July 13 -- The Office of the Assistant Secretary for Policy Development and Research, HUD, invites comment by August 12, 2022 on proposed changes for calculating Fair Market Rents (FMRs).
Section 8 of the USHA (42 U.S.C. 1437f) authorizes housing assistance to aid lower-income families in renting safe and decent housing. Housing assistance payments are limited by FMRs established by HUD for different geographic areas. In the Housing Choice Voucher (HCV) program, the FMR is the basis for determining the “payment standard amount” used to calculate the maximum monthly subsidy for an assisted family. See 24 CFR 982.503. HUD also uses the FMRs to determine initial renewal rents for some expiring project-based Section 8 contracts, initial rents for housing assistance payment contracts in the Moderate Rehabilitation Single Room Occupancy program, rent ceilings for rental units in both the HOME Investment Partnerships program and the Emergency Solution Grants program, the primary rent standard for the HOPWA program, calculation of maximum award amounts for Continuum of Care recipients and the maximum amount of rent a recipient may pay for property leased with Continuum of Care funds, and calculation of flat rents in Public Housing units.
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 HCV program must meet reasonable rent standards.
Since FY 2008, HUD has used data from the Census Bureau's 1-year American Community Survey as the source for estimates of 40th percentile gross rents paid by recent movers, which is often the most accurate and comprehensive reflection of rents available at the local level. On July 29, 2021, the Census Bureau announced that it would not release standard 1-year estimates from the 2020 American Community Survey (ACS) because of the impacts of the COVID-19 pandemic on data collection.
Given this exceptional circumstance, HUD is reconsidering its data sources used to estimate Fair Market Rents, which are required to be statistically valid, and balance timeliness, accuracy, transparency and soundness of approach. According to numerous private-sector rent sources, rents have been rising rapidly in many markets since 2020. The methods used to estimate rent inflation in the CPI result in delayed measurement of rent increases among recent movers, and local CPI data are only available for 21 large metropolitan areas, so HUD relies on Regional CPI data. While private rent data provides more timely and more geographically specific updates of rent trends than does CPI, the nature of the proprietary data does not allow HUD the same level of visibility into its soundness of methodology and samples as CPI. This Notice describes proposed changes in HUD's methodology for calculating Fair Market Rents that HUD is considering in response to the change in 2020 ACS data availability and local rent increases that are not fully captured by Regional CPI data. Both of these changes will apply only to FY 2023 FMRs.
HUD is proposing two material changes to the calculation of FMRs for FY 2023 to: (1) deal with the temporary lack of availability of 2020 ACS 1-year data; and (2) provide additional local rent inflation data that better conform FMR estimates to changes in rental markets in the wake of the COVID-19 pandemic. Both proposed changes could narrowly introduce private sector rental data from multiple sources into the FMR calculation process in limited and statistically valid situations where private sector rental data have demonstrated that they more accurately estimate changes in rental markets. These changes would apply only to FY 2023 FMRs.
While these private sector data sources do not cover the entire U.S., may not be individually representative of the rental market, and cannot be used to directly compute FMRs, they may be useful for discrete components of the calculation to inflate ACS data from the collection timeframe to the applicable period of FMRs. For FY 2023 FMRs, HUD is proposing the use of up to 6 private sector rent data sources (RealPage (formerly Axiometrics) average effective rent per unit, Moody's Analytics REIS average gross revenue per unit, CoStar Group average effective rent, CoreLogic, Inc. single-family combined 3-bedroom rent index, ApartmentList Rent Estimates, and Zillow Observed Rent Index.) where available and would only use private sector rent data where there are at least 3 sources covering the FMR area. The specific private data sources HUD uses in estimating each fiscal year's FMRs would be published as part of the notice announcing availability of the FMRs and in HUD's FMR documentation system.