What Public Housing does
Public housing is the federal program of low-rent housing for low-income families and individuals, operated by approximately 3,300 local Public Housing Authorities (PHAs) under the U.S. Housing Act of 1937. The program serves approximately 970,000 housing units nationally and is the oldest of the federal affordable housing programs, predating both LIHTC (1986) and Section 8 (1974). The federal government funds two main streams to PHAs: the Capital Fund for modernization, repair, and development, and the Operating Fund for ongoing property operations.
Public housing has been in a long-term decline in unit count since the 1990s, driven by demolition, disposition, the elimination of new public housing development authority under the Faircloth Amendment, and conversion of public housing properties to project-based Section 8 contracts under the RAD (Rental Assistance Demonstration) program. The active program today is dominated by capital fund preservation work and RAD conversion — not new construction.
Capital Fund
The Capital Fund provides annual formula-allocated funding to PHAs for the modernization and rehabilitation of public housing. FY 2025 Capital Fund appropriation was approximately $3.2 billion. The formula at 24 CFR § 905.400 considers existing modernization need and accrued capital needs. Eligible uses include physical improvements, replacement of major building systems, management improvements, demolition, and development of replacement housing (subject to Faircloth).
Capital Fund Financing Program (CFFP) authority allows PHAs to pledge future Capital Fund allocations as security for bonds, leveraging multi-year capital stream into present-day construction proceeds. CFFP has been substantially supplanted in recent years by RAD conversion as the principal preservation tool.
Operating Fund
The Operating Fund covers the gap between tenant rent payments (capped at 30% of adjusted income) and operating costs at public housing properties. FY 2025 Operating Fund appropriation was approximately $5.5 billion. The formula at 24 CFR § 990 calculates per-unit operating subsidy based on each property's Project Expense Level and projected income. Proration — the percentage of the formula-eligible amount actually distributed given the annual appropriation — has fallen below 100% in most recent fiscal years per HUD's annual proration notices, creating ongoing operating shortfalls at most PHAs.
The Faircloth Amendment
The Quality Housing and Work Responsibility Act of 1998, specifically the so-called "Faircloth Amendment", prohibits HUD from using federal funds to construct or operate a new public housing unit if the new unit would cause a PHA to exceed its number of authorized public housing units as of October 1, 1999. The practical effect is a hard national cap on net new public housing unit count. A PHA can construct new public housing only to the extent it has previously demolished or disposed of units (a "Faircloth limit").
RAD conversion
The Rental Assistance Demonstration (RAD) program, authorized by the Consolidated and Further Continuing Appropriations Act 2012 and extended through subsequent appropriations, allows PHAs to convert public housing units to project-based Section 8 (either PBV or PBRA) contracts. RAD conversion permits the PHA to access conventional and LIHTC financing for property rehabilitation by pledging the long-term Section 8 contract as the operating revenue stream — financing that public housing properties cannot otherwise access. RAD has become the dominant preservation tool for distressed public housing; HUD reports approximately 200,000 units converted through RAD as of late 2025. See the dedicated RAD page for details.
Labor standards — Davis-Bacon
Public housing Capital Fund construction triggers federal Davis-Bacon prevailing-wage requirements (HUD direct federal financial assistance for housing construction; the threshold and coverage details are governed by HUD labor-standards regulations). Operating Fund covers operations, not construction, and does not itself trigger Davis-Bacon. RAD conversions involving rehab activity carry Davis-Bacon coverage through the financing structure (HUD-insured debt, layered HOME/CDBG, etc.). State and local prevailing-wage laws apply independently.
LIHTC pairing
Direct LIHTC-on-public-housing transactions are uncommon because public housing operating subsidy is structured differently from project-based Section 8, and LIHTC investors prefer the long-term contract-based Section 8 cash flow. The standard preservation pathway is therefore RAD conversion first, then LIHTC syndication on the converted property — typically 4% LIHTC with tax-exempt bonds, occasionally 9% LIHTC for smaller deals.
For the full capital-stack mechanics — PHA seller-note structures, 4% LIHTC + FHA insurance + RAD economics, and triple-stacking with HTC where historic buildings qualify — see the dedicated guide: LIHTC Deal Structures Guide.
Post-OBBBA implications
OBBBA did not amend the public housing program. The Faircloth Amendment remains in force. Indirect effects from the 50% to 25% PAB financed-by test reduction expand the universe of 4% LIHTC + bond deals that can finance RAD-converted public housing rehabilitation at lower volume cap usage — a meaningful boost to RAD preservation capacity post-OBBBA.
Sources
- U.S. Housing Act of 1937, 42 U.S.C. § 1437 et seq.
- 42 U.S.C. § 1437g (Operating and Capital Fund authorities)
- Quality Housing and Work Responsibility Act of 1998, P.L. 105-276 (Faircloth Amendment)
- 24 CFR Part 905 (Capital Fund) and Part 990 (Operating Fund)
- Consolidated and Further Continuing Appropriations Act 2012, P.L. 112-55 (RAD authorization)
- Full-Year Continuing Appropriations and Extensions Act, 2025, Division A of P.L. 119-4, signed March 15, 2025 (Capital and Operating Fund appropriations)
- P.L. 119-21, One Big Beautiful Bill Act, enacted July 4, 2025
Disclaimer
Public housing is administered by approximately 3,300 local PHAs under varying organizational structures and state-law authorities. Formula amounts, proration, and project-specific eligibility vary annually. Practitioners should consult the relevant PHA and current HUD guidance before structuring a transaction. This is educational content and is not legal, tax, or financial advice.