Recognizing that the need for affordable, basic housing was increasing, particularly for single, very low-income individuals, Congress moved to reinvigorate the provision of SROs by creating the SRO Moderate Rehabilitation Program under the Stewart B. McKinney Homeless Assistance Act of 1987. This type of affordable housing, as compared to market-rate apartments, is not recommended for families but only for single individuals. Because program rules specify that SRO contract rents are to be equal to or lower than 75 percent of the fair market rent (FMR) of an efficiency unit minus the allowance for tenant paid facilities, these units offer affordable rents and usually do not require security deposits or first and last month's rent.

An SRO is a residential building that provides a small (on average, 140 square feet) private room for one individual. Each room is usually furnished with a bed, chair, and space for clothing storage. Sometimes, a desk, sink, small refrigerator and/or microwave may also be provided. Common or shared spaces are usually bathrooms, living rooms, kitchens, laundry facilities, and at times, meeting rooms. Although once a common form of housing, SROs have largely disappeared -- casualties of urban renewal.

SROs are an affordable form of housing and are designed to help bridge the housing gap for the working poor and to assist chronically homeless persons into permanent housing. Assistance provided under the SRO program is designed to bring more standard SRO units into the local housing supply and to use those units to assist homeless persons. The SRO units might be in a rundown hotel, a Y, an old school, or even in a large abandoned home.

Under the program, HUD enters into Annual Contributions Contracts with public housing agencies (PHAs) in connection with the moderate rehabilitation of residential properties that, when rehabilitation is completed, will contain multiple single room dwelling units. These PHAs make Section 8 rental assistance payments to participating owners (i.e., landlords) on behalf of homeless individuals who rent the rehabilitated dwellings.

Rental assistance for SRO units is provided for a period of 10 years. Owners are compensated for the cost of some of the rehabilitation (as well as the other costs of owning and maintaining the property) through the rental assistance payments. To be eligible for assistance, a unit must receive a minimum of $3,000 of rehabilitation, including its prorated share of work to be accomplished on common areas or systems, to meet housing quality standards (HQS).

Some of the contract rent will be paid by participants. Participants must pay rent in accordance with section 3(a) of the Housing Act of 1937. Under section 3(a), each participant must pay as rent the highest of:
30 percent of monthly adjusted income;
10 percent of monthly income;
If receiving payments for welfare assistance from a public agency and a part of such payments, adjusted in accordance with actual housing costs, is specifically designated by such agency to meet housing costs, the portion of such payments which is so designated; or
$25.00 to $50.00 a month as specified by the PHA.

The McKinney Act requires that first priority for occupancy of SRO units be given to homeless individuals. However, HUD will also provide rental assistance for homeless individuals currently residing in units who are eligible for Section 8 assistance.

Additionally, at least 25% of the units proposed for assistance must be vacant at the time of application so that a significant portion of those served are homeless individuals. An application that has a vacancy rate lower than 25% will be rejected. Finally, when current occupants vacate assisted units, these units must be filled with homeless individuals identified through the recipient or owner's continuing outreach effort.

While access to supportive services for SRO Moderate Rehab funding is not a requirement, applicants who design service coordination in their project plans receive leveraging points from HUD as part of project evaluation.

For more information on the SRO Program, visit the HUD website at http://www.hud.gov/offices/cpd/homeless/programs/sro/index.cfm