RCED-94-177FS Multifamily Housing
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Wited,, Statqs General Accounting Offim Fa&Sheet for the Chair, Subcommittee GAO :, ‘o;n.vA, .iUD, and Independent Agencies, ,,‘,-: ,X&x&&e on Appropriations, U.S. I,,, .$7&g&&& ” ,: ‘$ ~- April 1994 1Ass istance United States General Accounting Office GAO Wa&ingtm, D.C.20648 Resources, Community, and Economic Development Division B-256892 April 15, 1994 The Honorable Barbara Mikulski Ghair, Subcommittee on VA, HUD, and Independent Agencies Committee on Appropriations United States Senate Dear Madam Chair This fact sheet, prepared at your request, discusses the Department of Housing and Urban Development’s (HUD) multifamily housing stock that is eligible for incentives under either title II of the Housing and Community Development Act of 1987 or title Vl of the National Housing Affordability Act of 1990. These incentives are offered to preserve this housing for lower-income households. This fact sheet details the characteristics of these projects, such as their number and location, and also identifies separately those projects whose owners have filed for incentives. Also discussed is the cost of the incentives provided to project owners as of September 30,1993, the end of the most recent fiscal year for which data are available. We will report separately on the reasonableness of HUD'S model used to estimate the future funding needed to preserve this housing. i The owners of certain multifamily housing projects developed during the 1960s and 1970s with government assistance are eligible to prepay their mortgage after 20 years. Prepayment could result in the termination of federal use restrictions that are designed to maintain this housing for lower-income households. Faced with the threat of losing a large number of housing units through prepayment, the Congress enacted the aforementioned legislation, which provides project owners with incentives that guarantee these units for lower-income families for the remainder of the projects’ useful life. Incentives, such as allowing an owner to withdraw equity from a project through a second insured mortgage, provide the owner compensation in return for extending the project’s use restrictions. To pay for such incentives, HUD can allow owners to increase a project’s rent. These increases in turn are usually paid by HUD to project owners through additional rental subsidies under its Section 8 program.’ The preservation process begins when an owner files a notice of intent to participate. The notice states whether the owner plans to extend the ‘HUD’s Section 8 rental assistance program provides housing subsidies that allow lower-income households to obtain decent and affordable housing. Page 1 GAO/RCED-94-177FS Projects Eliible for Preservation Assistance I B-256892 project’s use restrictions or transfer the project to a qualified purchaser who will maintain the restrictions. In rare situations, the owner wiU prepay the mortgage and terminate the restrictions. Following the fling of the notice of intent, the owner develops a plan of action that, once approved by HUD, generally results in the preservation of the project. In summary, our analysis of the preservation program through September 30,1993, provides the following information: Characteristics of Eligible + Through the year 2021, the owners of 3,555 projects with 385,024 units will Projects be eligible to prepay their mortgage and participate in the program. Almost 2,000 of these projects, containing more than 55 percent of the housing units, were already eligible for prepayment. By fiscal year 1997, over 95 percent of the units will be eligible. l Projects currently eligible for the program are distributed throughout every state in the country, However, 10 states have over 53 percent of the eligible housing units, with California alone accounting for 11 percent of the nationwide total. Further, 59 cities have over 1,000 eligible housing units. Together, these cities contain about 35 percent of the units eligible for preservation. Los Angeles, Chicago, and Dallas represent the top three cities, with over 25,000 units combined. Projects Whose Owners 9 The owners of 781 projects with 90,104 units have already filed a notice Have Filed for Incentives with HUDto participate in the program. Over 98 percent of these owners indicated an intention to (1) retain their project and extend the use restrictions preserving the project for lower-income households or (2) sell their project to a qualified purchaser who is also required to retain the restrictions. l Of the 781 projects for which a notice has been fiIed, 132 projects containing 19,810 units have been approved for preservation. On average, it took about 17 months from the time the owners of these projects filed a notice until HUD’sapproval. Tracking this interval is useful in estimating funding needs. Cost of the Incentives l In preserving the 19,810 units, HUD reserved about $432 million for Provided incentives.’ The Congress, however, appropriated approximately $1.1 billion for fiscal years 1991 through 1993 for preservation. Since this *According to HUD offMals, appropriated funds are reserved, or held aside, once they are earmarked for a specific purpose. However, these funds are not considered obligated until an agreement or contract, such as one for Section 8 funding, is executed. Page 2 GAOIRCED-94-177FS Projects Eligible for Preservation As&stance B-256892 money is considered “no-year” funds, it remains available to HUDyear after year until it has been obligated. As of the end of fiscal year 1993, over $540 mihion remained unreserved. Section 1 of this fact sheet contains specific details on HUD'S stock of projects eIigible for prepayment and the distribution of these projects throughout the country. Section 2 discusses the 781 projects for which a notice to participate has been filed. This section also discusses the 132 projects approved for preservation, along with the time period it has taken to process the applications for them. Section 3 provides information on the cost associated with preserving the approximately 19,800 housing units in the 132 projects. This fact sheet relies on information maintained by HUD’S Office of Preservation, which maintains a data base on projects eligible for preservation and activities associated with these projects. Using this data base, we developed a profile of these projects. We did not independently verify the accuracy of the data contained in the data base except in cases in which we found obvious errors or inconsistencies in the data. In such situations, we contacted either HUD’S Preservation Office or the appropriate HUD field office to correct the errors or resolve the inconsistencies. In addition, we provided HUD’SPreservation Office a listing of the errors so that officials could make the necessary corrections to the data base. We performed our review between August 1993 and March 1994. We discussed the contents this fact sheet with officials at HUD’S Office of Preservation and HUD’S Office of Budget. They generahy agreed with the information presented but suggested specific clarifications, which we incorporated where appropriate. We are sending copies of this fact sheet to other interested Senate and House committees and subcommittees; interested Members of Congress; the Secretary of HUD;the Director, Office of Management and Budget; and other interested parties. Page 3 GAOIRCED-94.177FS Projects Eligible for Preservation Assistance B-256892 e Please contact me at (202) 512-7631if you or your staff have questions. Major contributors to this fact sheet are listed in appendix II. Sincerely yours, Judy A. EnglandJoseph Director, Housing and Community Development Issues Page 4 GAO/RCED-94-177FS Projects Eligible for Preservation Adstance Page 6 GAO/RCED-94-177FS Projects Eligible for Preservation Adstance , Contents Letter 1 Section 1 8 Where HUD’s Preservation Eligible Housing Stock Is Located 8 HUD’s Multifamily When Projects Become Eligible for Prepayment 16 Housing Stock Eligible for Preservation Section 2 19 Projects Whose Owners Have Filed for Preservation 19 Housing Projects Geographic Distribution of NOIs 20 Participating in HUD’s FilingTime for NOIs 23 Trend in the Number of NOIs Piled 25 Preservation Program Projects Approved for Preservation 27 Time Frames for Approving Projects 30 Section 3 32 Reserving Appropriated Funds 32 Cost of Preserving Location of and Cost Associated With Preserved Units 35 Multifamily Housing Units Appendixes Appendix I: List of Projects Eligible for Prepayment and for 40 Participation in the Preservation Program Appendix II: Major Contributors to This Report 136 Tables Table 1.1: Number of HUD-Identified Multifamily Housing 10 Projects and Units EIigible for Prepayment, by State Table 1.2: List of Cities With Over 1,000 Housing Units Eligible for 14 Preservation Table 1.3: Number of Units and Projects Eligible for the 18 Preservation Program Table 2.1: Comparison of the Preservation Eligible Units and 21 Projects to the NOIs Filed, by State Table 2.2: Comparison of the Preservation EIigible Units and 23 Projects to the NOIs Piled, for the 10 Cities With the Highest Number of Eligible Units Table 2.3: Units Approved for Presewation, by State 29 Page 6 GAO/f&CED-94-177FS Projects Eligible for Preservation Assistance Contents Table 2.4: Top 10 Cities With Preserved Units 30 Table 3.1: Allocation of Funds Reserved for Projects Approved 34 for Preservation Table 3.2: Projects Receiving Funds Under Each Budget Category 35 and the Average Cost for Each Category Table 3+3:Information on Those States