HUD Publishes Final Small Area FMR Rule

Housing and Urban DevelopmentHUD issued a final rule on November 16 requiring public housing agencies (PHAs) in 24 designated metropolitan areas to administer their Housing Choice Voucher (voucher) programs using Small Area Fair Market Rents (Small Area FMRs). The rule also provides regulatory implementation guidance related to certain provisions of the Housing Opportunity Through Modernization Act (HOTMA) pertaining to all FMRs.

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 intent is to provide voucher payment standards that are better aligned 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 higher concentrations of voucher holders. A goal of Small Area FMRs is to help households use vouchers in areas of higher opportunity and lower poverty and to reduce voucher concentrations high poverty areas.

In comments regarding both an Advance Notice of Proposed Rule Making (see Memo, 6/8/16 and 7/6/15) and the proposed rule (see Memo, 6/20 and 8/22), NLIHC supported the use of Small Area FMRs in certain metropolitan areas, and urged that the final rule include provisions holding existing voucher households harmless. NLIHC recommended that any metropolitan area with a vacancy rate of 5% or less not be required to comply with the Small Area FMR rule because it would result in lower voucher payment standards for many households currently relying on vouchers in low-cost neighborhoods. This may lead to landlords in such tight markets refusing to lower rents or exiting the program, leaving voucher holders unable to find suitable alternatives. The resulting lower payment standards could lead to residents becoming cost-burdened because they would have to pay more for rent in order to make up the difference between the reduced payment standard and rent charged by landlords. In the final rule, HUD exempts any metropolitan area with a Census Bureau American Community Survey (ACS) vacancy rate of 4% or lower.

While NLIHC supports changes to the voucher regulations that enable households to use vouchers in areas of higher opportunity, NLIHC’s comments on the proposed rule urge consideration of the voucher households who choose to stay in their current home and neighborhood because of important familial, social, cultural, and other ties to the neighborhood. NLIHC recommended that the final rule categorically exempt current voucher households from any reduction in the payment standard as a result of the transition to Small Area FMRs.

HUD did not include such a provision in the final rule. Instead, the final rule implements a provision of HOTMA which allows PHAs the option to hold households harmless from payment standard reductions when the FMR decreases, not just when a decrease results from the implementation of Small Area FMRs. NLIHC remains concerned that this does not adequately protect residents because the provision depends on a PHA taking a voluntary action. A PHA might choose not to hold existing voucher households harmless, preferring instead to lower payment standards and hence housing assistance payments in response to insufficient Congressional voucher appropriations.

If a PHA chooses not to hold the payment standard constant when there is a reduction in the FMR, the final rule offers the PHA the option of setting a payment standard between the pre-reduced payment standard and a new payment standard based on the lower FMR. The rule also allows the PHA exercising this option to further reduce the payment standard over time to bring the payment standard down gradually to the reduced FMR-based standard.

NLIHC expressed the concern that many landlords might exit the voucher program when payment standards in low-rent neighborhoods sharply decline. This would have an adverse impact on future households, as well as on households currently relying on the voucher program. NLIHC recommended that the final rule incrementally limit how far Small Area FMRs could fall below current metropolitan FMRs. NLIHC suggested that Small Area FMRs be set no lower than 95% of the metropolitan FMR in its first year of implementation, no lower than 90% the second year, and so on in 5% increments. The final rule limits the annual decrease in either Small Area FMRs or regular FMRs to no more than 10% of the area’s FMR in the prior fiscal year.

In order to help more voucher households successfully use a voucher in higher-cost, higher-opportunity areas, whether or not an area is designated an Small Area FMR area, NLIHC recommended that PHAs be able to set an exception payment standard up to 120% of the FMR without requesting HUD approval. In addition, NLIHC suggested that PHAs be able to request HUD approval of payment standards greater than 120% of the FMR, up to 150% of the FMR.

The final rule allows PHAs that are not in Small Area FMR areas to establish exception payment standards for a ZIP code area up to 110% of the relevant Small Area FMR by notifying HUD. HUD may provide an exception payment standard for Small Area FMR PHAs for an entire ZIP code area in accordance with conditions to be provided in a future Federal Register notice.

The final rule also implements HOTMA provisions that allow any PHA, not just those in Small Area FMR areas, to establish without seeking HUD approval an exception payment standard of up to 120% of the FMR if required as a reasonable accommodation for a household that includes a person with a disability. A PHA may establish an exception payment standard greater than 120% of the FMR if required as a reasonable accommodation with HUD approval.

NLIHC commented that the proposed formula for determining areas required to comply with Small Area FMRs did not reach metropolitan areas that need it the most, those that have significant concentrations of vouchers in ZIP codes with racial and ethnic concentrations of poverty. NLIHC recommended that the formula be modified as suggested by the Center on Budget and Policy Priorities (CBPP). The final rule maintains the three proposed criteria but requires the percentage of voucher households living in concentrated low income areas relative to all renters within the area to be at least 25% (CBPP recommended 40%).

Some of the other key provisions of the final rule that were in the proposed rule are:

  • PHAs not required to comply with the Small Area FMR rule may choose to use Small Area FMRs.
  • Additional Small Area FMR areas will be designated every five years.
  • Small Area FMR designations are permanent.
  • The use of 50th percentile FMRs is eliminated because they have not resulted in sufficient movement of voucher holders to areas of higher opportunity. The final rule provides transition provisions for PHAs currently using 50th percentile FMRs.
  • Current and future properties with project-based vouchers (PBVs) are exempt from using Small Area FMRs. However PHAs in Small Area FMR areas my apply Small Area FMRs to future PBV projects.
  • Vouchers used to subsidize the rent of a manufactured home space are exempt from Small Area FMRs.

Based on the revised formula, 24 metro areas will be required to use Small Area FMRs:

  • Atlanta-Sandy Springs-Marietta, GA
  • Bergen-Passaic, NJ
  • Charlotte-Gastonia-Rock Hill, NC-SC
  • Chicago-Joliet-Naperville, IL
  • Colorado Springs, CO
  • Dallas-Plano-Irving, TX
  • Fort Lauderdale-Pompano Beach-Deerfield Beach, FL
  • Fort Worth-Arlington, TX
  • Gary, IN
  • Hartford-West Hartford-East Hartford, CT
  • Jackson, MS
  • Jacksonville, FL
  • Monmouth-Ocean, NJ
  • North Port-Bradenton-Sarasota, FL
  • Palm Bay-Melbourne-Titusville, FL
  • Philadelphia-Camden-Wilmington, PA-NJ-DE-MD
  • Pittsburgh, PA
  • Sacramento--Arden-Arcade--Roseville, CA
  • San Antonio-New Braunfels, TX
  • San Diego-Carlsbad-San Marcos, CA
  • Tampa-St. Petersburg-Clearwater, FL
  • Urban Honolulu, HI
  • Washington-Arlington-Alexandria, DC-VA-MD Metro Area
  • West Palm Beach-Boca Raton-Delray Beach, FL

HUD’s five-page summary of the rule is at:

The final rule is at:

The Federal Register notice indicating which areas must comply with the Small Area FMR rule is at: