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HUD Considers Introduction of Small Area Fair Market Rents
(Category: HUD. Added/edited: Apr 26, 2010.)
Source: NLIHC Memo to Members, April 26, 2010
"Under reforms being considered at HUD, Fair Market Rents (FMRs) may, beginning in 2012, be changed so that they are set at the Zip Code level in metropolitan areas, and updated annually using data from the American Community Survey. Public housing agencies may have the opportunity to pilot the new policy in 2011.
FMRs are the rent limits used in the Housing Choice Voucher program. One of the most frequent criticisms of the program is that the FMRs in urban and suburban areas are set for broad metropolitan areas. Under the current system, FMRs typically fall just below the middle of the combined rent distribution for a very large number of different local markets. As a result, many higher-rent communities are all but off limits for voucher holders. This restricts the ability of the program to deconcentrate poverty and limits the opportunity of residents to move closer employment, transit, and other amenities, except where PHAs have made the effort to establish HUD-approved exception payment standard areas. Moreover, there is a significant potential for the program to pay too much in lower rent communities. Not only does this require an unwieldy “rent reasonableness” regime to control rents, but there are concerns that this policy is inflating rents for unsubsidized tenants in some communities.
In an interim rule (65 FR 58870) that was published in 2000, HUD sought to increase the opportunities in metropolitan areas where voucher holders were concentrated in a few high poverty areas by increasing the FMR for the entire area. This policy has not been ideal, however, and has only increased the potential to over-subsidize in high poverty markets. HUD is now seeking to replace this rule with a more targeted policy.
The likely reforms were described by Kurt Usowski, Deputy Assistant Secretary for Economic Affairs in the Office of Policy Development & Research at HUD, at NLIHC’s annual policy conference. Mr. Usowski said the department intends to use the small area data in the 2000 Census to establish “rent ratios” between the current metropolitan area FMRs and the rent levels in local areas within metropolitan areas. (HUD intends to eventually use the small area data from the American Community Survey, sometime after the data are released in 2010.) By multiplying these ratios by the metropolitan area FMRs, arrived at using current methods, small area FMRs can be generated. The approach also means HUD will continue to generate FMRs for entire metro areas, which are currently used in many programs beyond the Housing Choice Voucher program.
HUD will continue to use state minimums and to generate county-based FMRs in rural areas. HUD plans to target the new FMRs by Zip Codes because of their broad familiarity to program users and landlords and because Zip Codes generally contain sufficient numbers of renter households to generate valid ratios.
The proposed reform bears significant similarities to reforms NLIHC proposed in response to HUD’s call for comments in its release of the proposed FY10 FMRs (see Memo, 7/31/09). Mr. Usowski said that if the reform moves forward it would be described in a notice released “ASAP.” FY10-equivalent hypothetical small area FMRs would be posted on Huduser.org when the notice announcing the demonstration is published. The hypothetical small area FMRs would be updated to FY11 equivalents when the proposed FY11 FMRs are published this summer. HUD would then publish a Federal Register notice requesting demonstration program applicants after considering comments received in response to the demonstration program announcement notice.
Communities could voluntarily pilot the program as early as FY11. If the demonstration proved successful, the reforms would be phased in more generally in subsequent years."
Link to PDF of full Memo to Members.
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