Lack of Uniform Instructions Led to Different Rent-Restriction Requirements

HUD’s instructions for disposing of multifamily properties did not provide HUD field offices or purchasers of HUD properties with clear directions for implementing the rent-restriction alterative. Moreover, several officials believed that the procedure for filling vacancies is beneficial because it can place more of the cost of providing affordable housing on property owners since it essentially requires the owners to accept low-income households on a first-come, first-served basis even if they would not pay the full rental cost. The officials told us that they had not required field offices to monitor purchasers’ compliance with rent-restriction agreements because they considered this to be a low priority, given the relatively small number of properties that had been sold with rent restrictions. Although rent-restriction agreements are likely to continue as an important aspect of HUD’s multifamily property disposition activities, future use of the current rent-restriction alternative is likely to decrease. Occupants can be required to pay a percentage of the median income in the local area, instead of a percentage of their household income. HUD has acknowledged that it did not provide field offices and property owners adequate instructions when the rent-restriction approach was implemented. HUD also said that it would issue revised monitoring procedures to its field offices by May 1, 1995. Through its comments, HUD implemented the recommendations that we proposed by establishing a firm schedule for (1) clarifying procedures that owners must follow in managing rent-restricted units, (2) clarifying procedures field offices are to use in monitoring owners’ compliance, and (3) establishing similar procedures for new rent-restriction options that the agency will use to carry out requirements of the Multifamily Housing Property Disposition Reform Act of 1994. A recorded menu will provide information on how to obtain these lists.
Why GAO Did This Study

Pursuant to a congressional request, GAO provided information on the Department of Housing and Urban Development's (HUD) procedures for implementing a rent-restriction alternative for the disposition of multifamily properties, focusing on: (1) HUD instructions to its field offices and property purchasers on implementing the alternative; (2) HUD instructions to field offices on monitoring purchasers' compliance with rent-restriction agreements; and (3) the expected future use of the rent-restriction alternative.

What GAO Found

GAO found that: (1) HUD has not provided adequate instructions on how the rent-restriction alternative should be implemented; (2) HUD has inconsistently enforced its policy of filling vacant units on a first-come, first-served basis, which ensures that new property owners accept low-income households regardless of how much rental income the owners receive; (3) HUD did not require its field offices to monitor property owners' compliance with rent-restriction agreements until July 1994, since it placed a low priority on establishing monitoring requirements because few properties were sold with rent restrictions; (4) HUD plans to issue instructions clarifying program requirements by May 1, 1995; (5) changes authorized by new property disposition legislation are likely to diminish HUD use of the current rent-restriction alternative; and (6) many occupants of rent-restricted units may be required to pay rents computed as a percentage of the area median income rather than as 30 percent of their own adjusted household income.