November 29, 2015; New York Times

District of Columbia Public Housing (DCPH) has decided to sell 28 “scattered site” units that were providing homes to public housing tenants, some of them elderly or disabled. In an Associated Press story entitled “In D.C., Public Housing Tenants Forced Out, Then Homes Flipped,” AP reports that DCHA is rehabbing and selling these units to upper-income homeowners, relocating the tenants into other public housing units, and using the proceeds of the sales to improve public housing units elsewhere.

The renovations, at a cost of more than $300,000 per home, are outfitting the houses with luxury amenities, and some of the houses have sold for nearly $900,000. Others, however, have sat vacant for a year or longer after tenants were forced out. The housing authority plans to use the profits to renovate existing subsidized rental units and build new ones. But most of that work hasn’t started, and none of the money has gone to new construction yet, according to the agency. Meanwhile, sales have been slow-moving and haphazard.

Within a week and all the way across the continent comes the story of Los Angeles County supervisors deciding to deny permission to the Housing Authority of the City of Los Angeles (HACLA) to sell 241 scattered site units in South L.A. The story suggests that the supervisors were swayed by protests from homeless and affordable housing advocates: “In the face of increased concern about homelessness and the lack of affordable housing in Los Angeles, county officials decided Tuesday to hang on to the apartments.”

Scattered-site public housing may be unfamiliar even to a housing-savvy professional. That’s because scattered-site public housing is a relic from HUD’s past that involves the purchase of existing properties (singles, duplexes or small multis) in areas where “a project” might not be suitable or acceptable. Purchasing an existing single family home could be a way for a Public Housing Authority (PHA) to meet the needs of a large household when a right-sized unit (four or more bedrooms) was not available in the PHA inventory.

The stories from D.C. and L.A. underscore three policy challenges for PHAs.

  1. Encouraging PHAs to use private sector capital in public housing renewal is the main feature of HUD’s Rental Assistance Demonstration (RAD) program, and that feature is a source of contention among tenant advocates around the country. While the L.A. plan doesn’t explicitly reference a RAD conversion, the plan outlined in the A. Times article sounds a lot like the RAD deal. By contrast, the D.C. plan is more clearly a market-rate real estate transaction. Proceeds of the market sales of scattered site units will be directly reinvested in conventional public housing developments. RAD plans encourage flexibility and adaptability by the local PHA in meeting its needs.
  2. At the same time, new HUD regulations on Affirmatively Furthering Fair Housing will soon require that PHAs take more action to deconcentrate public housing. This impending duty could weigh heavily on decisions to shift away from scattered sites back to traditional “projects.” One can imagine that in both cases, the PHAs were rushing their plans to unload scattered site units before AFFH regulations become effective. These new regulations are widely viewed to be much more proscriptive than past regulations.
  3. Thus, HUD is seeking to promote PHA autonomy and discretion while at the same time establishing more uniform policies and procedures. No wonder PHAs are confused and wary about how to proceed!

If there is a right and wrong way to convert these scattered-site properties, the “how-to” manual has yet to be written. In L.A., the economic motivation seems to involve a reduction in operating expenses, where in the D.C. example, the economic motivation is to realize a capital gain based on rising home prices. Without seeing the balance sheets, it’s hard to know the facts. Still, nonprofits know that proceeds of an asset sale that are reinvested in support of the organization’s mission are not “profit.”

In both cases, taking time to engage the many constituencies (tenants, their advocates, developers, their advocates, community leaders and local elected officials) should have resulted in comprehensive plans that resulted in a net increase in affordability choices in each community. Alas, elected officials under pressure to engage in a “War on Homelessness” and PHAs who are anxious to unload high maintenance properties before new regulations take effect seem to be acting before building a local consensus. Volatile real estate markets and heated rhetoric don’t leave much room for planning.—Spencer Wells