Compliance

HUD Section 3

Print

HUD Section 3

Section 3 of the Housing and Urban Development Act of 1968, as amended by the Housing and Community Development Act of 1992, requires that recipients of financial assistance provided by the U.S. Department of Housing & Urban Development (HUD), including subrecipients, contractors, and their subcontractors, provide, to the greatest extent feasible, training and employment opportunities for low-income area residents and contract opportunities for the performance of work by local businesses owned by and/or employing low-income residents.

On September 29, 2020, HUD published the Section 3 Final Rule, 24 CFR Part 75, with an effective date of November 30, 2020, which amended Section 3 data collection and reporting guidelines. As a result, HUD requires HPD to collect the number of labor hours worked by every subrecipient, contractor, and subcontractor, that receives a contract or loan agreement for a housing construction, rehabilitation, demolition, or other public construction project funded entirely or in part by Housing and Community Development (HCD) funding in excess of $300,000*, to ensure compliance with Section 3 regulations (or in excess of $150,000 for work funded by the Lead Hazard Control and Healthy Homes programs).

*At least once every five years, HUD is required to update the dollar threshold for triggering Section 3 based on national construction cost inflation. On March 16, 2026, the threshold for projects funded by HCD funding will increase from $200,000 to $300,000, and from $100,000 to $150,000 for projects funded by Lead Hazard Control and Healthy Homes funding.  

Reporting Responsibilities

Subrecipients, contractors, and subcontractors must document all labor hours performed by employees on Section 3 qualifying projects and indicate the number of labor hours performed by Section 3 and Targeted Section 3 workers.  

A Section 3 Worker is any worker who currently fits, or when hired within the past five years fit, at least one of the following categories:  

  • The worker’s income for the previous or annualized calendar year is below 80% of the area median income for a household of one;
  • The worker is employed by a Section 3 business concern; or
  • The worker is a YouthBuild participant.

A Targeted Section 3 Worker is any worker who: 

  • Is employed by a Section 3 business concern; or
  • Currently fits or when hired fit at least one of the following categories within the prior five years:
    • Lives within one mile of the Section 3 project; or
    • Is a YouthBuild participant

Section 3 Business Concern

A Section 3 Business Concern is defined in one of three ways:

  • The business is at least 51 percent owned and managed by Section 3 workers;
  • Over 75 percent of the labor hours performed for the business over the prior three-month period are performed by Section 3 workers; or
  • At least 51 percent of the business is owned and controlled by current public housing residents or residents who currently live in Section 8-assisted housing.

Businesses may self-certify to claim they meet the requirements using the Section 3 Business Self-Certification form included in the reporting packages linked below.

Reporting Forms

Projects funded by the following Housing and Community Development sources by HUD via HPD are subject to Section 3 requirements. The following packages contain guidance and forms for use by recipients in compliance with HUD regulations:

Resources

For information or technical assistance related to HPD’s Section 3 Program, email:

For additional information related to Section 3, visit:

For HUD annual income limits, which are effective April 1 of every year, visit: