Small Area Fair Market Rents Increase Number of Affordable Rentals for Voucher Holders in Most Metros

A report by NYU’s Furman Center, “How Do Small Area Fair Market Rents Affect the Location and Number of Units Affordable to Voucher Holders, found that use of Small Area fair market rents (FMRs) will increase the number of rental units affordable to Housing Choice Voucher recipients by 9% across the 24 metropolitan areas where Small FMRs are required. The share of units in high-rent Zip codes affordable to voucher holders will increase from 18% to 41%.

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 of Small Area FMRs is to provide voucher payment standards that are better aligned with neighborhood-scale rental markets, resulting in relatively higher voucher payments for neighborhoods with higher rents and lower payments for neighborhoods with lower rents. A goal of Small Area FMRs is to help households use vouchers in higher-rent areas with higher opportunity and lower poverty and to reduce voucher concentrations in lower-rent areas with higher poverty rates. HUD issued a Final Rule in November 2016 that required public housing authorities (PHAs) in 24 metropolitan areas to use Small Area FMRs for the Housing Choice Voucher program (See Memo, 11/21/16), but suspended the rule in August 2017 (See Memo, 8/21/17). HUD’s suspension decision was based partially on the results of an interim evaluation of Small Area FMRs in seven PHAs, which showed a 3.4% loss of affordable homes to voucher holders (See Memo, 8/21/17). The U.S. District Court for the District of Columbia recently granted an injunction against HUD’s suspension and ordered implementation of the Final Rule (See Memo, 1/08).

The interim evaluation had some weaknesses. It examined the impacts of Small Area FMRs in seven individual PHAs rather than metropolitan regions as a whole. One PHA jurisdiction consisting primarily of low-rent ZIP codes saw a large decline in the number of affordable rental units for voucher holders (as expected, because of the lower payment standard). This loss, however, would be a gain for a PHA whose jurisdiction covered primarily high-rent ZIP codes. The Final Rule requires metropolitan-wide implementation. Also, the 24 metropolitan areas to which the Final Rule for Small Area FMRs applies were chosen by HUD based on criteria that indicated Small Area FMRs would likely increase the number of affordable homes to voucher holders. HUD chose only metropolitan areas that had a sufficient share of rental units located in high-rent ZIP codes and exempted metropolitan areas with very low vacancy rates, i.e. tight rental markets.

The Furman Center study examined the impact of Small Area FMRs in all 24 metropolitan areas where they are required. They found that the increase in the number of affordable homes in high-rent ZIP codes would outweigh the decline in low-rent ZIP codes, leading to a net increase of over 9% in affordable rental units for voucher holders. Four of the 24 metropolitan areas, however, showed a slight decline in affordable housing units, but none by more than 5%. The Furman Center analysis did not take into account measures already included in the Small Area FMR rule designed to mitigate affordable housing reductions. Local PHAs, for instance, can set payment standards at 110 percent of the Small Area FMR to increase the number of units renting for less than the standard. They also can set payment standards between the Small Area FMR and the previous FMR to protect existing voucher holders who wish to remain in their home in a low-rent ZIP code. An intermediate payment standard would allow an existing voucher holder from having to contribute a greater share of their limited income towards rent that is not covered by the voucher or from losing their rental unit altogether.

How Do Small Area Fair Market Rents Affect the Location and Number of Units Affordable to Voucher Holders is available at: