Small Area Fair Market Rents Would Increase Available Housing Options in Predominantly White Neighborhoods, Decrease Options in Predominantly Black and Hispanic Neighborhoods

A paper published in Cityscape: A Journal of Policy Development and Research, Small Area Fair Market Rents, Race, and Neighborhood Opportunity,” estimates that widespread adoption of Small Area Fair Market Rents (SAFMRs) would allow 470,000 rental homes in high-opportunity neighborhoods to become eligible for the Housing Choice Voucher (HCV) program. At the same time, the authors estimate a loss of 840,000 eligible homes in other neighborhoods. Nearly all the growth in HCV program-eligible units would be in predominantly white or already integrated neighborhoods. The authors also note that while SAFMRs are a necessary step for helping low-income minority households access neighborhoods of higher opportunity, additional policies may be necessary to help them overcome formidable barriers to actually securing housing in high-opportunity neighborhoods.

The SAFMR rule reforms voucher rent standards for some metropolitan areas. Whereas traditional Fair Market Rents (FMRs) are based rents across an entire metropolitan area and therefore determine a single rent standard for an entire metropolitan region, SAFMRs set varying rent standards in different Postal Service ZIP codes within a metropolitan region (see Memo, 11/14/16). A 2016 rule required public housing agencies (PHAs) in 24 metropolitan areas to use SAFMRs. In the HCV program, HUD pays the difference between what a voucher household pays toward rent (30% of adjusted household income) and the contract rent charged by a property owner. The HCV-eligible amount of contract rent is called the “payment standard,” an amount between 90% and 110% of the FMR as determined by individual PHAs. A switch to SAFMRs would change the payment standard to 90% and 110% of the SAFMR.

The authors of this paper estimate the effects of applying the SAFMR standard to all metropolitan areas with a population of at least 1 million. To do this, the authors combine HUD data on HCV households, SAFMRs, and opportunity indicators with 2017 American Community Survey (ACS) data on median rents and racial/ethnic compositions of ZIP codes in 53 metropolitan areas with populations greater than 1 million. Using this combined data, they create two typologies for categorizing ZIP codes. The first sorts ZIP codes into five categories according to racial and ethnic composition: White Non-Hispanic, Black Non-Hispanic, Other Non-Hispanic, Hispanic, and Integrated (whites constitute less than 75% of the population and all other racial or ethnic groups constitute less than 50%). The second typology sorts ZIP codes into five categories according to opportunity levels, ranging from “very low” to “very high.” The opportunity index is defined in terms of poverty exposure, school performance, labor force involvement, and environmental health hazards. The authors find that black and Hispanic ZIP codes are overwhelmingly classified as very-low or low-opportunity, while 62% of white areas are high- or very-high opportunity. In addition, black and Hispanic voucher households tend to live in either integrated ZIP codes or areas composed of primarily their own racial group.

The authors estimate the impact that introducing SAFMRs across the country would have on the HCV-eligible housing stock, assuming payment standards are set at 100% of the SAFMR. To make this estimate, they examined housing markets in the 53 metropolitan areas with populations greater than 1 million. The SAFMR in more expensive neighborhoods would be higher than the traditional FMR, allowing more rental homes to be eligible for the HCV program. The SAFMR in less expensive neighborhoods would be lower than the traditional FMR, so unless landlords were willing to cut rents in response to reduced payment standards, those neighborhoods would likely lose eligible units. Overall, using SAFMRs in those 53 metropolitan areas could lead to a net decrease of 370,000 HCV-eligible units, amounting to about 2.6% of the HCV-eligible housing stock in those areas. This decrease, however, would primarily be concentrated in low- and very-low opportunity ZIP codes, which could lose 818,000 units. Very-high and high-opportunity areas could experience net increases of 250,000 and 220,000 HCV-eligible units, respectively.

This trend also means that most growth in HCV-eligible units could occur in predominantly white areas. Of all the areas that could experience a net gain of HCV-eligible units, 65% are white non-Hispanic, 33% are integrated, and less than 1% are black or Hispanic. Of those that could lose units, 48% are integrated, 14% are black, and 17% are Hispanic. About 41% of majority-white areas were high- or very-high opportunity, compared to just 16% of minority-white areas. Though integrated neighborhoods could experience a significant net loss of 130,000 eligible homes due to the introduction of SAFMRs, 96% of this loss would occur in minority-white areas.

The authors argue that SAFMRs are a necessary but insufficient step for helping low-income minority households access neighborhoods of higher opportunity. Though housing options in high-opportunity, predominantly white and integrated neighborhoods will be expanded, black and Hispanic voucher recipients still face formidable barriers to accessing those options. The authors recommend that PHAs devote more resources to voucher-recipient services, such as transportation assistance, housing counseling, and case management. They also recommend increased landlord recruitment, in the form of education and incentives, to ensure that the introduction of SAFMRs leads to greater access as well as availability in high-opportunity neighborhoods.

The paper is at:

Another SAFMR paper in the same edition of City Scape found that the introduction of SAFMRs did not make voucher-recipient families with children more likely to move, but those who did move were more likely to locate in higher-opportunity neighborhoods (see Memo, 12/9) .

More about the Housing Choice Voucher program is on page 4-1 of NLIHC’s 2019 Advocates’ Guide.