HUD Announces 2018 Section 8 Annual Adjustment Factors

HUD recently announced fiscal year 2018 Annual Adjustment Factors (AAFs) for adjustment of contract rents on the anniversary of those assistance contracts for months beginning after Nov. 8, 2017. The 2018 Annual Adjustment Factors can be found at https://www.huduser.gov/portal/datasets/aaf.html.

AAFs are used to adjust contract rents for units in certain Section 8 housing assistance payment programs during the initial term of the HAP contract and for all units in the Project-Based Certificate program. The factors are based on a formula using residential rent and utility cost changes. HUD’s published AAFs are shown in two schedules, one for adjusting the rent of units where the highest-cost utility (usually heating) is included in the contract rent (termed “Highest Utility Included” in the tables) and the other for units where the tenant pays for the highest-cost utility (“Highest Utility Excluded”). Separate AAF schedules are published for a total of about 123 areas: (a) about 119 separate metropolitan areas, including counties that are currently designated as non-metropolitan, but are part of the metropolitan area defined in the local Bureau of Labor Statistics Consumer Price Index (CPI) survey; and (b) the four Census Regions for those metropolitan and non-metropolitan areas that are not covered by the local CPI surveys. There are three categories of Section 8 programs that use the AAFs:

• The Section 8 New Construction, Substantial Rehabilitation, and Moderate Rehabilitation programs;
• The Section 8 Loan Management (LM) and Property Disposition (PD) programs; and
• Section 8 Project-Based Certificate program, which is essentially discontinued since the PBC program merged with the Housing Choice Voucher program in February 2016.

Each Section 8 program category uses the AAFs differently. The specific application of the AAFs is determined by the law, the HAP contract, and appropriate program regulations or requirements. AAFs are not used in the following cases:

Renewal rents. AAFs aren’t used to determine renewal rents after expiration of the original Section 8 HAP contract (either for projects where the Section 8 HAP contract is renewed under a restructuring plan adopted under 24 CFR part 401, or for those renewed without restructuring under 24 CFR part 402). In general, renewal rents are based on the applicable state-by-state operating cost adjustment factor (OCAF) published by HUD; the OCAF is applied to the previous year’s contract rent minus debt service.

Budget-based rents. AAFs aren’t used for budget-based rent adjustments. For projects receiving Section 8 subsidies under the LM program (24 CFR part 886, subpart A) and for projects receiving Section 8 subsidies under the PD program (24 CFR part 886, subpart C), contract rents are adjusted, at HUD’s option, either by applying the AAFs or by budget-based adjustments in accordance with 24 CFR 886.112(b) and 24 CFR 886.312(b). Budget-based adjustments are used for most Section 8/202 projects.

Tenant-based certificate program. In the past, AAFs were used to adjust the contract rent (including manufactured home space rentals) in both the tenant-based and project-based certificate programs. The tenant-based certificate program has been terminated, and all tenancies in the tenant-based certificate program have been converted to the Housing Choice Voucher program, which doesn’t use AAFs to adjust rents. All tenancies remaining in the project-based certificate program continue to use AAFs to adjust contract rent for outstanding HAP contracts.

Voucher program. AAFs aren’t used to adjust rents in the tenant-based or the project-based voucher programs.