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Proposed Rule on Inspections and Conditions of HUD Housing Published

Contains Significant Relief for Small Rural Agencies

On January 13, HUD’s proposed rule outlining a new physical inspection protocol was published in the Federal Register. The National Standards for the Physical Inspection of Real Estate (NSPIRE) will be the foundation for assessing the quality of housing assisted by the federal government. For several years, the Department has been evaluating various aspects of its main inspection models (HQS and UPCS) and this proposed rule is one part of the “effort across HUD to revise the way HUD-assisted housing is inspected and evaluated.” Comments to the proposed rule are due March 15, 2021.

Through its evaluation, HUD found what housing authorities and other stakeholders have been experiencing since the start of REAC two decades ago: “a disproportionate emphasis around the appearance of items that are otherwise safe and functional.” The new model is aimed at prioritizing resident health and safety, particularly in the unit rather than areas external to the unit. PHADA has participated in discussions with HUD since the public unveiling of the plan to reform UPCS inspection and appreciates the Department’s proactive outreach and open communications to all stakeholders.

In the proposed rule, HUD does several things. First, it consolidates all regulations concerning housing inspections and quality in consecutive sections of the Federal Register. Currently, these regulations are dispersed across various parts of 24 CFR. Second, the rule attempts to align inspection programs, quality standards, and terminology across HUD programs within statutory limits. The proposed rule does not outline the standards, procedures, and scoring methodologies which will be implemented; those are being refined through the NSPIRE demonstration and according to HUD staff, a notice will be published in the coming weeks providing an opportunity for public comment. Third, it implements significant regulatory relief for small rural HAs, pursuant to statutory changes from 2018’s Economic Growth and Recovery, Regulatory Relief and Consumer Protection Act (Economic Growth Act).

 

Regulatory Consolidation

The various “policies related to the frequency of inspections, the method of appealing results, and the actors responsible for conducting inspections” will be consolidated at 24 CFR 5.703 where standards will be outlined. This section will formalize the proposed “Inside,” “Outside,” and “Unit” inspectable area framework that has been a foundational concept in the NSPIRE demonstration. Generally speaking, the proposed regulation provides more of an overview of the inspectable areas than the current regulation. However, the regulation for unit (the proposed § 5.703(d)) follows the model of the existing regulation in some of the requirements of units, to include drinking water, bathroom facilities, and smoke detectors. The proposed regulation does add the following required components to the unit: smoke detectors, living room, kitchen area, and for the HCV and PBV programs, the requirement that there must be one sleeping area for every two individuals and that children of the opposite sex (except for the very young) cannot be required to share the same bedroom.

There is also an important discussion around the requirements for water in units. The current regulation states “the dwelling unit must have hot and cold running water, including an adequate source of potable water,” while the proposed rule would require “…an adequate source of safe and potable water” (emphasis added). HUD states that “safe” in the context of water will defined by future regulations and the asks the public for suggestions in how HUD should craft such a definition. Questions posed include “How should HUD monitor whether water is safe?” and “What elements should be reviewed during the physical inspection to determine water safety?” These questions open the proverbial can of worms and position the HA/owner to be responsible for assuring the quality of water from public water systems. This topic must be approached with extreme caution.

 

Regulatory Alignment

One of HUD’s main priorities is to create a protocol that reflects the current state of HUD-assisted housing. HUD states that its “inspection portfolio has shifted to include greater numbers of mixed finance properties which are subject to multiple inspection standards” and highlighted the plight of HAs with diverse portfolios. However, due to varied statutory requirements (such as those for the HCV program), HUD is unable to completely align all programs under one rule. The majority of alignment in the rule is between the public housing and multifamily programs. For example, multifamily housing would be subject to same annual self-inspection requirement that is applicable to public housing. The proposed rule also would apply the proposed standards for the condition of HUD housing under NSPIRE to housing programs under the Office of Community Planning and Development, such as HOME, Housing Opportunities for Persons with Aids, Emergency Solutions Grants, and Continuum of Care.

HUD seeks extensive public input as to how to align NSPIRE with the HOME and Housing Trust Fund (HTF) programs. Eight of the 24 specific questions (numbers 4-11) in the proposed rule address this issue for both rental and owner-occupied housing units, including down payment assistance. HUD is seeking feedback on potential “minimum housing condition standards” that should be applicable to assisted projects and “different minimum deficiencies” that HUD would mandate for correction.

 

Regulatory Relief

The Economic Growth Act provided significant reductions in administrative burdens for small rural HAs. While striking “rural” from the bill language (an amendment to the bill that PHADA advocated for strongly) would have dramatically increased the number of HAs receiving relief, the agencies that meet the definition of “small rural HA” will have a substantial burden lifted. Indeed, in the rule, HUD acknowledges that the “regulatory burden often falls more heavily on small rural [HAs], reducing their ability to serve low-income families.” HUD is defining a small rural HA as one with 550 or fewer HCV and public housing units combined and with either a primary administrative office building in a rural area or more than 50 percent of its public housing and HCV units in rural areas. While HUD will designate small rural HAs once every three years, the February 27, 2020 Notice informed the public that HUD will determine a method for reassessing an HA’s designation through future rulemaking, and that the “designations announced in this notice will remain in effect until a reassessment procedure is implemented.” The list of small rural HAs is available here.

The following provisions will apply to small rural HAs:

  • Public housing programs will be assessed and scored only on the physical condition of the public housing properties.
  • HCV programs will be assessed primarily on compliance with the following four indicators relating to inspection protocols: proper use of standards, the completion of initial inspections, the completion of ongoing unit inspections, and the enforcement of unit condition requirements.
  • Assessments will occur no more than once every three years.

Small rural HAs will be designated “Troubled” if:

  • For the public housing program, the weighted average score of all property inspections is below 70 percent of available points, or;
  • The weighted average score is between 70 and percent of available points, and at least one property receives fewer than 70 percent of available points.
  • For the HCV program, if the HA failed any of the four indicators

In addition to the requirements above, an HA will be designated an HCV high-performer if its budget or unit utilization is at least 98 percent and it ends the calendar year neither in shortfall/having received shortfall prevention funding nor with excess HAP reserves.

PHADA appreciates the Department’s fidelity to the deregulatory spirit in which the Economic Growth Act was written. Once implemented, the rule will provide substantial and durable relief to small rural HAs and their success will illustrate the value of decreased administrative burdens for all HAs.

 

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Scheduled for September 12–14, 2021 at the Hyatt Regency Washington on Capitol Hill in Washington, DC.

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