HUD defines elderly households as those in which the householder—the person whose name is on the lease, mortgage, or deed—or the householder’s spouse is at least 62 years old. Elderly households occupied about one-quarter (26 million) of the approximately 106 million housing units in the United States in 2001, according to the American Housing Survey. A large majority of these elderly households were homeowners. A small share of elderly households, about 19 percent or 5 million, rented their homes (compared to about 36 percent of nonelderly households), and about 3.3 million of these elderly households were renters with very low incomes—that is, 50 percent or less of area median income. The Housing Act of 1959 (P.L. 86-372) established the Section 202 program, which began as a direct loan program that provided below-market interest rate loans to private nonprofit developers, among others, to build rental housing for the elderly and people with disabilities. In 1990, the Cranston- Gonzalez National Affordable Housing Act (P.L. 101-625) modified Section 202 by converting it from a direct loan program to a capital advance program. In its current form, Section 202 provides capital advances—effectively grants—to private nonprofit organizations (usually referred to as sponsors or owners) to pay for the costs of developing elderly rental housing. As long as rents on the units remain within the program’s guidelines for at least 40 years, the sponsor does not have to pay back the capital advance. HUD calculates capital advances in accordance with development cost limits that it determines annually, and HUD’s policy is that these limits should cover the reasonable and necessary costs of developing a project of modest design that complies with HUD’s project design and cost standards as well as meets applicable state and local housing and building codes. To be eligible to receive Section 202 housing assistance, households must have very low income and one member who is at least 62 years old. Section 202 tenants generally pay 30 percent of their income for rent. Because their rental payments are not sufficient to cover the property’s operating costs, the project sponsor receives rental assistance payments from HUD to cover the difference between the property’s operating expenses (as approved by HUD) and total tenant rental receipts. In addition, the project sponsor can make appropriate supportive services, such as housekeeping and transportation, available to these elderly households. From year to year, Section 202 has carried significant balances of unexpended appropriated dollars for capital advances and rental assistance payments. In fiscal year 2002, the unexpended balance for Section 202 was approximately $5.2 billion. About 41 percent of this balance was in capital advance funds and 59 percent was in rental assistance funds. Some of these unexpended funds have not yet been awarded to projects, and others are for projects that have not begun construction. Once construction begins, funds are expended over several years during the construction phase and during the term of the rental assistance contracts. Other federal programs can provide housing assistance to needy elderly households, albeit not exclusively. For example, low income housing tax credits and tax-exempt multifamily housing bonds provide federal tax incentives for private investment and are often used in conjunction with other federal and state subsidies in the production of new and rehabilitated rental housing. The Housing Choice Voucher Program supplements tenants’ rental payments in privately owned, moderately priced apartments chosen by the tenants. Currently, about 260,000 of the approximately 1.5 million voucher households are elderly. Other programs are discussed in an appendix to the report. Section 202 is the only federal housing program that targets all of its rental units to very low income elderly households. Because these households often have difficulty affording market rents, program funding is directed to localities based in part on their proportions of elderly renter households that have a housing affordability problem. Section 202 insulates tenants in housing units subsidized by the program from increases in housing costs by limiting rents to a fixed percentage of household income. The program is a significant source of new and affordable housing for very low income elderly households. Even with the program’s exclusive focus on the very low income elderly, Section 202 has reached only a small share of eligible households. Congress specifically intended the Section 202 program to serve very low income elderly households and to expand the supply of affordable housing that can accommodate the special needs of this group. HUD takes into account the need for the kind of housing Section 202 provides when allocating program funds to the field offices. The criteria for allocating funds to the field offices include, among other things, the total number of very low income elderly renters in the area and the number in this group that pay more than 30 percent of their incomes for rent. According to the American Housing Survey, in 2001 about 1.7 of the 3.3 million elderly renters with very low incomes paid over 30 percent of their incomes for rent. The rent that tenants in Section 202 housing pay equals a percentage of their household incomes—generally 30 percent. This percentage remains constant, so the amount of rent tenants pay increases only when household income rises, protecting them from rent increases that might be imposed by the private housing market when market conditions change. In contrast, very low income elderly renter households that do not receive this type of assistance are vulnerable to high rent burdens and increases in market rents. Most of these households have few or no financial resources, such as cash savings and other investments, and rely primarily on fixed incomes that may not increase at the same rate as market rents. Section 202 serves another important function, potentially allowing elderly households to live independently longer by offering tenants a range of services that support independent living—for example, meal services, housekeeping, personal assistance, and transportation. HUD ensures that sponsors have the managerial capacity to assess tenants’ needs, coordinate the provision of supportive services, and seek new sources of assistance. HUD pays a small portion of the costs of providing these services through its rental assistance payments. According to the American Housing Survey, in 2001 about 1.3 million, or 40 percent, of elderly renter households with very low incomes received some form of rental assistance from a government housing program, including Section 202. According to our analysis of HUD program data, about 260,000 Section 202 units with rental assistance generally served very low income elderly households in 2001. Taken together, these two sources of data suggest that Section 202 served around one-fifth of the 1.3 million assisted elderly households identified in the American Housing Survey. While Section 202 is an important source of affordable elderly housing, the program has reached a relatively small fraction of very low income elderly renter households. Between 1985 and 2001, Section 202 reached no more than about 8 percent of elderly households eligible for assistance under the program. Also, during this period, many of the elderly renter households with very low incomes—ranging from about 45 to 50 percent—had housing affordability problems. Other federal programs that develop rental housing generally target different income levels, serve other populations in addition to the elderly (including families with children and people with disabilities) and do not require housing providers to offer supportive services for the elderly. Most of the Section 202 projects funded between fiscal years 1998 and 2000 did not meet HUD’s guideline for approving the start of construction within 18 months. However, a slight majority of the projects were processed and approved to start construction within 24 months. Timeliness varied both across HUD’s field offices and by project location (metropolitan versus nonmetropolitan areas). As well as taking longer to complete than other projects and thus delaying benefits to very low income elderly households, projects that were not approved for construction after the 18-month time frame increased the Section 202 program’s year-end balances of unexpended appropriations. HUD’s guidelines state that within 18 months of the funding award date, field offices and project sponsors must complete various task before construction can commence (fig.1). Altogether, 73 percent of the Section 202 projects funded from fiscal years 1998 through 2000 did not meet this 18-month processing time guideline. These projects accounted for 79 percent of the nearly $1.9 billion in funding awarded to projects during this period. Also during this period, 78 percent of projects located in metropolitan areas exceeded the 18-month guideline as opposed to 61 percent of projects located in nonmetropolitan areas. HUD field offices may grant an extension of up to 6 months after the 18- month guideline for projects needing more time to gain approval to start construction, and many projects were approved within that 6-month time frame. Of the projects funded from fiscal years 1998 through 2000, HUD approved 55 percent for construction within 24 months of the funding award—27 percent within 18 months and 28 percent within 19 to 24 months. The remaining 45 percent of projects took longer than 24 months to be approved. We looked at the performance of HUD’s 45 field offices that process Section 202 projects and found that they had varying degrees of success in meeting the 18-month guideline. We evaluated their performance by estimating the percentage of projects approved for construction within 18 months for each field office. Among these offices, the median project approval rate for construction within 18 months was 22 percent, but their performance varied widely. Eight field offices had no projects that met the 18-month guideline, while at one office more than 90 percent of projects met the guideline. Field offices’ performance varied by region, with those located in the northeast and west being least likely to approve projects within 18 months of the funding award. Meeting processing time guidelines is important because most of the delays in total production time—that is, the time between funding award and construction completion—stem from the project processing phase. When we compared the average total production times for completed projects that did not meet HUD’s 18-month processing guideline and those that did, the delayed projects took 11 months longer than other projects to proceed from funding award to construction completion.