A study by Matthew Palm, “Scale in Housing Policy: A Case Study of the Potential of Small Area Fair Market Rents,” published in Cityscape investigates the effects of Small Area Fair Market Rents (FMRs) on the share of for-rent listings affordable for Housing Choice Voucher (HCV) holders in five metropolitan areas. In four out of the five metro areas, the use of Small Area FMRs would increase rental listings affordable to voucher holders.
Dr. Palm’s research looks specifically at five California metro areas: Oakland, Sacramento, San Diego, San Francisco, and San Jose. Small Area FMRs would significantly increase the total share of rental listings affordable to voucher holders in Sacramento, San Diego, and Oakland, with a smaller increase in San Jose, due to increases in affordable listings in high-opportunity neighborhoods exceeding the losses in low-opportunity neighborhoods. San Francisco would experience a small decrease in affordable listings.
HCVs provide federal rental assistance to help low income families pay for their housing. An HCV pays the difference between the amount a family can afford to pay for rent, roughly 30% of family income, and the total housing cost. The maximum amount covered by vouchers is typically determined by a metropolitan-wide FMR, which is the price families moving today could be expected to pay for modest rental homes in their housing markets.
Metropolitan-wide FMRs, however, fail to account for neighborhood variation in rental costs. Small Area FMRs were created to address this issue by reflecting rent costs in individual ZIP codes. The goal of Small Area FMRs is to provide more assistance for rental units in high-cost neighborhoods and less assistance for rental units in low-cost neighborhoods, thus helping families afford housing in high-opportunity areas. Small Area FMRs should increase the share of listings affordable to voucher holders in high-cost or high opportunity neighborhoods and decrease the share in low-cost or low opportunity neighborhoods.
In November 2016, HUD issued a Final Rule mandating that 24 metropolitan areas use Small Area FMRs. HUD selected these areas based on a number of criteria, including the number and geographic concentration of voucher tenants, a sufficient supply of rental units in high-cost neighborhoods (20% of area’s rental units in ZIP codes with Small Area FMRs greater than 110% of metropolitan-wide FMR), and vacancy rates (See Memo, 11/21/16). HUD suspended the Final Rule in August 2017 (See Memo, 8/21/17), but the U.S. District Court of the District of Columbia issued an injunction against the suspension in January (See Memo, 1/08).
Dr. Palm’s study collected rent data for the five metropolitan areas using Rent Jungle, a comprehensive online database of all rental listings. The study found that Small Area FMRs increased the share of listings affordable to voucher holders in high opportunity neighborhoods for all metropolitan areas except San Francisco. “High opportunity” was indicated by low poverty rates and high academic performance scores.
A potential drawback of using Small Area FMRs is that they may reduce the overall supply of housing affordable to voucher holders, because the lower voucher payment standards in low-cost neighborhoods could make some rental units in those areas no longer affordable. The study found, however, that the use of Small Area FMRs would not cause a large loss in listings affordable to voucher holders in at least the first two years of implementation. It would result in an overall gain in affordable units in four of the areas and only a small loss in San Francisco.
San Francisco would not experience an increase in affordable listings for voucher holders in high-opportunity neighborhoods and would see an overall decline in affordable listings because FMRs do not reflect more recent price escalations. The author suggests a similar outcome might also be seen in Oakland and San Jose if Small Area FMRs were implemented today.
This study supports HUD’s criteria for selecting metropolitan areas for Small Area FMRs. HUD mandated the use of Small Area FMRs in Sacramento and San Diego, the two areas shown in this study to benefit the most from the change.
“Scale in Housing Policy: A Case Study of the Potential of Small Area Fair Market Rents” is available at: https://bit.ly/2M8cQcD