HUD Issues Proposed Rule to Use Small Area Fair Market Rents

HUD published a proposed rule to use Small Area Fair Market Rents (Small Area FMRs) instead of 50th Percentile FMRs as a means to deconcentrate the use of Housing Choice vouchers in select metropolitan areas. Small Area FMRs reflect rents for U.S. Postal ZIP Codes, while traditional FMRs reflect a single rent standard for an entire metropolitan region. The proposed rule, published in the Federal Register on June 16, would apply to tenant-based vouchers, as well as to project-based vouchers approved after the effective date of the Small Area FMR designation. Small Area FMRs would not apply to other HUD programs. The goal is to provide voucher payment standards that are more in line with neighborhood-scale rental markets, resulting in relatively higher subsidies in neighborhoods with higher rents and greater opportunities, and lower subsidies in neighborhoods with lower rents and concentrations of voucher holders.

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 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 counties with differing housing submarkets. Consequently, in the lowest rent, lowest opportunity neighborhoods, nearly all of the rents qualify for the voucher program, while in high opportunity communities rents are usually well out of reach of the voucher program. 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 that 40% of the rents are lower than this amount.

The proposed rule would require Small Area FMRs to be used in metropolitan areas where: (1) there are at least 2,500 vouchers under lease; (2) at least 20% of the standard quality rental stock within the metropolitan FMR area is in ZIP codes where the Small Area FMR is more than 110% of the metropolitan FMR; and (3) the percentage of voucher holders living in low income areas is greater than 155% of the percentage of all renters living in low income areas.

Beginning in 2000, HUD began to set FMRs at the 50th percentile in a few metropolitan areas where voucher families were highly concentrated in order to expand the range of housing opportunities for voucher households and enable them to move out of areas of concentrated poverty. However, research indicates that using the 50th percentile FMR is not adequate to enable moves from areas of low opportunity to areas of higher opportunity.

Small Area FMRs will now be used instead of 50th Percentile FMRs, and metropolitan areas currently at 50th Percentile FMRs that meet the Small Area FMR criteria will transition to Small Area FMRs. Those that do not meet the Small Area FMR criteria will remain as 50th Percentile FMRs until the expiration of their three-year 50th Percentile FMR period, at which time they will revert to 40th Percentile FMRs. PHAs within the 50th Percentile FMR area reverting back to a 40th Percentile FMR will maintain their ability to request approval to keep payment standards at the 50th Percentile FMR.

The 31 metropolitan areas that meet HUD’s criteria for Small Area FMRs under the proposed rule are at Appendix A of the Federal Register notice and in a June 15 press release,

NLIHC responded to HUD’s request last summer for comments on Small Area FMRs (see Memo, 7/6/15). NLIHC expressed concern over the potential harm that a transition to Small Area FMRs could cause to voucher recipients living in low cost ZIP codes where the payment standard would be reduced. Voucher holders may be responsible for higher rental costs if they stay in the same apartment after a hold harmless period is over. NLIHC proposed that HUD categorically exempt tenants from any reduction in their payment standard as a result of the transition to the Small Area FMRs for as long as they remain in their existing unit. 

HUD’s proposed rule instead states that, in accordance with current regulation, a hold harmless period up to the second annual reexamination of income will follow any decline in payment standards. This time period ranges from 13 to 24 months. HUD acknowledges that families with a disabled member may face barriers to moving and experience rent increases because of their current neighborhood’s reduced payment standard, but refers to the wide latitude that PHAs have in setting higher payment standards for disabled tenants as a “reasonable accommodation” for their disability.

NLIHC also expressed concern over the potential for landlords to exit the voucher program where payment standards in low rent neighborhoods sharply decline. NLIHC proposed that HUD phase in Small FMRs over a few years.

HUD is seeking public comment by August 15 on the proposed rule and on a number of specific issues. The specific issues include:

  • What additional policies or requirements should the final rule include to mitigate the impact of FMR decreases in certain ZIP codes on families with assistance currently living in those ZIP codes?
  • Whether the final rule should limit the decline in the FMR for a ZIP code resulting from the implementation of Small Area FMRs.
  • Whether there are specific populations for whom the transition to Small Area FMRs would be particularly burdensome. What are the ways in which the proposed rule could create a disproportionate burden on certain groups like elderly and disabled voucher holders?
  • Whether there are certain situations or any specific groups of voucher recipients, such as people with disabilities or elderly recipients, where voucher holders should be exempt from having their voucher payment standard change due to specific hardships they may encounter from having to choose between moving or staying and receiving a lower payment standard.
  • Whether or not other HUD rental assistance programs would benefit from using Small Area FMRs.
  • What other criteria should HUD use to select metropolitan areas that will be impacted by the proposed rule and why are those criteria important?

The proposed rule is at: