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Effective Date:Aug 28, 2026
HUD has expanded the circumstances under which public housing agencies may use Section 18 to demolish, sell or reposition public-housing property.
Notice PIH 2026-23 introduces new flexibility for properties affected by outdated designs, small PHA portfolios, scattered-site operating challenges and financial problems at mixed-finance developments.
The 26-page notice amends HUD’s previous demolition and disposition guidance and is effective until HUD amends, replaces or rescinds it.
The changes may create new redevelopment opportunities, but they do not give PHAs unrestricted authority to remove public housing. Agencies must still obtain HUD approval and satisfy the applicable planning, consultation, environmental, civil-rights and relocation requirements.
HUD estimates that public-housing agencies face approximately $170 billion in unmet capital needs and physical deficiencies across the national portfolio.
According to the department, families living in affected developments are three times more likely to reside in higher-crime neighborhoods and four times more likely to live in communities with higher concentrations of poverty.
HUD presented the updated guidance as a way to help agencies replace or reposition properties that cannot be maintained effectively through conventional public-housing funding.
Section 18 transactions can also support conversions from the Section 9 public-housing platform to Section 8 assistance, where agencies may have greater access to private financing and other redevelopment capital.
However, repositioning does not automatically mean demolition. Depending on the property and proposed transaction, a PHA may rehabilitate existing units, construct replacement housing, transfer property, combine Section 18 with RAD or pursue another HUD-approved strategy.
The notice provides additional direction for properties that may not be physically collapsing but have designs that no longer support reasonable residential use.
A PHA may pursue functional obsolescence when building or site-design deficiencies can only be adequately addressed through reconstruction.
Examples can include:
Unit configurations that no longer meet current living standards;
Insufficient bathrooms in larger apartments;
Bedrooms without closets;
Undersized bedrooms;
Accessibility problems;
Inadequate development density;
Obsolete interior systems; and
A lack of reasonable modern amenities.
To use this justification, the affected buildings generally must have been completed in 1950 or earlier.
The PHA must document the design deficiencies and demonstrate that correcting them would cost more than 57.14 percent of HUD’s applicable Total Development Cost limit for a non-elevator building or 62.5 percent for an elevator building.
HUD will also consider whether demolition and redevelopment would result in a net loss of housing affordable to families earning 80 percent or less of area median income. Replacement units and tenant-protection vouchers may be included in that analysis.
A PHA may not place project-based vouchers in an existing structure that HUD approved for Section 18 removal under the functional-obsolescence justification.
PIH 2026-23 defines a “very small PHA” as an agency that owns and operates no more than 75 public-housing units under its Annual Contributions Contract.
An eligible agency may seek to reposition its entire public-housing portfolio when it demonstrates that closing the Section 9 program is in the best interests of the PHA and its residents.
A very small PHA may also explore voluntarily transferring its public-housing program to a larger neighboring agency. Units transferred through such an arrangement retain their eligibility for repositioning under the very-small-PHA justification.
The change may be significant for agencies whose limited portfolios make it difficult to support the administrative systems, specialized staff and capital planning required to operate a stand-alone public-housing program.
It does not eliminate HUD review or the need to demonstrate that the proposal serves residents’ interests.
HUD also revised the definition used for scattered-site repositioning.
Under the new guidance, a scattered site may contain up to six total units in contiguous or noncontiguous buildings located on one side of a block.
A PHA must demonstrate that distance between its units or a lack of uniform building systems - such as different HVAC equipment or utilities - makes the properties difficult to operate or maintain as public housing.
This path may be relevant to agencies managing small clusters of homes that require separate vendors, maintenance expertise, travel and inventory systems.
PHAs should evaluate each proposed grouping carefully. The six-unit definition does not mean that every property containing six or fewer units automatically qualifies for removal.
The notice also addresses public-housing units within mixed-finance developments.
A PHA may demonstrate that the long-term viability of the public-housing units is at risk when two conditions are present.
First, the applicable Low-Income Housing Tax Credit compliance period must have expired, or at least 15 years must have passed since the property’s last major recapitalization.
Second, capital-needs documentation and financial modeling must show that the project lacks adequate resources to resolve its underlying operating and physical problems.
The PHA must provide a plan explaining how the transaction will restore the property’s long-term financial and physical stability.
HUD recommends that a PHA, PHA affiliate or PHA instrumentality retain an interest in the project’s general partner or managing member following the transaction.
The PHA normally submits the Section 18 request on behalf of the mixed-finance ownership entity and with that entity’s consent. Additional waivers may be needed depending on the ownership structure and proposed use of project-based vouchers.
PHAs seeking demolition or disposition approval must submit their applications through HUD’s IMS/PIC system for review by the Special Applications Center.
A complete application may require:
Certification that the action appears in the PHA’s approved annual or Moving to Work plan;
A public hearing;
A complete description of the property and proposed removal;
A transaction timetable;
A qualifying Section 18 justification;
A resident-relocation plan;
Documentation of resident consultation;
Consultation with local government;
A board resolution;
An environmental review;
Civil-rights certifications;
Appraisal and proceeds documentation for dispositions; and
The applicable HUD removal forms.
PHAs must discuss a proposed demolition or disposition with their Resident Advisory Board and affected residents. If a property is removed in multiple phases, resident consultation is required for each phase.
Communication must be accessible to people with disabilities, and PHAs must take reasonable steps to provide meaningful access for residents with limited English proficiency.
When demolition or disposition displaces residents, the PHA must provide a relocation plan and follow the requirements of 24 CFR 970.21.
Each displaced household must be offered comparable housing that meets applicable quality standards and is generally located in an area no less desirable than the original property.
Comparable housing must be offered without unlawful discrimination. Households with disabilities must receive appropriate accommodations, and the PHA must pay actual and reasonable relocation expenses.
If the PHA develops replacement affordable housing, applicable resident rights to return to the new units remain in effect.
HUD also encourages PHAs to provide housing-search and mobility counseling when families relocate with Housing Choice Voucher assistance.
A Section 18 approval may make a PHA eligible for tenant-protection vouchers to support relocation or continued housing assistance.
The vouchers are not issued automatically when HUD approves the Special Applications Center request. The PHA must submit a separate application under HUD’s applicable annual TPV guidance.
Agencies should therefore avoid treating future voucher funding as guaranteed until the necessary approval and funding steps have been completed.
PHAs should begin by reviewing properties that may qualify under the revised functional-obsolescence, very-small-PHA, scattered-site or mixed-finance provisions.
Any preliminary analysis should include current physical-needs data, repair estimates, Total Development Cost calculations, operating performance, resident needs and viable replacement-housing options.
Agencies considering a mixed-finance transaction should review the property’s tax-credit timeline, ownership documents, capital accounts, financial projections and most recent recapitalization.
Very small PHAs should evaluate the operational and resident effects of closing their Section 9 program or transferring units to another agency - not simply the potential reduction in paperwork.
Before selecting a strategy, each agency should model relocation expenses, tenant-protection voucher assumptions, replacement-housing commitments and the effect on the surrounding affordable-housing inventory.
PIH 2026-23 gives housing authorities additional paths for repositioning properties that are functionally outdated, operationally inefficient or financially unstable.
The most notable thresholds are clear: the very-small-PHA category now covers agencies with 75 or fewer units, while scattered sites may include up to six units on one side of a block.
The notice also creates clearer opportunities for certain pre-1951 properties with obsolete designs and mixed-finance developments facing long-term capital or operating problems.
Those opportunities still come with substantial responsibilities. HUD approval, resident participation, relocation protections, environmental review and credible plans for long-term housing stability remain central to every Section 18 transaction.
1. Compare candidate properties with PIH 2026-23 and assemble the physical needs, financial and ownership records supporting the chosen justification.
2. Plan the required resident consultation, local coordination, environmental review and relocation protections before submitting a complete SAC application.
3. Test financing and replacement housing assumptions, including separate voucher funding requirements. Do not begin relocation in anticipation of approval.
The revised guidance may make repositioning viable for more obsolete, operationally difficult or financially distressed public housing. It does not authorize automatic removal of a property or guarantee tenant protection vouchers. A viable proposal still needs documented eligibility, resident protections and the required HUD approvals.
PHAs assessing Section 18 options, particularly very small agencies and those with scattered sites, aging designs or mixed finance developments. Affected residents and resident organizations, PHA boards, development partners, relocation teams and advisers need to be involved in planning.
HUD has updated its public housing demolition and disposition rules to give public housing authorities more flexibility to address distressed and outdated properties. The changes broaden what qualifies as obsolete housing, streamline repositioning for PHAs with 75 or fewer units, and expand relief for financially struggling and mixed-finance properties. HUD says the reforms are intended to make it easier for agencies to redevelop or reposition public housing to the Section 8 platform, attract private capital, and address an estimated $170 billion backlog in public housing capital needs.
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