in financing, split equally between the Discretionary Tenant-Based Rental Assistance and Project-Based Rental Assistance accounts ($50 million each) to support RAD conversions, particularly those that improve a building’s energy efficiency or resilience to climate change. Additionally, there is no mention in the budget of removing the public housing cap in the program, but there is a suggestion that the program’s September 30, 2024 sunset date be removed. If it looks likely that the rate of conversions may reach the existing unit cap throughout the course of the fiscal year, Congress may decide to raise the cap in its 2024 HUD appropriations legislation.
Even with the program’s controversies, RAD conversions give owners a way to get involved in the affordable housing market without having to build new lots or finance major upgrades. It also gives landlords another reason to rent out properties at a reasonable price. The Biden administration’s proposed increase in subsidies could spur more public housing authorities to participate in the program and leverage private financing to rehabilitate and preserve affordable housing units. Of course, how much funding that will be available is up to Congress to hash out.