In February, HUD announced a major upcoming overhaul to its Real Estate Assessment Center (REAC) score. Some of the current problems that it is trying to address include: inspections do not properly assess the extent to which health and safety conditions impact residents; some properties with poor unit condition are still passing inspections; current expectations for housing quality do not line up with the existing scoring model; some owners only prepare their properties just before inspection instead of maintaining them year-round; and not all things that can negatively impact a score actually affect the quality and livability of the unit to the tenant.
At the National Apartment Association’s Apartmentalize conference in Denver, Manager of Government Affairs for the National Affordable Housing Management Association Juliana Bilowich, Executive Director of the National Affordable Housing Management Association Kris Cook and President of McCormack Baron Management Inc. Timothy Zaleski, discussed key federal legislative regulatory issues impacting affordable housing.
In the short-term, one of the changes that HUD has already implemented (as of March 25, 2019) is that it has shortened the inspection notification time frame to 14 days. If a property owner declines to be inspected within the 14-day window after they receive notification of inspection, they have a further 7 days to be inspected or their property will automatically receive a score of zero. The intent of this change is to incentivize owners to maintain their properties year-round, with the expectation that such a short time frame is not a large enough window for a property owner to get their building up to a passing state if it is currently in a failing state. However, some property owners have pointed out that this policy could place an onerous burden on their residents, as it will force maintenance crews to enter tenants’ residences more frequently than they already do. HUD is also changing the Uniform Physical Standard Condition (UPCS) standards to require carbon monoxide detectors in all units that have gas appliances.
HUD will first test out their long-term strategy by running a limited two-year pilot program beginning in the fourth quarter of 2019. Owners can opt-in to the pilot program, and preference will be given to those in Pennsylvania, Virginia, Maryland, Delaware, and Washington, D.C. During the pilot, the UPCS will be waived for participating inspections, and the previous scores will carry over for the duration of the pilot. The UPCS will be replaced by a new scoring model called NSPIRE (National Standards for the Physical Inspection of Real Estate), and HUD will accept feedback on the new scoring system from the participant volunteers through the duration of the pilot.
After the pilot program period is over, HUD intends to roll out the NSPIRE system nationwide. The major goal for the new system is to have a scoring system that better reflects the actual living conditions and functionality of the residences rather than just “curb appeal.” The NSPIRE system will look at the health and safety of living in the unit, the functionality and operability of appliances and fixtures in the unit, and the condition and appearance of the unit.
The new system will also require owners to self-inspect 100 percent of their units once a year. During the inspections, owners are required to report any deficiencies found to HUD using software that HUD will provide property owners. However, owners are not expected to record the level of deficiencies, just whether any exist. Self-inspection reports will also not have any bearing on the scheduling and scoring of physical inspections from HUD, nor will they result in any repercussions from HUD.