Get NSPIREd: HUD Proposes Rule to Overhaul Physical Inspections

In the past few years, HUD has reexamined the inspection process used by its Real Estate Assessment Center. REAC is responsible for inspecting properties owned and operated by approximately 3,700 local public housing authorities and approximately 23,000 privately owned apartment buildings nationwide.

In 2019, HUD launched a demonstration program to assess and comprehensively overhaul HUD’s current physical inspection approach, which utilizes the Uniform Physical Condition Standards (UPCS) for inspections. According to HUD, many PHAs and private owners of HUD-subsidized housing had grown accustomed to REAC’s 20-year-old inspection regime and, in some cases, invested more resources in passing minimal inspection requirements rather than satisfying their obligation to provide quality housing.

Despite the ongoing COVID-19 pandemic, HUD has adhered to its planned timeline of rolling out the new physical inspection standards and protocol for HUD programs. On Jan. 19, HUD announced the publication of the proposed rule for the National Standards for the Physical Inspection of Real Estate (NSPIRE). The proposed rule puts forth first steps in implementing sweeping changes to HUD’s physical inspection protocols and standards. The intended purpose of NSPIRE is to reduce the regulatory burden and improve HUD oversight by aligning and consolidating inspection regulations used to evaluate HUD housing across multiple programs.

It’s important to remember that NSPIRE is still in a demonstration program period and the proposed rule runs parallel to the ongoing NSPIRE demonstration program. The proposed rules are anticipated to be implemented when the demonstration program has been completed.

Here are the highlights of the proposed changes to HUD’s physical inspections—and how you can weigh in.

Affirmative Safety Standards

Under the proposed rule, owners would need to not only make sure existing features of a unit or site are working, but also proactively add certain safety features.

Throughout the NSPIRE demonstration program, HUD continues to test new standards and scoring, which will be officially and transparently implemented by HUD later.

Based on the proposed rule’s language, new standards to be added to NSPIRE include:

• Water safety standards;
• Adequate number of electrical outlets;

• Electrical wiring protection (GFCI) within 6 feet of sinks, tubs, and showers;
• Required heating, ventilation, and air conditioning (HVAC) equipment in all units;
• Lighting standards; and
• Guardrails for elevated walking surfaces.

HUD is seeking feedback on these new requirements.

Editor’s Note: The proposed rule also states HUD’s intention to require carbon monoxide detectors through separate rulemaking.

Self-Inspection Requirements & Inspection Schedules

Under the current system, inspections occur every year to every three years depending on the recent REAC score. The proposed rule would expand the time period to between two and five years. The proposed rule doesn’t specify the scores that a site would need to achieve to result in a five-year inspection cycle.

A site’s ability to change to the longer inspection cycle would be based on positive results of REAC inspections and implementation of the “self-inspection” requirement. This requirement would allow owners to inspect all units annually and electronically report the inspection and repair results to HUD. Future Federal Register notices will outline the procedures for self-inspections.

According to the notice, due to different statutory requirements, voucher-based programs would continue to follow the rules outlined in the Housing Opportunity Through Modernization Act (HOTMA). Also, small rural PHAs would be exempted from the annual inspection requirement and would instead follow provisions of the Economic Growth and Recovery Act.

Tenant Input

HUD is also considering ways to seek tenant input to help identify poorly performing sites. For example, HUD is considering allowing tenants to rate their units or to recommend their units for inspection. HUD is asking for comments on whether tenants could recommend their units for inspection separate from the statistical sample for scoring purposes to inform HUD’s risk analysis of the property.

Inspectable Areas, Tenant-Induced Damage

Under current REAC inspections, there are five inspectable areas: the site, all building exteriors, all building systems, all common areas, and all units. With HUD’s proposed rule, the focus to ensure that all residents live in safe, habitable dwellings is concentrated to three inspectable categories: inside the building, outside the building, and within the units.

By focusing on just three inspectable categories, the safety and functions of components inside the residents’ units has greater importance, which, in effect, places a majority of the compliance emphasis outside much of the owner’s control.

Because of this shift in emphasis, the proposed rule requests feedback on tenant-induced damages. HUD is soliciting comments on how to fairly approach tenant-induced damage to units and properties in such a way that it will have a positive impact on HUD-assisted properties. What could be used as incentives to prevent, or disincentives to discourage, tenant-induced damage?

Aligning Definitions, Procedures

One of the key proposed changes is to create identifiable habitability requirements and inspections limits that are comparable across housing programs, even programs that differ significantly from one another, like tenant- and project-based housing. This alignment includes the regulatory merger of Housing Quality Standards (HQS) and the Uniform Physical Condition Standards (UPCS) and shifting them toward a single definition of “safe, habitable dwelling.”

By aligning existing rules governing standards and scoring, the proposed rule intends to create a standardized set of expectations for owners and for properties. In particular, the rule proposes to replace the term “exigent health and safety,” which has been associated with more than one definition, with the term “severe health and safety” to describe the most serious deficiencies.

Because current regulations and recent laws are inconsistent, the proposed rule would establish a singular provision for the correction of severe health and safety (SHS) deficiencies at a default time frame of 24 hours. The rule would also require the correction of non-SHS deficiencies within 30 days, for all programs.

The rule also proposes to align the process for appeals and technical reviews across HUD programs. Under the proposed rule change, a technical review of inspection results will have to be filed no later than the 45th calendar day following the inspection report’s release. These appeals may include proof of conditions beyond the owner’s control or inspection errors. If HUD determines that there’s enough information to show that errors were made on the inspection scoring and the errors were likely to result in significantly improved scores, then HUD will undertake a new inspection, correct the original inspection, or issue a new inspection score.

Continual Updates

The proposed rule would establish an official method for physical inspection standards to be regularly and publicly updated by HUD with input from owners. Currently, there’s no official mechanism for HUD to update its physical standards. The proposed rule would require HUD to update inspection standards in the Federal Register at least once every three years. This requirement would force regular updates to include evolving industry best practices and provide opportunities for public comment. In the case of an emergency, the public comment period could be waived.

How to Submit Comments on Proposed NSPIRE Rule

HUD is seeking public comment on all aspects of the proposed rule. Comments are due by March 15, 2021. You can find the proposed rule at www.federalregister.gov/d/2021-00098. In the proposed rule, HUD is requesting public comment on several questions, including:

• How can HUD best define what is meant by safe or potable water?
• Should site and neighborhood standards be included in the regulation or only in the inspection standards?
• Regarding risk-based annual inspection requirement expansion from two to five years, is a different range merited? If so, what should HUD consider in setting and adjusting the ranges?
• How will the duty to self-inspect all HUD housing units in certain programs to ensure that units are being maintained in accordance with HUD housing quality standards impact the operations of PHAs, owners, and agents?
• Is there an alternative to the self-inspection protocol that would allow HUD to achieve the objective that families live in safe and habitable units, and what are the risks and benefits of that alternative?

There are two methods for submitting public comments. Communications should refer to the docket number [Docket No. FR–6086–P–01] and title [Economic Growth Regulatory Relief and Consumer Protection Act: Implementation of National Standards for the Physical Inspection of Real Estate (NSPIRE)]. The public will be able to view your comments.

By mail. Comments may be submitted by mail to:

Regulations Division

Office of General Counsel

Department of Housing and Urban Development

451 7th Street SW, Room 10276

Washington, DC 20410-0500

Due to security measures at all federal agencies, however, submission of comments by mail often results in delayed delivery. To ensure timely receipt of comments, HUD recommends that comments submitted by mail be submitted at least two weeks in advance of the public comment deadline.

Electronic submission of comments. Interested persons may submit comments electronically through the Federal eRulemaking Portal at http://www.regulations.gov. HUD encourages commenters to submit comments electronically. Electronic submission allows the commenter maximum time to prepare and submit a comment, ensures timely receipt by HUD, and enables HUD to make comments immediately available to the public. Comments submitted electronically through the website can be viewed by other commenters and interested members of the public. Commenters should follow instructions provided on that site to submit comments electronically.