The Use of Entitlement Block Grant Funds for a New Rental Housing Block Grant Initiative

To assist in congressional deliberations on proposed legislation for a new rental housing block grant program, GAO discussed the results of an evaluation of housing activities under the Community Development Block Grant (CDBG) Program and a survey dealing with various aspects of local rental rehabilitation programs funded in part by the CDBG program. GAO found that, although nearly half of the CDBG program entitlement cities have undertaken some rental housing rehabilitation during the past 6 years, only about 8 percent had extensive experience in the recent design, implementation, or evaluation rental rehabilitation programs. Excluding those cities with exceptionally high program costs, average rehabilitation costs were less than $7,000 per unit, which is greater than the $5,000 contemplated in proposed legislation. The majority of the facilities GAO surveyed said that their programs controlled rents after rehabilitation. Nevertheless, local officials said that these controls allowed rent increases as large as 50 percent. Subsidies may be greater than necessary to induce landlord participation because most cities do not tailor the amount of subsidy to the particular situation, but rather use a standard subsidy formula such as providing loans with fixed below interest rates. Communities generally do not know who occupies subsidized and rehabilitated units. GAO believes that, without adequate guidance, communities will devise rental rehabilitation programs directed primarily at the rehabilitation of housing units without adequate consideration of the benefits from such rehabilitation to lower income households. GAO provided suggestions for strengthening the legislation under consideration, which included: (1) requiring the Department of Housing and Urban Development (HUD) to periodically report to Congress on the overall progress of the program; (2) requiring each participating local Government to submit annual reports to HUD showing what they have accomplished; (3) either requiring project owners to annually provide verified income and demographic information to the local administering government or making some alternate provisions for collecting this information.