HUD Aligns Inspection Regulations, Publishes NSPIRE Final Rule
After seven years of working towards consolidating, updating, and improving the Housing Quality Standards (HQS) and the Uniform Physical Condition Standards (UPCS) to implement a single inspection protocol for HUD-assisted units, HUD recently published the final rule for the Physical Inspection of Real Estate (NSPIRE) in the Federal Register. The rule proposes a new approach to defining and assessing housing quality and reduces regulatory burden. According to HUD, the publication of the final rule follows 16 listening sessions in 15 states with more than 3,330 attendees.
With the implementation of NSPIRE, UPCS and HQS will be retired. And, as a result, NSPIRE guidance will impact LIHTC sites as tax credit rules point to 24 CFR 5.703 and HUD’s UPCS as the physical condition standards for LIHTC properties in addition to local building codes.
Changes in the Final Rule
The NSPIRE Final Rule incorporates important changes based on public comments received in response to the proposed rule. Some significant revisions include the following:
New self-inspection requirement and report. Under NSPIRE, public housing authorities (PHAs) and owners must inspect all units on an annual basis. While not scored, the self-inspection requirement between inspections ensures that inspectors are visiting every unit at least once a year, identifying maintenance and modernization needs, and generating work orders on a regular basis.
HUD has removed the electronic reporting requirement of self-inspections and is instead requiring owners to maintain records related to the self-inspection for three years. However, properties scoring below 60 on HUD inspections must provide self-inspection results to HUD, with records maintained for three years.
Timeline for correction. With the final rule, HUD has clarified the timeline for the correction of health or safety deficiencies. The timeline for correcting life-threatening and severe health or safety deficiencies is 24 hours after the inspection report is received and provide evidence of that correction within 72 hours to HUD.
Also, moderate and low deficiencies won’t require proof of repair to be provided to HUD after an inspection. Under this final notice, “Low”-rated issues require that repairs be done within 60 days of the inspection.
New affirmative requirements. HUD has developed “affirmative standards” that apply to all units participating in HUD’s rental assistance programs. These standards cover basic habitability requirements, such as functional kitchens and flushable toilets, as well as crucial safety aspects like Ground Fault Circuit Interrupter (GFCI) outlets, permanent heating sources, and safe drinking water.
For example, the final rule includes requirements for GFCI outlets near a water source, a permanent heating source for certain climate zones, guardrails, and permanent lighting in some living areas. In some cases, these requirements apply only to habitable rooms of the unit. HUD says additional detail on the affirmative requirements will be provided in the NSPIRE Standards and Administrative notices.
Tenant involvement in inspections. The final rules say that HUD will allow, through notice, for tenants to have the opportunity to make recommendations for units to be inspected. Any units inspected in addition to the standard unit sample won’t be part of the site’s score. However, PHAs or owners must address all identified deficiencies within specified time frames and share the inspection results with residents.
Process for revising standards, inspection criteria. HUD plans to issue a notification in the Federal Register, published for at least 30 days of public comment, making any revisions to the inspection and scoring procedures HUD deems necessary, at least once every three years, or three years after the most recent revision, whichever is later. In other words, HUD will publish its Standards and Scoring notices “at least” once every three years. But HUD is making clear that it may publish its notices before it has been three years, at its discretion. The revision of standards every three years is to allow HUD to respond to the changing needs of an evolving housing portfolio.
Transition to NSPIRE
According to the final rule, HUD’s NSPIRE changes are scheduled to be effective for multifamily inspections as of Oct. 1, 2023. Therefore, unless the IRS explicitly states otherwise, as of Oct. 1, the inspection standards for monitoring will become NSPIRE.
In addition to the final rule, there will be three core “Subordinate Notices.” Once published, these notices, combined with the NSPIRE Final Rule, make up HUD’s regulatory guidance for physical condition standards and inspection processes. These core subordinate notices are the NSPIRE Standards notice, the NSPIRE Scoring notice, and the NSPIRE Administrative notice.
HUD proposed an NSPIRE Standards notice on June 17, 2022, focusing on health and safety physical inspection standards. HUD also proposed an NSPIRE Scoring notice on March 28, 2023. Both the Standards notice and Scoring notice will be final and effective before HUD begins inspections under NSPIRE. HUD didn’t provide an NSPIRE Administrative notice for comment but will publish a final notice before July 1, 2023, outlining the NSPIRE processes for inspections, submitting evidence of deficiency correction, and gathering resident feedback on property conditions, as well as other administrative requirements.