The U.S. Department of Housing and Urban Development’s (HUD) Office of Multifamily Housing Programs has updated guidance for owners of properties taking part in its Section 8 Project-Based Rental Assistance (PBRA) program. The changes go into effect on May 1, 2023.
Further information can be found in Chapter Nine of HUD’s Section 8 Renewal Policy Guidebook. According to HUD, the changes are intended to streamline the contract renewal process by making it easier for owners to prepare and submit the Rent Comparability Studies that are used to establish contract rents. HUD adds that the changes also clarify the conditions under which such rents may reflect the value of providing services to residents. HUD last updated the Guidebook in 2017.
These much-needed changes reinforce our dedication to maintaining a strong program that provides vital affordable rental housing to low-income individuals and families through project-based rental assistance,” said HUD Deputy Assistant Secretary for Multifamily Housing Ethan Handelman. “The changes provide clarity and process improvements for owners and encourage high-quality resident services at a time when this nation needs to preserve and expand the availability of affordable homes.”
HUD emphasizes the following updates
- Revisions to options available for owners looking to renew their contracts without a rent comparability study, when eligible, to reduce administrative and processing costs and time for owners.
- Enhancements to consistency in valuing non-shelter services to better support properties with services to residents, such as on-site health screening.
- Allowing internet and broadband services to be considered as eligible non-shelter services for valuation purposes.
Moya Benton-Smith, a Senior Compliance Analyst with US Housing Consultants, explains, “the guidelines around the rent comparability studies are changing to allow for a more efficient process by adding additional alternatives to the RCS.” In Section 9-4, new procedures have been added to allow the use of 90 percent of Small Area Fair Market Rents (SAFMRs) in lieu of an RCS study (Section 9-5) for Option 2 renewals. For some smaller, more rural properties, this change could allow for faster renewals without the expense of rent comparability study.
Other selected changes include
- For Option 1 and 2 renewals and comparability adjustments, unassisted units in a project may be used in lieu of an RCS in some scenarios (Section 9-6).
- The criteria for identifying project amenities and services and assigning a valuation to those features was updated to provide clear appraiser guidelines (Section 9-9 C).
- For owners who intend to add amenities or services as part of capital repairs, a process is included for adding those features to an “as-renovated RCS” submitted pursuant to Chapter Fifteen of the Guidebook (Section 9-9 C).
- The mandatory market rent threshold criteria have been updated. A HUD-commissioned independent RCS will be ordered only if a project’s gross rent exceeds 150 percent of the SAFMR (Section 9-14).
- The process for owner appeals of substantive review of an RCS has been clarified. Timelines are more specific, and the owner may submit one revised version of the RCS with the appeal (Section 9-18).
- Appraisers are asked not to use congregate care or assisted living projects as comparables due to the inclusion of meals and complex medical services (Appendix 9-4 E).
Also, HUD has separately proposed that all Section 8 contract renewal clients establish a HUD-controlled Reserve for Replacement Account. This requirement would apply regardless of whether they have a HUD-insured mortgage or not. The necessary sum would be based on the long-term needs of the property. This kind of escrow account has traditionally only been demanded of properties with HUD FHA insurance. US Housing Consultants will be ready to help those new to the Reserve for Replacement Account world through our Capital Needs Assessment services.
Capital Needs Assessments are critical to the long-term viability of a multifamily property. Revenue at multifamily properties can be limited, so a property must prepare years in advance and without a plan, a property owner runs the risk of being unprepared.