Section 18
PCHA REPOSITIONING– WHAT, WHY, AND HOW
As of January 27th, 2023, the Department of Housing and Urban Development (HUD)’s Special Applications Center has approved the application of the Pierce County Housing Authority to reposition its Low-Income Public Housing (LIPH) portfolio, consisting of 120 single-family homes and 2 duplex units across Pierce County.
1. What is Low Income Public Housing?
Low Income Public Housing, or LIPH, is a particular model by which the federal government subsidizes low-income families’ housing. In this model, a local housing authority owns a housing unit, and leases it to a low-income family, whose household income it audits and certifies to ensure that subsidies are given to those in need. This differs from Section 8/Housing Choice Vouchers (a program that PCHA also administrates) because the units that participants reside in are owned in full by the Housing Authority, instead of being private market units with a federal voucher providing the subsidy in the form of a check to a landlord. In Low-Income Public Housing, the household has a rental agreement directly with PCHA, and they pay 30% of their income to rent, whatever their income may be, up to the full amount of Fair Market Rent for the property. For example, a household making $2,000 in income for a month would pay approximately $600 per month in rent, and a household with $0 in income would pay $0 in rent, on a modest unit. Households can also qualify for a Utility Allowance, where PCHA provides additional assistance for utilities in the event that paying for them would otherwise present a financial impossibility.
Low-Income Public Housing takes many forms, but its best-known iteration is large, high-rise apartment projects in major cities, such as the Cabrini-Green Homes complex in Chicago. At Pierce County Housing Authority, however, our Public Housing is a “scattered site” model, which means that it consists of separate single-family homes literally “scattered” in all corners of the county. Pierce County Housing Authority acquired its current stock of Public Housing units through the 1980’s and 1990’s. They are primarily located in Spanaway and Parkland, with small clusters in Bonney Lake, Elk Plain, Graham, and on the Key Peninsula.
2. What is Repositioning?
Repositioning, or a Section 18 Demolition/Disposition application, is the process by which public housing authorities can sell, demolish, or dispose of properties that are classified as Low-Income Public Housing. This process takes many years and is incentivized by HUD to align with its current funding allocations and the changing nature of subsidy provisions. PCHA intends to sell the homes by a process that is outlined in Question 5 below.
Through the repositioning process, PCHA expects to provide all 122 current resident households with housing that better suits their needs and qualifications, eventually place 150 additional households on rental subsidies, generate up to $200,000,000 to develop more affordable housing, and do it all while removing the fewest possible units from the county’s affordable housing stock.
3. Why does PCHA want to reposition? Isn’t there an Affordable Housing Shortage?
Because PCHA owns these units outright, they can be provided at deep subsidy to participants, as mentioned above. However, this subsidy disguises much greater burdens on both PCHA and our participants themselves. Residents are required to do regular upkeep on their properties, pay utilities on aging three- or four-bedroom homes (that may be significantly larger than they need), and maintain their yards themselves, which presents a financial and physical challenge for many of our participants. Compounding this, as the rental charges on these units are so low, PCHA is required to fund both regular and non-routine maintenance through federal grants. Reductions in the funding allocation for the LIPH program at the federal level have resulted in a backlog of unfunded maintenance in LIPH portfolios, with an estimated $25,000,000,000 to $70,000,000,000 of deferred maintenance in PHA’s across the country. PCHA estimates its 124 homes will have upwards of $27,000,000 of deferred maintenance within the next 15 years, which will not be able to be covered with our current grant allocation. This means that conditions in the homes will continue to deteriorate for as long as they remain in PCHA’s portfolio. The LIPH model – and especially the LIPH Scattered Site Model – has been found ineffective, inefficient, and ultimately counter-productive to our mission of providing safe, decent, sanitary, and dignified housing for Pierce County residents.
Due to the vast geographical distance that separates some of these homes, the financial burden of serving maintenance needs for a large number of aging houses, and the burden on residents to upkeep these properties without proper resources or support, PCHA submitted an application to the Department of Housing and Urban Development Special Application Center to perform a Section 18 Disposition. This application was approved on January 27th, 2023.
PCHA is no stranger to the incredible need for low-income and affordable housing in Pierce County, and that is why we will be taking great efforts to make sure that this housing is sold to either low-income individuals or organizations promoting affordable homeownership, whenever possible, and we have created a rigid system to ensure that these groups are prioritized over bidders on the open market. For more information on this process, see Q&A #5 below.
4. What happens to the current LIPH participants?
As part of this Section 18 Disposition, all residents living in LIPH houses will be transferred onto a Tenant Protection Voucher, which preserves their 30% income calculation subsidy for housing. They will be assisted in finding, touring, and applying for new rental housing by a Relocation Specialist at PCHA, and on top of their regular monthly subsidy, PCHA will also provide upfront funding for application fees, administrative fees, pet deposits, security deposits, and will provide pack-to-unpack moving services free of charge to our LIPH participants.
The funding from this project is derived primarily from existing sources, for which HUD has removed usual restrictions upon application approval. Every feasible effort will be taken to ease this process for our residents.
PCHA guarantees that no resident will be forced to face a financial burden through this repositioning.
All residents are expected to be relocated by the end of 2025. Homes will only be offered for sale when the resident has been fully relocated.
5. How will the houses be sold?
The first step in the repositioning process will be to offer “first right of refusal” for the home to the LIPH participant household currently residing in it. Some participants have graduated through various career training and financial education programs, and may have the capacity to qualify for a traditional mortgage with outside assistance programs. PCHA will make every effort to work with all families currently in the homes to see what they qualify for, and if buying their home is a possibility, and refer them to other organizations that may be able to assist in the homebuying process, should they so choose.
If the current resident of the home is unwilling or unable to buy their home, PCHA will offer the home to LIPH participants who are able to purchase a home but did not want to or were not able to purchase the home they were living in, and participants in PCHA’s Family Self Sufficiency (FSS) program for households with a Housing Choice Voucher (FSS is a program designed to increase a family’s financial stability, and provides job training, placement, and financial literacy workshops. Participation in the program creates an escrow account, which can be used to help buy a home when the participant graduates. For more information, please visit https://www.pchawa.org/housing/homeownership-fss). As above, PCHA will work with participants to the fullest extent possible to ensure that the LIPH and FSS participants who are able to buy a home have the opportunity to purchase one of Pierce County Housing Authority’s units, and minimize their costs.
Despite our efforts, PCHA recognizes the financial reality that it will not be likely that all homes will be purchased by our participants. In order to make sure that the housing remains in service of low-income residents of Pierce County, the next step of the process is to offer the home for sale to the members of what PCHA refers to as a “Negotiated Sale Bidders List”.
The Negotiated Sale Bidders List will be comprised of vetted nonprofit housing organizations that have responded to PCHA Request for Proposals SEC18-23-01, found here. These organizations must present the PCHA with a plan to preserve the home’s affordability, their past successes, several references, and proof of funds to purchase homes to qualify to be on this Bidders List. When both the current residents and our FSS/LIPH participants are unwilling or unable to buy a property, it will be opened to members of the Negotiated Sale Bidders List to place an offer. A requirement of any sale made to members of this list are that the home will remain affordable in perpetuity, though PCHA will have no further responsibility for it. These homes will be sold in groups of 3-5 to minimize administrative burdens for both PCHA and partner organizations.
If you or your organization is interested in applying for the Negotiated Sale Bidders List, please see PCHA Request for Proposals SEC18-23-01, found here.
Only in the event that the LIPH resident in the home, other participants in the LIPH and FSS programs, and our list of Negotiated Sale Bidders are unable or unwilling to buy a property, will it then be offered on the open market for public bids. Although it’s difficult to know at this point in our process, we do not currently expect more than 30 homes of the 124 to be sold at this final step.
If you are interested in providing Real Estate Broker services for the homes that reach Step 4, please see PCHA Request for Proposals SEC18-23-02, found here.
6. You mentioned 150 additional vouchers, new housing units, $200,000,000 – where do those come from?
The sale of homes from all sources is expected to directly raise $43,000,000, minus expenses in funds for Pierce County Housing Authority. Additional funding and grants that can be leveraged alongside that $43,000,000, can raise up to $200,000,000 – money that Pierce County Housing Authority will use to create more affordable housing. The way we currently intend to do that is called a “Faircloth-to-RAD conversion”, a complicated federal housing development process that will allow us to best serve the maximum number of residents and optimize our housing stock.
Since 1999, every housing authority in the country has been allowed to only have a certain number of Public Housing units – this is called Faircloth Authority. The number is frozen at the exact number of units that were in operation on October 1st, 1999. PCHA has a Faircloth Authority of 150 units. (Over the last 20 years, PCHA has sold 26 of those units, primarily to Homeownership Program participants, resulting in the current count of 124 actual units.)
When PCHA sells our 124 remaining LIPH units, we are legally allowed to build or acquire up to 150 new units of Public Housing. As we look towards the next phase of our plan, we expect to build or acquire those 150 units, and for them to be formatted in multifamily apartment buildings instead of scattered sites. However, as mentioned above, the HUD Public Housing program is not funded appropriately to maintain these units, even in multifamily dwellings. Therefore, the instant these units are built or acquired, PCHA would use a HUD process to legally convert them from Public Housing to a different subsidy program, called “RAD” – Rental Assistance Demonstration.
RAD operates almost like a blending between the Public Housing and Housing Choice Voucher programs, and has substantial financial and political support at the federal level that LIPH does not, making it a sustainable program for long-term funding needs. If PCHA were to build or acquire these 150 units and convert them to RAD, PCHA would retain ownership of the units, but they would be owned with PCHA as a traditional private landlord, without the liability on the part of the federal government held by Public Housing units. Imbued in each of these units would be a RAD subsidy, where a low-income resident would pay approximately 30% of their income, and HUD would pay the rest of the fair-market rental value to PCHA, much like as if it were a Housing Choice Voucher. However, unlike Housing Choice Vouchers, these subsidies only apply so long as a resident lives in the PCHA RAD unit. If they move elsewhere, the original unit would remain subsidized for the next tenant, and the previous tenant would no longer receive that subsidy, like Public Housing. RAD subsidies last 15-20 years, with opportunities to renew.
Our current goal is to build 150 units new, so that we will be adding housing units to the total stock of Pierce County, and use the 150 subsidies to make them affordable for families at or below 50% of the Area Median Income level.
If funding allows, we may also be able to develop more than 150 total affordable units, but because of our Faircloth Authority limitation these additional units will not have a guaranteed built-in federal subsidy program.
7. I have more questions – who should I talk to?
Please contact our Administrative Coordinator, Riley Guerrero, at [email protected] with any questions you may have. PCHA is committed to open, transparent actions during this ambitious and complex plan to reposition its Public Housing program, and we encourage members of the public to reach out so that we can best explain a process with massive implications for Pierce County over the next five years. We are a very small agency with an incredible volume of work in front of us (less than 40 employees, including a full-time maintenance team, with 2,600 vouchers, 670 apartment units, and 124 public housing units!), so please be patient or send a reminder email if your question is not answered within 10 business days.
If you have a public comment you would like to have read before the Board of Commissioners at their monthly meeting, whether about this project or any other PCHA undertaking, that may also be addressed to [email protected]. Please put “PUBLIC COMMENT” in the subject line so that your comment will not be missed, or visit our website at https://www.pchawa.org/community/public-announcements-and-information for upcoming Board Meeting information.