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A Demo for partnership: HUD’s RAD program taps private dollars to preserve affordable public housing

In many public housing communities around the country, conditions are quickly becoming unlivable. Collectively, public housing authorities (PHAs) face a backlog of $26 billion in deferred maintenance and it’s growing by the day because the properties continue to age and the PHAs have fewer resources than ever before to maintain them. The problem is made all the more pressing by the fact that roughly nine out of every 10 households that live in public housing include minor, elderly or disabled family members.

It might seem like a problem without a solution but there is reason for hope. Back in 2012, Congress authorized a new initiative at the Department of Housing and Urban Development (HUD) called the Rental Assistance Demonstration (RAD) program. 

{mosads}RAD is transforming the way the federal government funds PHAs by giving them access to the debt and equity markets for the first time. The program converts their existing annual operating and capital subsidies into project-based rental contracts that generate enough cash flow to attract private capital.

The money generated by the new debt and equity is used to cover the cost of repairs or new construction, and helps PHAs increase their reserves to put them on solid financial footing for the future. In addition, RAD transactions are often able to couple FHA mortgage proceeds with other means of support, including low-income housing tax credits, historic tax credits, and HOME funds allocated to states and local governments to boost affordable housing opportunities.

Thanks to the program, the physical condition of many public and private subsidized housing properties are being substantially upgraded or completely rebuilt. The PHAs have been creative and thoughtful in matching their skills and the community’s needs with the various financing tools that are available. Some have issued requests for proposals that resulted in new partnerships with private investors and developers. Other larger, more experienced PHAs have been able to complete the work themselves. 

Either way the results have been remarkable. Rapidly deteriorating public housing has been repaired, renovated, restored, or completely re-built and affordable housing has been preserved. In one recent example from Rockland County, N.Y., our company combined the RAD program with a 223(f) loan to provide long-term permanent FHA financing to two multifamily apartment communities and help them complete $3.1 million in necessary repairs without displacing their 200 households.

That project is counted among the 61,472 units have already completed conversion through the RAD program and another 125,000 units have been authorized and are working their way through the process. This past May, construction investments made through the RAD program topped $4 billion nationwide, an amount that would have taken PHAs 46 years to accumulate on their own. And that new spending not only provided desperately needed renovations, it has also supported the creation of an estimated 75,000 jobs along the way.

You would be hard-pressed to find a better example of a public-private partnership in the federal government. In fact, an independent study of the RAD program released last year found that for every dollar public housing sources spent, it attracted $9 in private funding for rehabilitation projects and $19 for newly constructed units.

What’s more, the same study concluded that the program was achieving this high amount of leverage without increasing the financial risk attached to the projects. Nor is it expanding the federal budget for public housing support. That’s because the RAD program is budget-neutral, meaning it draws on existing resources to have a greater impact.

The program’s early success has convinced Congress to bump the annual limit on RAD public-housing unit conversions a number of times, from the original cap of 60,000 units to 225,000. Their ongoing support shows they understand two basic facts of life. One, public housing isn’t going away. If anything, the need for it is only growing more urgent in American communities across the land. And, two, we are the product of our surroundings. Deteriorating public housing doesn’t just hurt those that live there, it affects everyone in the immediate community.

Our elected officials should not only continue to support the RAD program for these reasons but also consider using it as a template for success for private-public partnerships. At a time when many are questioning the role of government in our society, HUD has found a way to use targeted taxpayer dollars to stimulate private capital and produce wide-ranging benefits. It’s a model that’s working, and it’s a model worth emulating to support our society’s most-pressing needs.

Mark Dellonte is president and CEO of Love Funding, a lender specializing in HUD loans.


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