HUD Proposes Changes for Calculating Fair Market Rents

HUD is seeking comments on proposed changes for calculating Fair Market Rents (FMRs). HUD published a notice in the Federal Register titled, “Proposed Changes to the Methodology Used for Calculating Fair Market Rents.”

The context: Housing assistance payments are limited by FMRs set by HUD for different geographic areas. In general, the FMR for an area is the amount that a tenant would need to pay the gross rent (shelter rent plus utilities) of privately owned, decent, and safe rental housing of a modest (non-luxury) nature with suitable amenities. HUD's FMR calculations represent HUD's best effort to estimate the 40th percentile gross rent paid by recent movers into standard quality units in each FMR area. In addition, all rents subsidized under the Housing Choice Voucher (HCV) program must meet reasonable rent standards. In the HCV program, the FMR is the basis for determining the “payment standard amount” used to calculate the maximum monthly subsidy for an assisted family. HUD also uses the FMRs to determine rents in various other programs and circumstances, such as initial renewal rents for some expiring project-based Section 8 contracts and rent ceilings for rental units in both the HOME Investment Partnerships program and the Emergency Solution Grants program.

The bottom line: HUD is proposing to use private sector data in two steps during the FMR calculation process in certain circumstances. Due to the pandemic, there is a lack of American Community Survey (ACS) one-year data that HUD uses to update two-bedroom base rent figures.

HUD is proposing to use a special tabulation of the five-year ACS data for 2020 of rents paid by people who moved in 2020 or 2019. And this special tabulation will be updated by private data sources in certain situations where the data sources are accurate and there are three private data sources. HUD would like to estimate the “recent mover adjustment factor” from these sources.

When one-year ACS data becomes available again, HUD would like to use it again, while still considering augmenting it with private sector data. Second, HUD would like to use private data sources along with its standard Consumer Price Index (CPI) data in calculating the average gross rent inflation factor in certain instances. These changes would impact the calculation of Small Area FMRs also.

What’s next: HUD is seeking comment by Aug. 12 on the appropriateness of using these private sector data sources. Additionally, HUD is seeking comment on whether HUD should continue to use these private rent data sources for FMR calculation after fiscal year 2023. The full Federal Register notice can be found here.