HUD's New Section 18 Notice (PIH 2026-23): What Changed

HUD's Office of Public and Indian Housing issued Notice PIH 2026-23 on August 28, 2026. It amends PIH 2024-40, the notice that has governed public housing demolition and disposition applications since December 2024.

It contains several changes that will materially affect which properties can be repositioned and how, particularly for small agencies and for aging mixed-finance deals.

Here's what's actually different, and who should care.

First, the orientation

Section 18 of the 1937 Act lets a housing authority demolish or dispose of public housing property with HUD approval. Applications go to the Special Applications Center, and approval can generate Tenant Protection Vouchers — which, project-based, typically carry higher rents than RAD rents do.

That rent differential is why Section 18 matters so much in repositioning. It's also why RAD/Section 18 blends have become the standard structure for substantial rehab: a portion of units converts under RAD, a portion under Section 18, and the higher Section 18 rents lift the property's debt capacity.

This notice governs all of that. If you're repositioning anything, it's the operative document.

The "very small PHA" threshold moved from 50 to 75 units

Under the prior notice, a PHA owning and operating 50 or fewer ACC units could use the "very small PHA" justification to dispose of its stock and close out its Section 9 program.

That threshold is now 75 units.

This is the change most likely to affect agencies I talk to. There is a substantial population of housing authorities in the 50-to-75 unit range that were previously stuck: too large for the very small PHA pathway, too small to make a conventional transaction pencil, and running a full Section 9 compliance operation for a handful of buildings. Those agencies now have a route they didn't have last month.

The notice also removes barriers to consolidating very small PHAs into larger ones — and clarifies that units transferred from a very small PHA to another PHA remain eligible for repositioning under the very small PHA justification after the transfer. That combination makes regional consolidation considerably more workable than it was.

Two new ways into the top blend tier

The construction blend percentages themselves did not change. They remain:

• Up to 90% Section 18 / at least 10% RAD — hard construction costs exceeding 90% of the market HCC, demolition and redevelopment, or transfer of assistance
• Up to 60% / at least 40% — hard costs exceeding 60% of HCC
• Up to 30% / at least 70% — hard costs exceeding 30% of HCC

What changed is the list of things that get you into the top tier. The blend table now also includes:

• Developments designated as severely distressed in an approved Choice Neighborhoods Planning Grant
• Developments meeting the new mixed-finance eligibility criteria (below)

If you hold a Choice Neighborhoods Planning Grant with a distressed designation, you now reach the 90/10 blend on that basis alone — without having to hit a construction cost threshold. The notice separately confirms that a Choice Neighborhoods distressed certification can substitute for Form HUD-52860-B, the scope of work report, and the rehab cost estimate in a physical obsolescence application. That is a meaningful reduction in application burden for agencies that have already done the planning grant work.

Mixed-finance developments finally have a pathway

This is the change with the longest tail.

Thousands of public housing units sit inside mixed-finance deals closed in the 2000s and early 2010s. Their LIHTC compliance periods have run or are running. Their reserves are thin. Their capital needs are real. And the Section 18 guidance never cleanly addressed how to reposition ACC units inside a mixed-finance structure.

The new notice adds an explicit justification. A PHA can demonstrate that the long-term viability of ACC units in a mixed-finance development is at risk by showing both:

1. Expiration of the applicable LIHTC compliance period, or the passage of 15 years since the last major recapitalization event; and
2. Documentation of capital needs and financial modeling showing inadequate resources to address underlying operational and capital needs.

The PHA must submit a plan for the property's long-term financial and physical stability. HUD recommends the new owner entity include a PHA, PHA affiliate, or PHA instrumentality as a holder of an interest in the general partner or managing member. The PHA applies on behalf of, and with the consent of, the mixed-finance owner entity.

Two practical notes. Procedures for waiving 24 CFR 970.3(a) — relevant where a non-PHA owner needs to apply — are coming in subsequent guidance, so that piece isn't fully operational yet. And if you intend to project-base the resulting TPVs, the notice flags that PBV restrictions on rehabilitation of occupied structures may require a waiver. Address that early, not at closing.

If you have a 2006-vintage mixed-finance deal limping along, this is the notice that opens the door.

Scattered-site definition expanded

Scattered-site units can be disposed of where distance between units and lack of system uniformity make continued public housing operation impractical. The notice now defines scattered-site as six or fewer total units in contiguous or noncontiguous buildings on one side of a block — an increase over the prior threshold.

Small change, real effect for agencies carrying a long tail of duplexes and single-family scattered sites that cost more to administer than they're worth.

Functional obsolescence, clarified

The notice clarifies when functional obsolescence supports demolition under 24 CFR 970.15 versus a disposition under 970.17(c). The core criteria remain: construction completed in 1950 or earlier, documented design flaws addressable only through reconstruction, and cost to address obsolete features exceeding 57.14% of TDC for non-elevator buildings or 62.5% for elevator buildings.

One constraint worth committing to memory: you may not place PBVs at an existing structure approved under Section 18 on the functional obsolescence justification. If your plan was to use functional obsolescence and then project-base vouchers at the same building, that plan does not work.

A procedural change that will bite someone

The notice adds explicit guidance on discontinued review. If SAC determines a PHA cannot provide required submission items within 30 days of request, SAC will discontinue review of the application.

Previously, an incomplete application tended to sit in a slow back-and-forth. Now there's a clock. If your consultant or counsel isn't positioned to turn around SAC information requests quickly, you can lose the application and start over.

Related: the notice reiterates that the board resolution must be dated after all initial resident and local government consultation, and that a PHA shall not preemptively relocate residents before receiving signed SAC approval. Both are places agencies get tripped up by sequencing rather than substance.

What didn't change but is worth restating

• The small PHA blend. A PHA with 250 or fewer ACC units may dispose of up to 90% of units in a converting project under Section 18, with at least 10% converting under RAD — but it must submit a board-approved Repositioning Plan acceptable to HUD, explaining how it will remove all remaining public housing and close out its Section 9 ACC.
• Sequenced blends. A PHA that already holds a Section 18 approval under another justification can request SAC approval to conditionally rescind part of it and convert at least 10% of units under RAD, bringing the transaction under the blend rules.
• Below-FMV dispositions still require commensurate public benefit, carry a 30-year use restriction, and must primarily serve households at or below 80% AMI. Public buildings and infrastructure — streets, schools, fire stations — do not qualify as commensurate public benefit.
• No cost escalation in your PNA. If a 2025 assessment says the roof needs replacing in 2027, you must use 2025 cost data. Agencies routinely inflate these and get the scope kicked back.

What to do about it

Three groups should act on this notice specifically.

If you operate between 50 and 75 units, you have a repositioning pathway that did not exist for you before August 28. Worth a serious conversation about whether closing out Section 9 serves your residents better than continuing to administer it.

If you have a mixed-finance deal past its compliance period, pull the partnership documents, the reserve balances, and a current capital needs assessment. The two-part eligibility test is specific, and whether you meet it is answerable in about a week.

If you hold a Choice Neighborhoods Planning Grant with a distressed designation, you may now qualify for the 90/10 blend without the construction cost analysis — and with a lighter application package.

For everyone else, the practical guidance hasn't shifted much. The blend thresholds are the same, the obsolescence tests are the same, and the fundamentals of a good SAC application are the same. But the sequencing discipline this notice rewards — consultation before board resolution, complete submissions, fast responses to SAC — is the same discipline that separates applications that close from applications that stall.

Related reading:

• RAD Conversion: A Complete Guide for Housing Authorities
• The 21st Century ROAD to Housing Act: What It Means for Your Housing Authority
• RAD vs. Section 18: How to Choose