HUD announced its intention to amend Fair Market Rent (FMR) regulations for the Housing Choice Voucher program in a Federal Register notice on June 2. The notice seeks public comment regarding the use of small area FMRs (SAFMRs) in certain metropolitan areas. SAFMRs reflect rents in U.S. Postal Service ZIP code areas. The goal is to provide voucher tenants with subsidies more in line with neighborhood-scale rental markets, including subsidies that would be relatively higher if tenants move to areas where rents are higher but where there is better access to jobs, educational opportunities, transportation, and other services. HUD is only considering using SAFMRs for the Housing Choice Voucher program and not for other programs that use FMRs.
NLIHC long has advocated for smaller FMR areas and therefore supports HUD’s continued consideration of SAFMRs. NLIHC will submit comments prior to the July 2 deadline. NLIHC submitted comments regarding HUD’s 2010 proposal for a SAFMR demonstration (see Memo, 7/16/10).
In the voucher program, the FMR is the basis for determining the “payment standard amount” used to calculate the maximum monthly subsidy for a voucher household. Public Housing Agencies (PHAs) may establish their payment standards between 90% and 110% of the FMR.
HUD calculates FMRs for all metropolitan and nonmetropolitan areas. A single FMR is used throughout an entire metropolitan area, even though these areas generally have many different housing submarkets. Consequently, in the lowest rent, lowest opportunity neighborhoods, nearly all of the rents qualify for the Housing Choice Voucher program, while in high opportunity communities rents are well out of reach of voucher holders. FMRs are usually set at the 40th percentile gross rent for typical rental units occupied by recent movers in the metro area. The 40th percentile means 40% of the rents or less.
Beginning in 2000, HUD began to set FMRs at the 50th percentile in some high cost areas. The reason for allowing 50th percentile FMRs in a few metropolitan areas was to expand the range of housing opportunities for voucher households so that they could move out of areas of concentrated poverty. However, using the 50th percentile FMR has proven to be inadequate to enable moves from areas of low opportunity to areas of higher opportunity. For instance, currently 16 areas are using the 50th percentile FMR. However, the voucher holders in these areas pay rent that is on average only 7.3% higher than the 40th percentile rent. About 150 PHAs are in the16 areas, accounting for 175,000 vouchers, about 10% of all vouchers in metropolitan areas.
Instead of enabling voucher tenants to move to communities with better opportunities, the 50th percentile FMR primarily benefits landlords in low rent submarkets by enabling them to collect subsidized rents greater than market rents.
On May 18, 2010, HUD announced a SAFMR demonstration project to determine the effectiveness of SAFMRs in facilitating voucher tenant moves to areas of greater opportunity (see Memo, 11/30/12). Five PHAs volunteered: Chattanooga, TN; Cook County, IL; Laredo, TX; Long Beach, CA; and Mamaroneck, NY. The Dallas PHA was required to participate as part of a 2007 civil rights lawsuit settlement.
In general, SAFMRs are calculated using a rent ratio determined by dividing the median gross rent for a ZIP code by the median gross rent for the entire metropolitan area. The notice provides more nuanced details about SAFMR calculation. HUD proposes to cap the rent ratio at 150% for areas for which the calculation would otherwise result in a higher rent ratio. HUD also proposes to set a SAFMR floor equal to the state nonmetropolitan minimum FMR if a ZIP code rent is less than it.
HUD proposes to limit use of SAFMRs to metropolitan areas where there are a substantial number of units in neighborhoods with SAFMRs significantly above or below the 40th percentile FMR. In other words, SAFMRs would be limited to metropolitan areas with significant rent differentials. This is to ensure that the SAFMR program is targeted to metropolitan areas where a PHA’s authority to set payment standards between 90% and 110% of the FMR is not sufficient to enable access to opportunity areas, but SAFMRs would.
Before publishing a proposed SAFMR rule, HUD is seeking public comment on a number of issues, including:
- What poverty rate and concentration of voucher holders should be used to determine which areas are targeted for SAFMRs?
- What percentage of an area’s rental stock should be above and below the FMR? SAFMRs will only be effective in reducing concentrations of voucher tenants in high-poverty neighborhoods where there are a sufficient number of rental units in ZIP codes with rents substantially above or below the metropolitan-wide FMR. Because PHAs may establish voucher payment standards up to 110% of the FMR, an SAFMR must be substantially above this that level.
- Should SAFMRs be applied to future project-based vouchers?
SAFMRs for all metropolitan areas are at, http://www.huduser.org/portal/datasets/fmr/smallarea/index.html
The June 2 Federal Register notice is at http://www.gpo.gov/fdsys/pkg/FR-2015-06-02/pdf/2015-13430.pdf