Affordable Housing: Improvements Needed in HUD's Oversight of the Housing Trust Fund Program
Fast Facts
Many low-income renters face a shortage of affordable housing. The Housing Trust Fund program, which began in 2016, is designed to preserve and increase the supply of affordable housing units. The Department of Housing and Urban Development allocates program funds to states for affordable housing projects.
We found ways to improve HUD's oversight. For example, by instructing states on project reporting and cost control requirements, HUD could collect better data and help ensure proper use of these funds.
While HUD plans to start monitoring states in FY 2024, our recommendations are to help HUD address these and other issues in the near term.
Housing Trust Fund Allocations for 2022, by State
Highlights
What GAO Found
As of March 1, 2022, Housing Trust Fund (HTF) grantees had developed 2,186 rental units (in 263 projects) for households with extremely low incomes (not exceeding 30 percent of the area median). Grantees had also committed HTF funds to another 519 projects with an estimated 6,646 units designated for extremely low-income households. Once grantees began receiving HTF funds in late 2016, production of completed units averaged about seven units per quarter from the fourth quarter of 2017 through 2018, but grew to almost 300 units per quarter in 2021.
For the 12 selected grantees GAO reviewed, HTF accounted for about 10 percent of the total funds for 70 completed projects. Equity from investors in Low-Income Housing Tax Credits was the largest funding source. The average development cost for these 70 projects was about $232,000 per unit but varied by project type and location. For example, new construction projects were more expensive per unit than rehabilitation projects (see figure).
Funding Sources and Average Per-Unit Development Costs for Housing Trust Fund Projects Completed by 12 Selected Grantees, as of March 1, 2022
The Department of Housing and Urban Development (HUD) monitors compliance with HTF funding commitment and expenditure deadlines, but weaknesses exist in its oversight and reporting. Specifically, HUD has not
- monitored grantee compliance with requirements for reporting project completion dates or data on total project units in HUD's information system;
- effectively communicated requirements for grantees to obtain cost certifications for completed HTF projects;
- conducted or scheduled a comprehensive assessment of fraud risks; and
- disclosed limitations in its external HTF reports that could lead to misinterpretation of project cost and funding data.
HUD officials said they are drafting procedures for field monitoring of HTF grantees that is expected to begin in fiscal year 2024. While this monitoring could help address some of the weaknesses GAO identified, HUD could take additional steps in the near term to help ensure that HTF funds are used efficiently and effectively and that Congress understands the program's performance.
Why GAO Did This Study
The U.S. faces a widespread shortage of affordable rental housing. Congress authorized HTF in 2008 to increase and preserve the supply of housing for people with the lowest incomes. HTF is funded by set-asides from Fannie Mae and Freddie Mac that began in fiscal year 2016. HUD administers HTF and allocates funding to state grantees.
GAO was asked to examine the use and oversight of HTF funds. This report examines (1) the number and production rate of HTF units; (2) how selected grantees have used HTF and other funding sources, and the development costs of their projects; and (3) HUD's HTF oversight and reporting.
GAO analyzed data from HUD and a nongeneralizable sample of 12 grantees (selected for diversity in location and project characteristics and accounting for about 42 percent of HTF funding in 2021) on HTF-assisted projects completed by March 1, 2022. GAO also reviewed program documents and interviewed HUD and grantee officials.
Recommendations
GAO is making five recommendations, including that HUD centrally monitor HTF grantees' compliance with project completion timelines and data requirements, communicate the cost certification requirement to grantees, schedule and conduct a fraud risk assessment, and disclose limitations in external reports. HUD agreed with the recommendations and outlined planned actions to address them.
Recommendations for Executive Action
| Agency Affected | Recommendation | Status |
|---|---|---|
| Department of Housing and Urban Development | The Secretary of HUD should ensure that the Assistant Secretary for Community Planning and Development develops and implements a centralized process to monitor HTF grantees' compliance with the requirement to enter completion information in IDIS within 120 days of the final project drawdown and provides additional instruction to grantees about this requirement. (Recommendation 1) |
In response to our recommendation, HUD's Office of Affordable Housing Programs (OAHP) developed and implemented procedures in the fourth quarter of fiscal year 2024 to identify and follow up on HTF activities that remain open after 120 days of the final project drawdown. Specifically, OAHP developed a new weekly report listing each grantee's open activities that have been in final draw status for 120 days or more. OAHP's procedures call for emailing the grantees to remind them of the 120-day requirement and to request that the grantees either complete the IDIS closeout process or provide an expected project completion date (as appropriate) within 15 days. The emails state that if the grantee does not provide satisfactory project completion information, HUD may suspend further project set-ups or take other corrective actions.
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| Department of Housing and Urban Development | The Secretary of HUD should ensure that the Assistant Secretary for Community Planning and Development develops and implements a centralized process to monitor data in IDIS on the total number of units in completed projects for likely errors and provides additional instruction to grantees about inputting these data. (Recommendation 2) |
In early 2024, HUD Office of Affordable Housing Programs (OAHP) officials made presentations to industry groups (which include HTF grantees) that discussed GAO's finding and recommendation on reporting of total units data. In August 2024, OAHP said it was developing website and video FAQs on the topic that will provide further instruction. Additionally, OAHP said forthcoming exhibits for HUD monitoring of HTF grantees will include questions about accurate total units data in IDIS. We will update the status of the recommendation when the FAQs and monitoring exhibits are finalized.
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| Department of Housing and Urban Development | The Secretary of HUD should ensure that the Assistant Secretary for Community Planning and Development uses additional methods, such as formal notices and training, to enhance communication of the cost certification requirement to grantees. (Recommendation 3) |
In early 2024, HUD Office of Affordable Housing Program (OAHP) officials made presentations to housing industry groups (which include HTF grantees) that discussed GAO's finding and recommendation on cost certifications. In addition, OAHP posted an FAQ on the certification requirement in August 2023 and, as of August 2024, was developing a video FAQ on the topic to be posted later in the year. Further, OAHP said forthcoming exhibits for HUD monitoring of HTF grantees will include a review of the grantee's compliance with the cost certification requirement. We will update the status of the recommendation when the video FAQ and monitoring exhibit are finalized.
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| Department of Housing and Urban Development | The Secretary of HUD should ensure that the Assistant Secretary for Community Planning and Development schedules and conducts a comprehensive assessment of HTF fraud risks in accordance with GAO's Fraud Risk Framework and HUD's fraud risk management policy. (Recommendation 4) |
In August 2024, HUD said its Office of the Chief Risk Officer expects to complete development of a fraud risk assessment template by the end fiscal year 2024. HUD's Office of Affordable Housing Programs (OAHP) plans to use the template to conduct a fraud risk assessment of HTF. We will update the status of the recommendation when OAHP completes the assessment.
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| Department of Housing and Urban Development | The Secretary of HUD should ensure that the Assistant Secretary for Community Planning and Development revises HUD's public reports on HTF to disclose that the amount of non-HTF funds may be underreported and that HTF units are only a portion of the total units in HTF-assisted projects. (Recommendation 5) |
In response to our recommendation, HUD added a disclaimer to its HTF National Production Report beginning in June 2024 that states grantee reporting of non-HTF funds is voluntary and therefore may be under-reported. Additionally, in February 2024, HUD updated its HTF National Production Report Explanation to clarify that information in the report's leveraging section is for HTF projects, not HTF units specifically. However, we maintain that the report would be less susceptible to misinterpretation if, as we recommended, it also disclosed that HTF units are only a portion of the total units in HTF projects.
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