Review of Recent Policy Changes in Managing and Disposing of HUD-Owned Multifamily Housing Projects

Since May 1977, the Department of Housing and Urban Development (HUD) has changed its management and disposition policies for HUD-owned formerly subsidized multifamily properties to provide that: (1) tenants residing in HUD-owned properties pay not more than 25 percent of their income for rent and utilities; (2) the properties be rehabilitated before disposition; and (3) the properties not be sold unless a subsidy can be provided to maintain the low- and moderate-income characteristics of the project. For the year-ending February 28, 1978, it cost HUD about $20 million annually to operate the 21,000 multifamily housing units it owns. After full implementation of the 25-percent income limitation policy, HUD costs could increase to as much as $28.5 million. The properties appear to be undergoing a transition from a low- and moderate-income tenancy to a primarily very low-income tenancy which will increase HUD costs. Both HUD and project managers need to improve management and monitoring of these projects. An estimated 28,000 formerly subsidized and unsubsidized units need to be rehabilitated at a cost of $122 million or an average of $4,350 per unit. These costs will be absorbed by insurance funds, and a HUD official indicated that the rehabilitation cost will be recovered when the properties are sold. HUD plans to sell most of its previously subsidized properties with a commitment of section 8 subsidies. It could cost $260 million annually or $3.9 billion for the maximum 15-year commitment period to dispose of the 85,000 units which are or appear likely to be HUD-owned properties.