HUD Provides Guidance on Small Area FMRs

HUD’s Office of Public and Indian Housing (PIH) posted Notice PIH 2018-01 on January 17 providing guidance regarding the provisions of the Small Area Fair Market Rent (Small Area FMR or SAFMR) rule. Public housing agencies (PHAs) in 24 metropolitan areas that are required to use SAFMRs are now expected to implement SAFMRs by April 1, 2018. Any PHA that will not be able to meet that new deadline is instructed to contact its PIH field office. HUD anticipates amending the guidance once it has received and evaluated the complete results of the Small Area FMR Demonstration Evaluation (see Memo, 8/21/17).

Small Area FMRs reflect rents for U.S. Postal ZIP codes, while traditional fair market rents (FMRs) reflect a single rent standard for an entire metropolitan region. The intent of SAFMRs is to provide voucher payment standards that are better aligned with neighborhood-scale rental markets, resulting in relatively higher subsidies in neighborhoods that have higher rents but greater opportunities and relatively lower subsidies in neighborhoods that have lower rents and higher concentrations of voucher households. The primary goal of SAFMRs is to help households use vouchers in areas of higher opportunity and lower poverty, thus reducing voucher concentrations high-poverty areas. 

The final Small Area FMR rule was published on November 16, 2016 (see Memo, 11/21/16) after a year and a half rulemaking process that included multiple rounds of comments (see  Memo, 6/8/15, 7/6/15, 6/20/16 and 8/22/16). However, without public notice, on August 10, 2017, HUD abruptly suspended the SAFMR rule for two years. Five civil rights organizations representing three plaintiffs sued HUD over the suspension (see Memo, 10/30/17). On December 23, 2017, the U.S. District Court for the District of Columbia granted a preliminary injunction against HUD, finding that HUD had neither the authority nor compelling reasons to suspend implementation of the use of SAFMRs. Notice PIH 2018-01 is a sign that HUD will not appeal the Court’s decision.

The January 17 Notice (Section 9 of Notice PIH 2018-01) discusses how a metro area or a PHA required by the rule to use SAFMRs (the Notice calls them “Designated SAFMR PHAs”) can seek suspension of or temporary exemption from the use of SAFMRs. The Notice states that any request must be based on a documented finding of an “adverse rental housing market condition specific to the area or PHA.” If the request is for a suspension for a metro area, the requesting PHA or PHAs must administer more than 50% of the vouchers leased in the metro area.

Adverse rental housing market conditions may include vacancy rates falling below four percent, a sudden influx of families into the metro area, a sudden loss of rental units, and a rapid increase in a PHA’s per-unit costs that cause the PHA to experience a funding shortfall. The Notice provides an example of adverse rental market conditions that do not fit neatly with the four factors: a declining ability of voucher households to find owners willing to accept vouchers despite PHA outreach to owners. According to the Notice, adverse rental housing market conditions may apply to the broad rental housing market or to the part of the rental market that is affordable and available to voucher households. Advocates in the 24 metro areas will need to be vigilant to ensure that any PHA request for suspension or exemption from using SAFMRs is based on genuine and serious adverse rental market conditions.

The Notice offers a form of SAFMR implementation not provided for in the final rule. The Notice allows Designated SAFMR PHAs and “Opt-in PHAs” (PHAs that voluntarily seek HUD approval to use SAFMRs) to use a voucher payment standard based on a group of ZIP code areas instead of using the payment standard based on the SAFMR of each ZIP code area. The value of a voucher is based on the payment standard chosen by a PHA, which generally must be in the “basic range,” between 90% and 110% of an FMR (or in this case the SAFMR). If grouped ZIP code areas are used, the payment standard for each grouped ZIP code area must be within the “basic range” of the SAFMR for each ZIP code area in the group.

As an example, the Notice provides an exhibit with three ZIP code area groups. One of the groups (Group B) raises a potential concern. Group B contains ZIP codes 90013 and 90014. ZIP code 90013 has a SAFMR of $1,630. If a PHA uses a payment standard of 100% of the SAFMR, the value of a voucher in ZIP code 90013 is based on a monthly rent of $1,630. ZIP code 90014 has a SAFMR of $1,810, which means the voucher payment standard basic range there is between $1,629 and $1,991. Rather than providing a payment standard of 100% of ZIP code 90014’s SAFMR ($1,810), grouping the two Zip code areas allows the PHA to use ZIP code 90013’s lower payment standard of $1,630 (because it falls within ZIP code 90014’s basic range). The lower payment standard, however, is contrary to the intent of SAFMRs because the value of a voucher in ZIP code 90014 will be $180 less, and a voucher household might have greater difficulty using its voucher there. Slightly reducing a PHA’s administrative task might result in reducing households’ housing opportunities.

In addition to providing guidance regarding PHAs that choose to apply SAFMRs to their project-based voucher (PBV) programs, Notice PIH 2018-01 provides guidance for all PHAs administering a voucher program because the final rule also made changes to the voucher program in general. Such guidance includes topics like decreases in FMRs, rent reasonableness, revisions to payment standards and amounts and schedules, exception payment standards, and decreases in the payment standard during a Housing Assistance Payment (HAP) contract term.

HUD has created a Small Area FMR webpage. That page has a link to FAQs that are likely to grow beyond the current two items.