HUD Publishes New Public Housing Demolition and Disposition Guidance

By: Tushar Gurjal, Senior Policy Manager

In December, HUD published a notice titled “Demolition and/or disposition of public housing property, eligibility for tenant-protection vouchers, and associated requirements” [PIH 2024-40 (HA)]. The notice discusses the application requirements to demolish or dispose of public housing and the extent of eligibility for tenant protection vouchers as a result of the demolition or disposition.  The notice provides more generous RAD blends and clarifies certain resident relocation requirements in relation to its predecessor notice PIH 2021-07 (HA) (now superseded).

Special Applications Center Application Requirements

The Special Applications Center (SAC) has certain requirements for its demolition and disposition applications. The PHA must certify that the demolition or disposition is included in a PHA annal plan, significant amendment, or Moving to Work (MTW) annual plan. The PHA must also consult with residents as a part of the application process and provide a narrative of the consultation process and evidence of consultation. The SAC will disapprove an application if either 1) its certification is inconsistent with the PHA plan or inconsistent with information available to HUD; or 2) if the application was made without consulting residents, resident groups, and local government officials.

The PHA must also meet certain other requirements. The proposed demolition or disposition must comply with an environmental review and environmental clearance. In certain disposition scenarios, the PHA must provide resident entities with the opportunity to purchase the project, subject to certain exceptions. The PHA must have a signed and dated resolution from its board authorizing the SAC application. Additionally, the PHA may submit an application with a phased method for relocations to facilitate phased redevelopment. With certain exceptions, disposal of public housing must receive fair market value renumeration. Dispositions below fair market value require a finding of “commensurate public benefit,” which is determined case-by-case by HUD. A PHA may use a ground lease to facilitate the development of affordable housing on former public housing property subject to certain conditions. Housing agencies must comply with all terms of the SAC approval and any material changes require a new SAC application.

Disposition Justification

The Department will approve a disposition when it is in the best interests of the residents or of the agency. This can be shown in the following ways.

• Justification Criteria for Dwelling Units – HUD may approve a SAC application for one of the following reasons:
  • Surrounding area – the conditions of the surrounding area negatively impact the health or safety of the residents or make the operation infeasible;
    • Health or safety – the PHA must show that conditions present serious obstacles in maintaining the units as healthy or safe housing and why the PHA cannot take cost-effective curing or mitigation steps;
    • Infeasible operation – the PHA must demonstrate, via evidence, a lack of demand for the units even with marketing;
  • Improved efficiency or effectiveness through off-site development – this disposition allows the PHA to acquire, develop, or rehabilitate other properties that will be more efficiently operated as low-income housing projects; certain conditions apply;
  • PHA certifies that it has determined the disposition to be appropriate – below are examples where disposition may be appropriate:
    • Unit obsolescence – the physical condition of the units indicate that they are obsolete;
    • Very small PHAs – the PHA owns and operates 50 or fewer units and can show it is in the best interest of the residents to close out its public housing program;
    • Improved efficiency or effectiveness through on-site development of low-income housing (in contrast to the previous similar provision, which dealt with off-site housing) – the PHA must demonstrate that it can redevelop the property to better meet the affordable housing needs of the community, subject to certain conditions; and
    • Scattered site units – the PHA demonstrates that the distance between units and heterogeneity between systems in the units make it difficult to continue operating the units.
• Blending Section 18 Disposition Approvals with a Rental Assistance Demonstration (RAD) Conversion – subject to certain requirements, a PHA that is converting a portion of its public housing units to project-based Section 8 assistance may utilize these blends:
  • RAD/Section 18 Construction Blend – the percentage of units eligible for disposition will be based on the following: 1) whether the project will be demolished or redeveloped; 2) whether the assistance will be transferred to a new site; and 3) the hard construction costs;
    • If the proposed rehabilitation has
      • Hard construction costs which exceed 90% of the Housing Construction Costs (HCC), as published by HUD for a given market, or
      • Demolition and redevelopment of the project, or
      • Transfer of assistance, then
        • The project will receive up to 90% Section 18 and at least 10% RAD;
    • If the proposed rehabilitation has hard construction costs that exceed 60% of the HCC, then the project will receive up to 60% Section 18 and at least 40% RAD; and
    • If the proposed rehabilitation has hard construction costs that exceed 30% of the HCC, then the project will receive up to 30% Section 18 and at least 70% RAD.
  • RAD/Section 18 Small PHA Blend – for PHAs with 250 or fewer units, at the PHA’s discretion, up to 90% of the units may be disposed of under Section 18 and least 10% of the units must be converted to RAD, subject to certain conditions;
  • Sequenced Blends – for PHAs that have received approval for a disposition under a prior justification (with certain exceptions) shall be subject to the provision governing RAD blends if they request and receive SAC approve to rescind Section 18 approval for some portion of RAD eligible units and convert at least 10% of the unites under RAD.
• Justification Criteria of Non-Dwelling Buildings and Vacant Land – the PHA must certify that the property exceeds the needs of the project or the disposition of the property is incidental to, or does not interfere with, the operation of the rest of the development

Demolition Justification

In most instances, HUD approval is required for a demolition of a public housing property. If a demolition is to occur after a disposition (e.g., in a Low-Income Housing Tax Credit transaction), the HUD approval is not required, though disposition requirements must still be met. The Department may approve demolition in the following circumstances:

• Justification Criteria – a project may be demolished if 1) the project or portion of it is “obsolete as to physical condition, location, or other factors, making it unsuitable for housing purposes” and rehabilitation is not cost-effective; and 2) if the demolition of a part of a project will help to ensure the viability of the remaining portion of the project;
  • Physical Condition – the PHA must demonstrate substantial physical issues with the buildings that cannot be corrected in a cost-effective manner, must submit certification of physical obsolescence through certain HUD forms, and may submit a physical needs assessment and certain other supporting documentation subject to certain requirements;
  • Location – the PHA must demonstrate that the location of the units cause obsolescence, including the following: “physical deterioration of the neighborhood; change in neighborhood from residential to industrial or commercial; or [poor] environmental conditions . . .”; or
  • Other Factors – the demonstrates factors that seriously impede operations for residential use supported by third-party documentation.
• De Minimis Demolition – in any five year period, a PHA may demolish the lessor of five dwelling units or five percent of its public housing dwelling units without HUD approval, subject to certain conditions.

Eligibility for Tenant-Protection Vouchers (TPVs)

A housing agency may be eligible for TPVs from HUD after the approval of a SAC application. The issuance of TPVs does not occur automatically with SAC approval of an application. The SAC approval letter will detail the application process.

The Department will determine a PHA’s TPV award based on appropriations and other HUD-issued guidance. The SAC approval indicates the maximum level of relocation and replacement TPVs that a PHA may receive. The Department is limiting the maximum TPV awards to 25% of the units occupied in the last 24 months at the development under the improved efficiency or effectiveness rationales for disposition. Even if a PHA is not eligible to receive TPVs in a SAC-approved removal, the PHA must still comply with relocation requirements.

Other Requirements

The notice discusses certain other requirements on topics including existing financial transactions, operating fund accuracy and updating days to relocation, re-occupying units proposed for demolition or disposition, reporting requirements, false certifications and HUD enforcement, and certain civil rights requirements.

Relocation of Residents

The notice clarifies certain relocation requirements. It states that displaced residents must be offered comparable housing that meets housing quality standards and is located in an area that is “generally not less desirable the location of the displaced persons.” If the residents are given Housing Choice Voucher assistance and the owner does not meet housing quality standards for the unit, then the PHA must take enforcement action. The Department also recommends that PHAs give the residents who are relocated the first right to occupy the new replacement units. Finally, the PHA must provide any necessary counseling for residents that are displaced.

The full notice can be found here.