Housing for the Elderly:

HUD Policy Decisions Delay Section 202 Construction Starts

RCED-91-4: Published: Jan 14, 1991. Publicly Released: Feb 13, 1991.

Additional Materials:


Judy A. England Joseph
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Pursuant to a congressional request, GAO reviewed the Department of Housing and Urban Development's (HUD) processing of section 202 projects for constructing rental housing for the elderly and handicapped, focusing on: (1) increases in project processing time; (2) the need for additional sponsor contributions to cover project development costs; (3) field offices' interpretation of cost-containment requirements; and (4) field offices' program administration.

GAO found that: (1) the average processing time for section 202 projects, from reservation of funds to construction start, increased from 19.3 months in 1980 to 26.8 months in 1988; (2) processing time varied significantly among HUD field offices; (3) local rental market surveys frequently indicated that HUD fair-market-rent limits were too low, causing sponsors to perform time-consuming and costly project redesign or to contribute additional funds for projects; (4) field offices inconsistently interpreted cost containment requirements and increased project processing time when they inappropriately used the requirements to reduce project costs to fair-market-rent limits; and (5) while some field offices developed effective processing procedures and practices, others did not.

Recommendations for Executive Action

  1. Status: Closed - Implemented

    Comments: Regulations developed to increase FMR to support market rents were finalized in May 1991. However, the National Affordable Housing Act, November 1991, converts 202 loans to a capital advance program, thus eliminating FMR considerations. Regulations allowing borrowers in the pipeline to convert to the new program have been finalized.

    Recommendation: To better facilitate the timely completion of section 202 projects, the Secretary of Housing and Urban Development should establish fair-market rents (FMR) for section 202 projects at levels that reflect local rental markets to help improve processing time and also make it more likely that the section 202 program will provide 100-percent sponsor financing for modestly designed housing.

    Agency Affected: Department of Housing and Urban Development

  2. Status: Closed - Implemented

    Comments: HUD now monitors F.O. processing time. Additionally, random cost containment and modest design reviews are done at any stage of the project's design development phase. Both actions accelerate projects through the pipeline and improve monitoring.

    Recommendation: To better facilitate the timely completion of section 202 projects, the Secretary of Housing and Urban Development should ensure that supervisory visits and reviews by HUD headquarters and regional offices are implemented to validate consistent application of cost containment requirements among field offices.

    Agency Affected: Department of Housing and Urban Development


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