The Rental Assistance Demonstration is a federal housing program that was enacted as part of the Consolidated and Further Continuing Appropriations Act, 2012, and is administered by the U.S. Department of Housing & Urban Development (HUD). Broadly, the purpose of the Rental Assistance Demonstration (or RAD) is to provide a set of tools to address the unmet capital needs of deeply affordable, federally assisted rental housing properties in order to maintain both the viability of the properties and their long-term affordability. It also simplifies the administrative oversight of the properties by the federal government. Specifically, RAD authorizes the conversion of a property's federal funding from one form to another, where the initial form presents structural impediments to private capital investment and the new form (project-based section 8) is not only familiar to lenders and investors but, since its enactment in 1974, has leveraged billions in private investment for the development and rehabilitation of deeply affordable rental housing.
RAD has been amended by four pieces of legislation: Consolidated Appropriations Act, 2014 Consolidated and Further Continuing Appropriations Act, 2015; Consolidated Appropriations Act, 2016. and Consolidated Appropriations Act, 2017. Initially, Congress capped the number of units that could be converted under RAD at 60,000, but by October 2014 it was reported that HUD had received applications to convert more than 184,000 units. In FY2015 Congress reauthorized RAD and increased the cap to 185,000 units. An independent assessment of the program from its inception through the autumn of 2015 found that, using existing resources of $250 million, the program had leveraged approximately $2.5 billion in capital investment. In FY2017, Congress again reauthorized RAD, once again increasing the cap, this time to 225,000 units. It was raised again in FY2018 to 455,000 units.
Project-Based Section 8 Funding Platform
HUD administers multiple rental assistance programs. RAD authorizes the conversion of assistance under several of these programs to project-based section 8 assistance, which may take either of two forms: Project-based rental assistance (PBRA) authorized under section 8 of the U.S. Housing Act of 1937 ("the Act"); or Project-based voucher (PBV) assistance authorized under section 8(o)(13) of the Act. The project-based section 8 funding platform is characterized by a number of features that enable properties assisted under either the PBRA or PBV program to leverage capital investment. From an owner or developer perspective, the four most important features are: The availability of a long-term rental assistance contract (typically 20 years); The expectation that the contract will be funded fully (i.e., at levels specified in the contract), with monthly assistance amounts that are predictable, reliable, and stable over the course of the contract; The option to renew the contract on substantially the same terms; and The reduced administrative burden imposed by HUD. Essentially, a long-term project-based section 8 contract, known as a Housing Assistance Payments (HAP) contract, is something that an owner or developer may "take to the bank" as evidence of the ability to repay borrowed funds. In addition to assuring the borrower's ability to repay, the HAP makes the properties attractive to investors in the federal Low-Income Housing Tax Credit (LIHTC) program, through which equity capital investment is made available. (A default on borrowed funds could otherwise result in recapture of the credits, harming investors.)
The HAP contract also binds the owner to rent to income-qualified (i.e., low-income) households, with the subsidy covering the difference between 30 percent of a tenant's adjusted income and a predetermined and accepted contract rent. Thus a HAP contract enables an owner to serve low-income families, without compromising a property's financial viability.
Funding of PBRA and PBV contracts is subject to annual appropriations. To date, PBRA contracts have always been fully funded, meaning that Congress has never failed to appropriate adequate funds to the PBRA account to cover contracts funded out of that account. While funding appropriated by Congress for the Housing Choice Voucher (HCV) program (out of which the PBV program is funded) fluctuates from year-to-year, PHAs have every incentive and are in fact contractually bound (by the PBV HAP) to fully fund their PBV HAP contracts, which may leave them with tough choices (e.g., issuing fewer tenant-based vouchers or finding other ways to save on overall HCV costs).