HUD’s Proposed Fair Market Rents Address a Number of Industry Issues

On August 3rd, the Department of Housing and Urban Development (HUD) released its list of proposed  Fair Market Rents (FMRs) for fiscal year 2013.  The primary purpose of FMRs is to establish maximum subsidies for HUD’s Housing Voucher Program (which provides rental assistance to about 1.8 million low-income, elderly and disabled households) although FMRs are sometimes used in other applications when a general measure of local housing costs is needed.  Because housing costs are variable, HUD needs to publish FMRs for each local market area in the country every year.

Maintaining this system while adjusting to new sources of data like the American Community Survey (ACS) has raised a number of issues for the housing industry.  Over the past two years, working as part of an industry coalition, NAHB has addressed these issues in a series of comment letters to HUD.  The letters have included a number of technical recommendations, such as

  • Using a new inflation trend factor (to bring FMRs forward from the last year of data to the year in which they will apply), based on the average rent changes in the ACS over several years.
  • Making some changes to the “recent mover factor” HUD introduced last year (to compensate for rent data that doesn’t distinguish recent movers from other tenants).
  • Maintaining the statutory date of October 1 for final publication of FMRs.
  • Continuing to publish proposed FMRs well in advance of Oct 1 to allow for a period of public comment.

A number of the recommendations were accommodated in the latest release.  For example, the 2013 FMRs used a new trend factor based on the average rent changes in the ACS between 2005 and 2010—something NAHB believes is highly desirable to avoid large, unpredictable and difficult to manage swings in local FMRs.  HUD also made a number of improvements to the recent mover factor.

The effect on 2013 FMRs was an average increase of 5.7% across the 524 metropolitan FMR areas (excluding Guam and Puerto Rico) with actual declines limited to 90 of these metro FMR areas.

Some of the increases largely reversed substantial negative changes noted in comment letters last year.  For example, the 2-bedroom FMR in Flagstaff Arizona increased by 20.2% after declining by 22.6% last year.  The 2-bedroom FMR in Rochester Minnesota increased by 16.1% after declining by 16.7% last year.

Nevertheless, in the absence of a hard floor, any method for determining FMRs across the entire nation will produce significant declines in some areas.  The metro areas where 2013 FMRs declined by more than 5% are shown below:

Because HUD has continued to provide a proposed list well in advance of the Oct 1 publication date with a period for public input, stakeholders can comment on the above or other of the FMRs proposed for 2013.  The deadline is September 4, and instructions for submitting comments can be found on the first page of the preamble published in the Federal Register.  HUD also has an online documentation system that shows in detail how the FMR for any particular area is calculated.



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