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HUD Has Found a Way to Restore Number of Public Housing Units

In September 2008, Hurricane Ike swept through the Gulf Coast island community of Galveston, Texas, battering the city with 110 mph winds and storm surges that flooded the streets. Three of Galveston’s public housing projects were damaged beyond repair in the storm, resulting in the Galveston Housing Authority demolishing 569 apartments.

More than a decade later, the housing authority is still working to replace every unit that was lost. The agency was set to break ground on a final project in that effort on Sept. 14. Ironically the ceremony was postponed because another storm, Hurricane Nicholas, was bearing down on the island. But once the project is complete, it will provide the final 174 units of deeply subsidized public housing that were lost to Ike, along with 87 units of moderately subsidized affordable housing and 87 units of market-rate housing.

The new apartments also hold the distinction of being the first in the country to use the U.S. Department of Housing and Urban Development’s (HUD) new Faircloth-to-RAD program, which was rolled out in April of this year in an effort to get public housing authorities the financing they need to build extremely low-income housing.

Combined with the Democrats’ proposal to include $80 billion in funding for public housing’s massive backlog of maintenance needs, there is new energy around public housing in the U.S. and potential for public housing production to get a much-needed boost.

New Public Housing?

Faircloth is a reference to the Faircloth Amendment, a 1998 Congressional amendment championed by North Carolina Sen. Lauch Faircloth that capped the number of public housing units the federal government was allowed to fund. It prohibited HUD from funding construction or operation of any new units beyond the number public housing authorities had in their stock as of Oct 1, 1999. The Faircloth Amendment was meant to bar the expansion of federal public housing. But thanks to decades of disinvestment leading to demolition, natural disasters like Hurricane Ike, and programs like Hope IV that converted public housing stock to other uses, the number of public housing units has actually shrunk over the last 20 years.

By HUD’s latest count, America’s public housing authorities have 227,000 fewer units of housing now than they did in 1999—units they could rebuild without hitting the limits imposed by the Faircloth Amendment.

But even though they can legally build new units, housing authorities have built a negligible amount of new housing over the past few decades, according to HUD. Part of the problem is a lack of funding available for new construction. HUD’s public housing mixed-finance program can provide some funding, but development is expensive and public housing authorities must rely on outside financing such as Low Income Housing Tax Credits (LIHTC) and traditional debt.

Public housing commands meager rents, however, which provides little capital with which to repay construction debt. Tougher still, public housing operating subsidies are subject to the whims of Congressional budgeting, meaning some years housing authorities have less funding to work with. That makes it very difficult for housing authorities to make new construction financing pencil out. That’s where the RAD part of Faircloth-to-RAD comes in.

RAD is short for Rental Assistance Demonstration. It’s a HUD program launched under President Barack Obama that allows public housing authorities to convert public housing subsidies to Section 8 subsidies to attract private investment that can be used to fund long-overdue repairs and upkeep.

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