By Dawn Anastasi, RPA Board Member

Connor Goggans, the Lead Community Intervention Specialist for the Milwaukee County Housing Division, recently shared with RPA the upcoming proposed changes for calculating Fair Market Rents (FMRs).

This is a 17-page document, so to summarize for our members, here are some of the notable points:

The primary uses of FMRs are to determine payment standards for the Housing Choice Voucher (HCV) program, to determine initial renewal rents for some expiring project-based Section 8 contracts, and to serve as rent ceilings for rental units in both the HOME Investment Partnerships Program and the Emergency Solutions Grants Program and a primary rent standard option for the Housing for Opportunities for Persons With AIDS (HOPWA) program. 

To better determine payment standards and related parameters for HUD programs, HUD proposes changes in how FMRs are calculated in this notice and seeks public comment on the proposed changes.

The comment period ends on July 24, 2023. HUD accepts comments either by postal mail or via email, however email is the preferred delivery method.

Interested persons may submit comments electronically through the Federal eRulemaking Portal at http://www.regulations.gov. Comments submitted electronically through the website can be viewed by other commenters and interested members of the public.

Note that in order to submit a comment, you'll need to reference Docket No. FR-6401-N-01.

Back in September 2022, HUD published a similar notice to the above and solicited feedback. Here is some of the feedback they received:

Many commenters expressed that recipients of Housing Choice Vouchers are facing decreasing success rates in finding housing at the current FMR rates due to steep rent increases. Some commenters stated that the gaps between the FMR and market rates are making it harder for assisted families to find affordable housing because FMRs fail to reflect actual rent prices and, as a result, more voucher holders are priced out of local rental housing inventories.

In years past, I also saw the same issue where rent amounts that were allowed by the Section 8 program did not match that of market rents.

Commenters also suggested additional transparency about the use of private data sources when calculating the gross rent inflation adjustment factors. These commenters specifically recommended that HUD publish reports documenting FY2023 FMRs that were adjusted using private sector rental data as well as the geographies and the prior inflation adjustment where the private data are used. 

One commenter said that the average person cannot understand HUD’s methodology for calculating rent and that rents should be based on advertised housing prices. Another commenter stated that the FMR does not consider actual rent prices and requested that HUD abandon their current FMR calculation method.

I have to say that I agree with the commenters above. In the past, it wasn't clear how HUD was directing the housing authority to determine the maximum allowed rent since it seemed so far below market rent.

So how does HUD calculate FMR (fair market rent)? Based on the document provided, it's actually a 7 part process. Here's a summary of the parts evaluated:

• Base Rent. First, HUD establishes a “base rent” for two-bedroom units from the 5-year 40th percentile estimates of gross rent from the ACS.

• Recent Mover Adjustments. HUD then adjusts the base rent using a “recent mover adjustment factor” that is based on the ratio of the estimate of gross rent paid by recent movers from the 1-year ACS (American Community Survey) to the estimate of gross rent paid by all renters from the 5-year ACS for the smallest level of geography containing the FMR area that contains statistically reliable 1-year data.

• Inflation Adjustment. HUD then accounts for inflation from the ACS year by applying a “gross rent inflation factor,” which is calculated from the Consumer Price Index (CPI) as produced by the Bureau of Labor Statistics (BLS).

• Trend Factor. Because it calculates FMRs ahead of each fiscal year, HUD provides a further inflation adjustment in the form of a “trend factor.” The trend factor represents the expected future level of the gross rent CPI for the upcoming fiscal year compared to the most recent actual gross rent CPI.

• State minimum FMRs. Additionally, HUD calculates state minimum FMRs based on the median FMR for non-metropolitan portions of each state.

• Bedroom Ratios. HUD calculates FMRs for unit sizes other than two bedrooms by applying “bedroom ratios” calculated from the relationships between rents for units of different sizes according to the 5-year ACS.

• Limit on Decreases. Finally, HUD does not allow an area’s FMR to decline by more than 10 percent.

Whew! Did you get all that? Now I can understand the statement "One commenter said that the average person cannot understand HUD’s methodology for calculating rent and that rents should be based on advertised housing prices."

Interested in reading the full document? Click here to visit HUD's website.

Do you have any tenants on Section 8 / Rent Assistance?

Have you faced any of the issues described above?

Share your experiences in the comments below!