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Perspectives on RAD: Patrick Costigan

Tuesday, November 4, 2014

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When most of Washington is searching for scarce budget resources to deal with non-headline making challenges—especially the Department of Housing and Urban Development (HUD)—one approach seems worthy of more attention. HUD’s Rental Assistance Demonstration, or RAD, which directs much-needed capital to the backlog of repairs crippling the nation’s stock of public housing—with an estimated cost of over $26 billion—is panning out much as or better than expected.

  • RAD is leveraging more private debt and equity investments than any other housing program (19 dollars for every HUD dollar) by allowing public housing assets to be readily pledged as collateral similar to all other forms of real estate;
  • Without additional federal outlays, it takes available yet antiquated capital and operating subsidies and converts those subsidies to more flexible, long-term project-based contracts proven viable in other forms of affordable housing;
  • It taps resources such as 4% Low Income Housing Tax Credits, tax-exempt bonds and FHA insurance that are under-used now;
  • It is immediately making an average of $48,000/unit in hard-cost improvements available to participating public housing agencies (PHAs).

By contrast, under the decades-old approach of Congress annually providing only small amounts of capital funds for needed improvements, it would take a typical PHA nearly 28 years to amass what RAD offers today to meet these needs. Unfortunately, when critical repairs are deferred this long to a stock that is typically 40-60 years old, between 10,000-15,000 public housing units are lost to demolition each year. And when demolished, HUD must then offer displaced residents costly “tenant protection vouchers” to help them find other affordable housing, which is in short supply in most markets.

But within two years of start-up, the RAD approach—according to a just-released initial evaluation—is projected to leverage approximately $3.9 billion in additional capital funds across the initial 60,000 demonstration units authorized by Congress.

If RAD is extended to an additional 125,000 units as proposed by the Senate in this year’s appropriations deliberations, a projected $8.9 billion of capital repairs could be undertaken in short order—or about one-third of the total needed repairs across the nation’s 1.15 million public housing units.

Why wouldn’t Congress take this bargain? Reasonable but modest concerns have been expressed by a few lawmakers and some stakeholders:

  • not enough is known about how RAD works or impacts residents (however, most affected residents and stakeholders prefer trying RAD rather than continuing to live in poor-quality housing);
  • a few PHAs using RAD have not followed all the applicable program rules (yet HUD has been reasonably quick in addressing these problems and, after all ,what new program is free from implementation bumps?);
  • since the program’s inception in 2012, only about 10 percent of the current 60,000 units with RAD approvals have “closed” their financing and proceeded to construction (yet few affordable housing projects proceed from application approval to construction in fewer than two years).

RAD is neither a magic bullet nor a perfect program. It can’t address the deepest capital needs in the highest-cost markets without incremental subsidies from Congress. There will be more start-up bumps. But should RAD be held to a perfect standard when it is already producing impressive results for PHAs across the country? Billions of additional dollars, thousands of preserved units, hundreds of new jobs and markedly better homes for current residents seem a reasonable standard for expanding RAD now.

Patrick M. Costigan is a senior vice president at The Community Builders, Inc., based in Boston. Previously he served as a senior advisor to HUD Secretary Shaun Donovan where his responsibilities included helping launch RAD.