Expediting Housing Development for the Elderly

Expediting Housing Development for the Elderly

HUD’s Section 202 Supportive Housing for the Elderly program fills a significant need for the elderly population by subsidizing rent in supportive housing projects for people at least 62 years of age who earn less than 50 percent of the local median income. Currently, 8,000 properties and 263,000 housing units are in the program, and the waiting list for a 202-supported unit averages more than 12 months. The program also provides capital advances to nonprofit organization sponsors to finance the construction, rehabilitation, and acquisition of this housing. Although sponsors receiving Section 202 capital advance funding should reach initial closing on properties within 18 months of fund reservation, a 2003 Government Accountability Office study found that many Section 202 sponsors could not meet this goal because they lacked predevelopment funds.

HUD implemented the Section 202 Demonstration Predevelopment Grant (DPG) program in 2004 to reduce delays associated with predevelopment of Section 202 properties and increase the number of affordable rental units available to very low-income seniors. HUD’s new study, “Evaluation of the Section 202 Demonstration Predevelopment Grant Program,” analyzes DPG participation and implementation and assesses how effectively the program has sped up the predevelopment process.

The DPG program provides Section 202 housing sponsors with grants of up to $400,000 in predevelopment funds for each Section 202 property. Sponsors use these funds to pay predevelopment costs in advance of the property’s initial closing, expediting the process. Eligible costs include architectural and engineering services, consulting, environmental site assessments, legal fees, organizational costs, building permits, and relocation costs. In addition to using administrative data, the study’s researchers surveyed HUD field office personnel administering the Section 202 and DPG programs, as well as a sample of Section 202 sponsors, both those who applied for DPG funds and those who did not.

Study Findings

DPG participation did not significantly increase the ability of Section 202 sponsors to reach initial closing within 18 months. An average of 27 percent of DPG participants and 25 percent of nonparticipants reached initial closing within 18 months. Overall, average processing time for DPG recipients was 22 months, compared with 25 months for non recipients. Properties in high-cost areas of the West and Northeast were less likely to reach initial closing within 18 or even 24 months and were more likely to request additional funds and time to complete predevelopment activities. The average lag time between capital advance awards and DPG awards caused sponsors to spend almost half of the targeted 18 months waiting for HUD to release DPG funds, which likely hindered sponsors’ ability to move forward with projects.

The study also examines which types of sponsors applied for a DPG and their experience with and knowledge of the program. Approximately two-thirds of Section 202 capital advance recipients applied for and received DPG funding. No significant association existed between DPG participation and suburban, urban, or rural location; both DPG-supported and unsupported Section 202 properties were concentrated in the Southeast and U.S. territories, as well as in the Midwest. Surveys with Section 202 sponsors found that the most common reason DPG recipients gave for applying for funding was a lack of other predevelopment funding sources (see table 1); those who did not apply reported having other sources of funding for their predevelopment activities. Twenty-nine percent of recipients reported that the grants helped them leverage other funding sources.

Table 1. Reasons for Applying for a Demonstration Predevelopment Grant

	Percent
No other sources of predevelopment funding were available before initial closing.	77
DPG was needed to speed up time between fund reservation and initial closing.	67
The property needed additional funding because it was in a high-cost area.	41
DPG enabled the recipient to retain qualified predevelopment contractors (such as developers and architects).	62
DPG enabled the recipient to retain qualified development consultants.	48
Other	21

Researchers found that DPG funds covered approximately six percent of the total development costs for most Section 202 properties. Sponsors received an average predevelopment grant of $230,000, proportionate to the size of the properties funded and typically equal to the amount requested.

Implications and Recommendations

Although the DPG program was not found to significantly help properties reach initial closing within 18 months, more than half of DPG sponsors reported that they felt the funds helped reduce predevelopment processing time. The DPG program may be especially helpful for smaller organizations that do not have enough money to pay for predevelopment costs up front. The researchers suggested combining the Section 202 and DPG funding into a single funding mechanism to speed disbursement to sponsors and might also consider coordinating with other funding sources and creating guidelines for combining Section 202 funding with programs such as the Low-Income Housing Tax Credit and Community Development Block Grant programs. The study team suggested that HUD could consider allowing early disbursements of Section 202 funds to sponsors for predevelopment activities, which might ultimately eliminate the need for the DPG program while addressing sponsors’ need for predevelopment funds.