The Obama administration’s $350 million Preservation, Enhancement, and Transformation of Rental Assistance (PETRA) initiative, outlined in the Fiscal Year 2011 budget, is intended to preserve an estimated 300,000 publicly and privately owned affordable homes in the first year and more in subsequent years by converting them to a single type of project-based affordable housing contract. The new contracts would come with increased long-term subsidies and the ability to access private investment for repairs, renovations, or new construction. Many housing advocates worry that private capital could lead to fewer units and higher rents. HUD, however, estimates that in its first year PETRA would bring in an additional $7 billion to preserve a badly deteriorated affordable housing stock that is nearing the “tipping point” of habitability.
PETRA also makes other changes, including streamlining administration by combining several different rental assistance programs into one, consolidating waiting lists, encouraging housing authorities to regionalize, making eligibility rules consistent, and giving families with housing subsidies more of a choice to rent housing in an array of neighborhoods.
HUD Assistant Secretary for Public and Indian Housing Sandra Henriquez spoke with Shelterforce about the need for PETRA and some of its more controversial details.
Shelterforce: PETRA is a pretty bold initiative. What are some of the first steps, and where do you see this going?
Secretary Henriquez: This is the start of a multiyear program to phase this in across the 1.2 million public housing units in this country, followed by the 1.3 million multifamily [HUD-assisted] units. We think that this first tranche will get us converting 280,000 to 300,000 units for about $300 million, and it’s really a preservation strategy within a mobility feature. It’s important because if we don’t act now, given the capital needs of the public housing portfolio, we’re going to start losing hundreds of thousands of units a year just because the lack of capital infusion will render them uninhabitable.
We’re currently undergoing a capital needs study, but we have about a $20 billion capital backlog in the public housing portfolio alone, and we think $20 billion to $30 billion is where we’re pegging it right now. We will never get sufficient appropriations at one time to change the game, to really put a stake in the ground and prevent the loss of units. This mechanism will preserve units by giving a steadier, more predictable, stable, consistent income stream to the converted units. It will give housing authorities a chance to play in that market arena by allowing access to the financing tools available under PETRA such as going to the bank or to use other public- and private-sector market tools to leverage capital, whether they’re tax credits, commercial mortgages, bond financing, or other tools available in the marketplace.
We believe that ultimately PETRA will drive market discipline into the portfolio, as well. There’ll be more eyes and ears, both the property’s residents and its investors, as to the performance of the property. It will also then allow those housing authorities to do what every other real estate owner does: refinance one’s property, plow the refinancing into renewing the useful lives of the building systems and the units themselves, and continue to maintain and improve the property. This is something that we’ve never had in public housing before.
This will bring public housing out of isolation and put owners in this system in the same marketplace as other owners of affordable housing. Today, most families live in housing that is financed, developed, and managed in a way that can be integrated with the communities around them, while the 2.5 million families served by HUD’s oldest programs don’t. PETRA will put an end to the parallel universe in America’s housing system by encouraging a mix of uses and incomes that link public housing to investments in neighborhood schools, local businesses, and other community anchors.
Leveraging private resources is going to put a lot of debt burden on these developments. What happens to the PHAs that aren’t as robust or well managed as Boston’s or Atlanta’s?
It is something we’re talking about. It’s important to note that this is a voluntary program. We think there are a lot of smaller housing authorities, or rural housing authorities, that would like a change in the regulatory environment, and would like this additional infusion of cash to leverage debt.
Regarding the level of sophistication, we will look at issues of capacity, but I do believe that those agencies will eventually seek to regionalize or consolidate just to build economies of scale and capacity. I’m hoping that smaller housing authorities that are less sophisticated will participate in getting some technical assistance or reaching out to sister agencies where there is that capacity to help them do this program and come into this new way of operating their portfolio. In fact, about $10 million of the $350 million is specifically there to provide technical assistance.
It’s not that housing authorities will just come and say, “I want to do this.” We’re going to want to see from each housing authority that wants to participate sort of an appraisal or a capital needs study, what they’re looking to do with the money, how they’ve run their numbers, both on operating and what sustains the debt and their ability to repay.
It sounds like you’re asking them basically to put together business plans.
Exactly. Early on, when I came to the Boston Housing Authority, I used to joke with my colleagues about committing what I called “public housing heresy,” because people would always say, “But, we’re public housing and we’re different.” And I said, “It’s really the same.” We should be using real estate principles and practices: What are the indicators that we want to know on a routine basis? What’s our turnover rate? How long does it take us to get a unit made ready? Vacancy, occupancy issues, per-unit utility costs, on and on. We’re public housing, but we’re really real estate first and foremost.
[Under PETRA,] HUD would be the asset manager and housing authorities would be the property-based managers of the portfolio. But this is really an opportunity to embed the real meaning of “asset management” into the portfolio in its purest sense. This can provide regulatory relief from the onerous, burdensome public housing set of regulations and rules and requirements, [and create instead] something more streamlined, which has got to have value. While that value might be hard to quantify, it can give housing authorities a seat at the table in their communities, speaking the same language as multifamily for-profit and nonprofit owners in the marketplace. My vision is that the term “public housing” goes away. It’s just another stop on the affordable housing continuum.
It’s going to be a challenge.
This is an opportunity that we have to seize now. We will never get enough capital through appropriations. It’s just too big a number. Plus, we’re losing tens of thousands of affordable homes each year — over 150,000 in the last 15 years — through sale or demolition. But we think that this first wave could leverage as much as $7.5 billion in capital. That’s powerful.
Some feel it’s risky that PETRA includes no cap on interest rates being charged to housing authorities. One suggestion has been to make all loans to housing authorities subject to FHA guidelines. Would that be possible or desirable? If not, why not?
We agree that public housing authorities should have access to sustainable financing. That is why every converted property will be eligible to apply for FHA mortgage insurance. The challenge in placing a cap on interest rates is that we cannot predict where rates may be in another 20 to 30 years. While we’re hesitant to put capping language into the bill, we have been open to our stakeholders’ suggestions and ideas for helping PHAs manage this.