On August 28, 2026, HUD issued Notice PIH 2026-23 (the “Section 18 Notice”) updating the guidance for the disposition and demolition of public housing property, including mixed-finance developments, under Section 18 of the United States Housing Act of 1937. The Section 18 Notice has implications for past Section 18 dispositions as well as projects that are still in planning stages and/or contemplating RAD blends and amends and supersedes Notice PIH 2024-40.

Background

Section 18 of the United States Housing Act of 1937 (the “Act”) establishes the process available to Public Housing Authorities (“PHA”) to dispose of or demolish federal public housing property that has been financed by HUD under Section 9 of the Act and is subject to a Declaration of Trust or Declaration of Restrictive Covenant benefitting HUD. Most often Section 18 is used by PHAs and developers to revitalize and redevelop former public housing properties by converting properties from public housing to Section 8 project-based voucher contracts and unlocking additional financing sources including Low Income Housing Tax Credits. As a housing revitalization tool, Section 18 is used on its own or in conjunction with the Rental Assistance Demonstration Program (“RAD”) through what is referred to as a RAD/Section 18 Blend.

What is new under the Section Notice?

The Section 18 Notice includes several important updates relevant to both PHAs and developers who work on Section 18 projects. The critical updates are outlined here.

Guidance on Dispositions of Existing Mixed-Finance Developments

The Section 18 Notice provides that Section 18 dispositions and 90/10 RAD Blends are now available for existing mixed-finance developments where the project is at risk because (i) the 15-year LIHTC compliance period is expiring OR it has been 15 years since the last major recapitalization, AND (ii) documented capital needs exceed the financial resources of the project. Any disposition of a mixed-finance development must include a plan for ensuring the long-term financial and physical viability of the Project.

Previously, mixed-finance developments not owned by a PHA were ineligible for Section 18.   The Section 18 Notice encourages PHAs to participate in the owner entity of the mixed-finance project after a full Section 18 disposition and notes that for non-PHA owners a waiver of 24 CFR 970.3(a) will be required. 

Implementation of a Section 18 disposition in an existing mixed-finance development has many layers that a PHA and project owner should evaluate early in the planning process. including ensuring that the Section 18 and project-based subsidy requirements  will not conflict with other covenants, mortgages and commitments already in place. We encourage those evaluating a disposition of a mixed-finance development to reach out early to work through the process and structure for the transaction.

Expanded Requirements for Section 18 Use Restrictions

Dispositions by a PHA under Section 18 must either be for fair market value or provide a “commensurate public benefit”. Commensurate public benefit is achieved by providing for new low-income housing or housing serving low-income families (at 80% of area median income or below). This affordable housing requirement must be enforced through an affordability covenant (a Section 18 Use Agreement) that is monitored and enforced by the PHA for a term of thirty years. The Section 18 Notice expands on the requirements for the Section 18 Use agreement in several notable ways:

  1. New Record Keeping and Reporting Requirements. For the term of the use agreement, the PHA is obligated to monitor and enforce the covenant. The Section 18 Notice now requires that PHAs retain records for the full 30-year term and report annually to their board of commissioners regarding compliance with the use restriction. These records will need to be provided to HUD any time HUD consent is required under the covenant. This requirement will apply to PHAs currently monitoring existing Section 18 Use Agreements, and PHAs should examine their compliance process to ensure they have kept the records that HUD will require when HUD’s consent is required. 
  2. Requires that HUD is a Party and Expands the Terms Requiring HUD Consent. HUD now requires that it be added as a party to the Section 18 Use Agreement and that additional restrictions on conveyances, mortgages, and default be inserted into the Use Agreement. It will no longer be possible to satisfy the requirements for the Section 18 Use Agreement through covenants in a ground lease or through a LIHTC Extended Use Agreement.However, we note that the Notice also makes clear that a RAD Use Agreement satisfies the requirement of the Section 18 Use Agreement, so no separate or duplicative restrictions will be required if a Section 18 disposition is part of a RAD/Section 18 Blend.

Expanded the Justifications Available to PHA’s to carry out Section 18 Disposition/Demolition

A PHA pursuing a Section 18 disposition must demonstrate to HUD that disposition is in the best interest of either the PHA or residents. A PHA pursuing a Section 18 demolition must demonstrate obsolescence of the Project. The Section 18 Notice expands the justifications available to PHAs to satisfy these tests in several important ways:

  1. Clarifies the Availability of Functional Obsolescence.  PHAs can now receive approval for a demolition or disposition due to functional obsolescence. For dispositions, a PHA must show that there are problems with the building or site that can only be addressed through reconstruction. For demolition, units constructed prior to 1950 may be functionally obsolete and appropriate for demolition if a PHA demonstrates that there are issues with the design that can only be addressed through demolition of existing units and construction of new units.
  2. Increased the Number of Units to Qualify as a Small PHA. PHAs with 75 or fewer public housing units now qualify as small PHAs that can carry out a disposition if it is determined that it is in the PHA’s or residents’ best interest to close out the public housing program. This is an increase from the prior threshold of 50 units. The Section 18 Notice also makes clear that units transferred from a small PHA to another PHA remain eligible for Section 18 disposition under the small PHA designation.
  3. Scattered Site Threshold Increase. PHAs with scattered site portfolios can pursue a Section 18 disposition if the distance and lack of uniformity makes the portfolio hard to administer as public housing. The Section 18 Notice increases the number of units that can be in contiguous or noncontiguous buildings while still qualifying for a scattered site disposition from 4 units to 6 units located on the same block.
  4. Physical Obsolescence and Choice Neighborhoods. The Section 18 Notice also clarifies that physical obsolescence is available for those units that are part of a Choice Neighborhood Planning Grant and classified as distressed under that grant.

For additional information, or assistance on projects that are pursuing a disposition under Section 18, either on its own or as part of a RAD/Section 18 Blend, please contact Sarah Molseed, Emily Blumberg or Rob Liscord.

This housing alert is intended as a source of information for clients and friends of Klein Hornig LLP. The content should not be construed as legal advice, and readers should not act upon information in this publication without professional counsel. This housing alert may be considered advertising under certain rules of professional conduct. Copyright © 2026 Klein Hornig LLP. All rights reserved.

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