National Housing Law Project Housing Law Bulletin

HUD Publishes Final Vacancy Rule

Generally, PHAs are expected to project an occupancy level of 97 percent in determining annual requests for operating subsidy funding.² The vacancy rule changes are designed, in part, to relieve PHAs of liability for units vacant for reasons beyond the PHA's control, to revise existing rules relating to units vacant as a result of modernization, and to exclude certain long-time vacant units from those considered available for occupancy.³ The rule first takes effect for PHAs with fiscal years commencing on July 1, 1996.

The proposed vacancy rule was developed through a negotiated rulemaking process mandated in the Housing and Community Development Act of 1992.⁴ Under the direction of the Federal Mediation and Conciliation Service, and subject to the requirements of the Federal Advisory Committee Act (FACA), a committee was convened representing housing authorities, tenant organizations (including the Bromley Health Tenant Management Corporation and the New Jersey Association of Public and Subsidized Housing Residents, Inc.) and public interest groups and HUD. The committee was charged with responding to several questions: (1) what level of vacancies for different size PHAs is acceptable; (2) in providing less than full subsidy, what factors should be considered; and (3) when full subsidy is provided, despite the existence of less than full occupancy, what considerations should govern.⁵

The final vacancy rule adds several pertinent definitions: "long-term vacancy," "units vacant due to circumstances and actions beyond the PHA's control," and "vacant unit undergoing modernization." In addition, it revises the definition of "unit months available" to include a test for when a unit will be considered a long-term vacancy and thus not available for occupancy.

The final rule describes three situations in which a unit will be considered a long-term vacancy: first, when the unit has been vacant longer than 12 months at the time the PHA determines its Actual Occupancy Percentage;⁶ second, when the unit is not undergoing modernization or is vacant due to circumstances and actions beyond the PHA's control.

Seven specific conditions constitute circumstances and actions beyond a PHA's control: litigation, laws, changing market conditions, natural disasters, insufficient funding, resident management corporation (RMC) funding, and casualty losses. Under litigation, for example, units held vacant as part of a court-ordered or HUD-approved desegregation plan would qualify for exclusion. Similarly, the general applicability of federal or state law might result in such treatment as well. A PHA's failure to fund an otherwise approvable RMC request for modernization funding would constitute a circumstance or action beyond the PHA's control. However, vacant units that fail to meet minimum construction or habitability standards under federal, state or local law may not be excluded.

The final situation in which a vacancy will be considered long-term is when the PHA projects that it will have a vacancy greater than 3 percent and more than five vacant units even after adjusting for units undergoing modernization and those vacant for reasons beyond the PHA's control.⁷

The final vacancy rule defines a "vacant unit undergoing modernization" generally as one located in a project not considered obsolete in terms of physical condition, location or otherwise, and the work to be undertaken is necessary to get the unit reoccupied.⁸ Such a unit qualifies when (1) it is under construction, or (2) it is included in a HUD-approved modernization budget or a Comprehensive Improvement Assistance Program (CIAP) budget, but the time for placing the unit under construction has not yet expired. The PHA has two fiscal years following approval of modernization funds to place the unit under construction.⁹

The regulation covering "other costs" that factor into the operating subsidy calculation is amended to include units used for non-dwelling purposes that promote economic self-sufficiency services and anti-drug activities. Such units remain eligible for operating subsidies for a three-year period if the activities are directed toward benefiting residents, are not available elsewhere in the locality, and the space is safe for the projected use; if other funding is unavailable for the non-utility operating costs for such units; and if only one site per development is involved. The PHA must certify that such units are being used for an approved purpose.¹⁰ This change may encourage PHAs to devote dwelling units to important social services uses without fear of loss of substantial operating funding. However, the dedication of units suitable for occupancy to non-dwelling purposes at a time when additional resources are unlikey is a situation that must be monitored closely.

A new provision to Part 990.109 prescribes the actual occupancy data that must support the PHA's budget estimates. These include the number of units the PHA will have available for occupancy and the number of vacancies, as well as what the average occupancy percentage will be for the budget year in question.¹¹

The rule revises the transition provision to provide for different treatment for units already under an approved modernization budget for 1995 or before and for those operating under a HUD-approved Comprehensive Occupancy Plan (COP). In the latter case, PHAs operating under a COP approved under former Part 990.118 (repealed) may continue to determine PFS eligibility consistently with that provision.

Finally, the rule provides that if a rescission of appropriated modernization funds precludes a PHA from completing planned vacant unit rehabilitation, HUD may, at the PHA's request, grant a one-year waiver to permit full PFS eligibility for approved but unfunded projects.

1. 61 Fed. Reg. 7,586 (Feb. 28, 1996).
2. 24 C.F.R. § 990.109(a) (1995).
3. See Summary at 61 Fed. Reg. 7,586.
4. See Pub. L. No. 102-550, § 114(b); 42 U.S.C. § 1437g(a)(3)(A).
5. 60 Fed. Reg. 37,294, 37,295 (July 19, 1995).
6. 24 C.F.R. § 990.117 (1996). A revision renames this part to refer to "Requested Budget Year" Occupancy Percentages and sets out how the Actual Occupancy Percentage and Requested Budget Year Occupancy Percentage are to be calculated, along with the occupancy status documentation required to be maintained by the PHA and made available to HUD upon request. See 61 Fed. Reg. 7,592 amending 24 C.F.R. § 990.117.
7. 61 Fed. Reg. 7,590, amending 24 C.F.R. § 990.102.
8. 61 Fed. Reg. 7,591. 24 C.F.R. § 970.6 defines obsolescence for these purposes.
9. 61 Fed. Reg. 7,591.
10. 61 Fed. Reg. 7,591, amending 24 C.F.R. § 990.108.
11. 61 Fed. Reg. 7,591, revising 24 C.F.R. § 990.109(b)(3).