NSPIRE Wire is independent and not affiliated with HUD.
Event / Action Date:Aug 28, 2026
A failing inspection score can identify a troubled public-housing property. But it does not, by itself, determine what happens next.
New guidance from HUD expands the circumstances under which a public housing authority may pursue demolition, disposition, rehabilitation or redevelopment of distressed public housing.
The changes appear in Notice PIH 2026-23, issued August 28. The notice amends HUD’s Section 18 demolition and disposition guidance and gives PHAs additional options for properties facing physical deterioration, outdated designs, financial distress or long-term operational problems.
HUD says the nation’s public-housing portfolio is carrying an estimated $170 billion capital-needs backlog.
The new guidance attempts to clarify when continuing to repair a property is reasonable - and when repositioning may offer a more viable path.
A poor REAC or NSPIRE score does not automatically make a development eligible for demolition or disposition.
HUD can consider inspection scores as part of a broader record documenting physical obsolescence. That record may also include:
Physical Needs Assessments
Independent architect or engineer reports
Government inspection findings
Condemnation orders
Capital Fund five-year plans
Documentation of major system failures
HUD staff inspections
Detailed rehabilitation cost estimates
The inspection score is therefore a signal.
The PHA must still demonstrate that the property meets the legal and financial requirements for removal from the public-housing inventory.
A low score may begin the conversation. It does not complete the Section 18 application.
HUD describes physical obsolescence as serious building or unit conditions that cannot be corrected cost-effectively.
Examples may include:
Critical structural problems
Failing major building systems
Extensive physical deterioration
Damage resulting from prolonged deferred maintenance
Repairs that must be addressed during the next three years
The PHA must prepare a detailed scope of work and calculate the cost of correcting the qualifying conditions.
Those rehabilitation costs are then compared with HUD’s Total Development Cost, or TDC, limit.
For a non-elevator building, a PHA may voluntarily pursue demolition or disposition when eligible rehabilitation costs equal approximately 57.14% to 90% of TDC.
For an elevator building, the corresponding range is approximately 62.5% to 90% of TDC.
Within those ranges, the authority may pursue removal or choose to retain and rehabilitate the development using available capital funds.
When eligible rehabilitation costs exceed 90% of TDC, HUD’s guidance says the PHA must pursue demolition, disposition or use funding other than public-housing capital funds to address the property’s needs.
These calculations make documentation essential. A general statement that a property is old, failing or expensive to maintain will not establish physical obsolescence.
The PHA needs a defensible scope of work supported by reliable cost information.
A building can remain standing and structurally repairable while still being functionally obsolete.
HUD’s updated guidance creates a clearer path for properties completed in 1950 or earlier when design problems can only be corrected through reconstruction.
Potential functional problems include:
Unit configurations that no longer meet reasonable living standards
Bedrooms that are too small
Large units containing only one bathroom
Bedrooms without closets
Accessibility problems
Obsolete interior utility arrangements
Sites with inefficient density
Design barriers that prevent practical modernization
The cost of correcting the obsolete features must exceed 57.14% of TDC for non-elevator buildings or 62.5% for elevator buildings.
HUD must also consider whether the proposed demolition and redevelopment would cause a net loss of affordable housing available to households earning 80% of area median income or less.
A plan that unnecessarily displaces residents or reduces affordable housing may not qualify as being in residents’ best interests.
The revised guidance changes the definition of a “very small PHA” for this purpose.
A housing authority operating 75 or fewer public-housing units may seek to reposition its entire remaining portfolio and close its Section 9 public-housing program.
The PHA may also explore consolidation with a larger nearby housing authority.
HUD presented the change as a way to reduce administrative barriers for agencies that may lack the scale, staff or financial capacity to maintain a small public-housing portfolio independently.
This option is not an automatic closure. The PHA must still demonstrate that repositioning is in the best interests of residents and the authority.
HUD also expanded its treatment of scattered-site public housing.
Under the new guidance, scattered-site units may include six or fewer total units in contiguous or noncontiguous buildings located on one side of a block.
A PHA may argue that distance between properties and a lack of uniform building systems make those homes unusually difficult to operate or maintain as public housing.
Differences in HVAC equipment, utilities, building types and maintenance needs can increase operating costs and complicate staffing.
The revised definition gives PHAs additional room to reposition those properties when the authority can document the operational problem.
HUD also clarified how Section 18 can apply to public-housing units inside mixed-finance developments.
A mixed-finance property may qualify when:
Its Low-Income Housing Tax Credit compliance period has expired, or at least 15 years have passed since its last major recapitalization
Documented capital needs threaten the property’s long-term viability
Financial modeling shows that available resources cannot address its operational and physical needs
The PHA provides a plan for the property’s long-term physical and financial stability
The PHA applies on behalf of the mixed-finance ownership entity and must obtain that entity’s consent.
This provision may become particularly important for older mixed-finance transactions entering a new recapitalization cycle.
Repositioning is not solely an asset-management decision.
A complete Section 18 application generally requires:
Inclusion in the PHA’s approved annual or Moving to Work plan
A public hearing
Consultation with affected residents
Consultation with resident organizations and the Resident Advisory Board
Consultation with local government
A relocation plan
A board resolution
An environmental review
A civil-rights certification
A description of the property and proposed action
A redevelopment or disposition timetable
Consultation materials must be accessible to people with disabilities. PHAs must also take reasonable steps to provide meaningful access for residents with limited English proficiency.
The PHA must document the consultation process and allow residents and their representatives to submit written comments.
When demolition or disposition displaces residents, the PHA must offer each affected household comparable replacement housing.
The replacement housing must meet applicable housing-quality requirements and generally be located in an area that is not less desirable than the original property.
The PHA is also responsible for reasonable relocation expenses and necessary counseling.
Residents generally must receive written notice at least 90 days before displacement, except in circumstances involving an imminent threat to health and safety.
A PHA cannot complete the disposition of an occupied building until its residents have been relocated.
HUD says most PHAs use Section 18 authority to preserve, replace or modernize affordable housing rather than eliminate it.
The updated guidance supports tools that can move properties from traditional public-housing funding to the Section 8 platform, where agencies may be able to leverage private debt, equity and tax credits.
That transition can unlock redevelopment capital that is unavailable through annual public-housing appropriations alone.
But the financing structure is not the only measure of success.
A repositioning plan should be judged by whether it produces safer housing, preserves affordability, protects residents and creates a property that can remain financially stable after construction is complete.
Inspection and maintenance records can become more than evidence of individual deficiencies.
When the same major systems repeatedly fail, repair costs continue rising and inspection results document long-term deterioration, those records may become part of a larger asset strategy.
PHAs should not wait until a property reaches crisis conditions to organize that evidence.
Inspection scores, work orders, photographs, engineering reports and capital-needs assessments should tell one consistent story about:
What is failing
Why it continues to fail
What a complete repair would require
How much the repair would cost
Whether rehabilitation can realistically extend the property’s useful life
How residents would be protected during any redevelopment
A failing score is not a redevelopment plan.
But when it is supported by years of physical evidence and a credible resident-protection strategy, it may be the first page of one.
1. Organize inspection reports, engineering findings, repair histories and capital needs assessments for properties with repeated failures. A failing score alone does not establish a Section 18 justification.
2. Compare documented rehabilitation needs with the applicable HUD cost tests and distinguish physical obsolescence from functional design problems.
3. Evaluate a feasible preservation or redevelopment plan, including financing, resident consultation and relocation protections. Prepare the required PHA plan and SAC application materials before seeking approval; do not relocate residents in anticipation of approval.
HUD’s revised guidance gives PHAs more options for addressing distressed, obsolete and financially unstable public housing. REAC and NSPIRE scores can support a repositioning case, but a failing score alone does not authorize demolition or disposition. PHAs must document capital needs, compare rehabilitation costs with HUD thresholds and protect affected residents.
Public housing authorities, public-housing residents, PHA boards, asset managers, property managers, maintenance teams, inspectors, architects, engineers, lenders, developers, tax-credit partners, local governments and organizations representing affected residents.
HUD has expanded and clarified the circumstances under which PHAs may demolish, dispose of or reposition distressed public housing. Inspection scores can support the case, but approval depends on documented physical or functional obsolescence, rehabilitation-cost thresholds, resident consultation and relocation protections.
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