Navigate regulations related to HUD’s low-income worker hiring rules

When the development team and the general contractor work together and start early to understand the goals and create a plan, the results can be rewarding and will establish a process that will inform future projects.


A year ago, HUD’s Office of Field Policy and Management released guidance for developers, contractors, and subcontractors to help them comply with Section 3 of the HUD law of 1968 (12 USC § 1701u) requiring the hiring of low-income workers in affordable housing estates that receive federal funding. The updated policies have been well received by developers and contractors, but some “lessons learned” can help partners navigate the maze of related regulations and rules.

The purpose of Section 3 is to “ensure that employment and other economic opportunities generated by certain HUD financial aid will, to the extent possible and consistent with existing federal, state, and local laws and regulations, be directed to low and very low income people, including those receiving government housing assistance, and businesses that provide economic opportunities for low and very low income people.

As a nonprofit affordable housing developer, Preservation of Affordable Housing often receives federal funds to preserve and create affordable housing in 11 states nationwide and the District of Columbia. Committing to participate in Section 3 policy is the easy part, but once committed, complying with multiple guidance documents and regulations can present a myriad of challenges.

The first is the fact that several funding agencies use the evolving HUD requirement in addition to their own mandates. We found that some projects where we were looking to apply the goals of Section 3 were working off of an outdated definition from Section 3.

The patchwork of contracting and hiring requirements can create confusion and frustrate partners’ good intentions to comply with Section 3, particularly as some agencies will impose fines if targets are not met ( although many of these fines are difficult to enforce because the best efforts language is extremely vague). It is never good practice for a developer to accept fines as an acceptable penalty for the general contractor; instead, the best approach is to work as a team to achieve goals, starting with pre-construction.

In the case of POAH’s three projects in Boston, federal funds were allocated at the state level through the Department of Housing and Community Development and at the local level through the City of Boston’s Department of Neighborhood Development. Each funding agency has its own interpretation of the Section 3 requirements in addition to referencing those in official HUD law.

In addition to federal state and local allocations, local public housing authorities often partner with nonprofit developers and use federal funding, which also triggers Section 3 policy compliance.

POAH’s internal goals are consistent with the fundamentals of Section 3, but when dealing with conflicting agency requests and duplicating documents, it can be difficult to achieve the best results. Here are some of the practices we have developed to achieve the objectives of Section 3:

  • In preparation for the construction funding close, have all funders agreed to a Section 3 policy that includes a clear definition of “best efforts” or a clear definition of an employee and of a Section 3 contractor?
  • Discuss with funders each agency’s goal requirements and record the stricter goal as the project goal to avoid confusion down the road. If the funders don’t have stated goals, you as the developer should create an internal goal and make sure the general contractor contract includes a stated goal.
  • Establish consistent reporting documents for contractors’ contract documents.
  • Hire a general contractor who has a staff member dedicated to tracking Section 3 objectives. section 3 labor and subcontracting objectives.
  • Include the process for the requirements of Section 3 of the policy in the general contractor’s RFP and specify expectations for progress updates.
  • Create a job- and neighborhood-specific plan to hire potential workers a few months before construction begins on the site. As part of this, establish links between the general contractor and existing neighborhood partners in order to expand the pool of labor and potential subcontractors for Section 3.
  • Understand that not every household has access to a computer and the Internet. When recruiting and raising awareness of Section 3, use a range of communication means to reach potential workers.

For the POAH development in Boston’s Roxbury neighborhood, we worked with contractors and the housing authority to sponsor job fairs to attract residents to employment opportunities early on. These resident relationships with the general contractor continued through the first two phases of development. In one case, a resident was subsequently hired for POAH’s newest development in Nubian Square, where a job fair has attracted six new contractor hires so far. On the POAH project in Mattapan, two job fairs were held, one of which offered help with CV writing.

When the development team and the general contractor work together and start early to understand the goals and create a plan, the results can be rewarding and will establish a process that will inform future projects. The benefit of achieving the goals in Section 3 will strengthen the presence of development in the wider community and set an example for others to follow.

Sophia Transtamar is senior project manager at POAH

Deanna Savage is Vice President, Construction at POAH.