HUD Publishes Small Area Fair Market Rent Final Rule

HUD recently published in the Federal Register a final rule regarding the use of Small Area Fair Market Rents (SAFMR) in certain metropolitan areas, and replacing HUD’s existing 50th percentile fair market rent (FMR) policy for the Housing Choice Voucher program. The rule also provides regulatory implementation guidance related to certain provisions of the Housing Opportunity Through Modernization Act (HOTMA) pertaining to all FMRs.

FMRs are gross rent estimates that are used to calculate the maximum subsidy HUD provides families receiving rental assistance, including the 2.2 million households assisted through the voucher program. These households generally contribute 30 percent of their adjusted monthly income toward their rent with the rental subsidy paying the rest. FMRs are usually set at the 40th percentile of all rents charged in an entire metropolitan area; although in 2000, HUD began to set this rent standard to the 50th percentile in areas where voucher families were highly concentrated.

The main objective of the 50th percentile program was to provide a broader range of housing choices that would enable voucher holders to move to areas of higher opportunity. However, research found that in many areas, rather than incentivizing voucher holders to move to higher opportunity neighborhoods, most of the additional subsidies provided through this approach appear to benefit owners in the form of higher rents, in effect, artificially inflating rents in some higher poverty neighborhoods.

HUD will phase out the 50th percentile program over the next three years and calculate FMRs by ZIP codes within qualifying metropolitan areas as a mechanism to expand the choices available to these households. This SAFMR approach is intended to increase voucher holders’ access to a greater number of units in low poverty areas while reducing excess subsidy from some high poverty neighborhoods.

The final rule applies SAFMRs to metropolitan areas where: (1) there are at least 2,500 vouchers under lease; (2) at least 20 percent of the standard quality rental stock within the metropolitan FMR area is in ZIP codes where the SAFMR is more than 110 percent of the metropolitan FMR; (3) the percentage of voucher families living in concentrated low-income areas relative to all renters within the area is at least 25 percent; and (4) the measure of the percentage of voucher holders living in concentrated low-income areas relative to all renters within these areas over the entire metropolitan area exceeds 155 percent.

In addition, the final rule implements a provision of HOTMA that gives 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 SAFMRs. If a PHA chooses not to hold the payment standard constant when there’s 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.

The final rule also implements HOTMA provisions that allow any PHA, not just those in SAFMR areas, to establish without seeking HUD approval an exception payment standard of up to 120 percent 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 percent of the FMR if required as a reasonable accommodation with HUD approval.

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

• PHAs not required to comply with the SAFMR rule may choose to use SAFMRs;
• Additional SAFMR areas will be designated every five years;
• SAFMR designations are permanent;
• 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 SAFMRs. However PHAs in SAFMR areas my apply SAFMRs to future PBV projects;
• Vouchers used to subsidize the rent of a manufactured home space are exempt from SAFMRs.

HUD announced that it expects to issue implementation guidance in Fiscal Year 2017 to support SAFMR implementation.