Out of Reach 2003
Excerpts from Federal Register Notice of Fiscal Year 2005 Final Fair Market RentsFor additional information and commentary on the FY 2005 FMRs please see NLIHC’s on-line FMR resources at www.nlihc.org/2005fmrs/index.htm.
DEPARTMENT OF HOUSING AND URBAN DEVELOPMENT
[Docket No. FR-4937-N-02]
Fair Market Rents for the Housing Choice Voucher Program and Moderate Rehabilitation Single Room Occupancy Program Fiscal Year 2005
AGENCY: Office of the Secretary, HUD.
ACTION: Notice of Final Fiscal Year (FY) 2005 Fair Market Rents (FMRs).
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SUPPLEMENTARY INFORMATION
I. Background
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 to FMRs established by HUD for different areas. In the Housing Choice Voucher 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). In general, the FMR for an area is the amount that would be needed 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. In addition, all rents subsidized under the Housing Choice Voucher program must meet reasonable rent standards. The interim rule published on October 2, 2000 (65 FR 58870), established 50th percentile FMRs for certain areas. [For more information see note on 50th percentile rents below.]
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II. Procedures for the Development of FMRs Section 8(c) of the USHA requires the Secretary of HUD to publish FMRs periodically, but not less frequently than annually. Section 8(c) states in part as follows: Proposed fair market rentals for an area shall be published in the Federal Register with reasonable time for public comment and shall become effective upon the date of publication in final form in the Federal Register. Each fair market rental in effect under this subsection shall be adjusted to be effective on October 1 of each year to reflect changes, based on the most recent available data trended so the rentals will be current for the year to which they apply, of rents for existing or newly constructed rental dwelling units, as the case may be, of various sizes and types in this section.The Department’s regulations at 24 CFR part 888 provide that HUD will develop proposed FMRs, publish them for public comment, provide a public comment period of at least 30 days, analyze the comments, and publish final FMRs. (See 24 CFR 888.115.) Final FY2005 FMRs are published on or before October 1, 2004, as required by section 8(c)(1) of the USHA.
…IV. Final FY2005 FMRs and FY2005 FMR Procedures
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A. 2000 Census-Based FMRs
For areas where the base-year estimates were developed from the 2000 Census, the 40th and, where appropriate, 50th percentile gross rents for standard-quality units occupied by recent movers were calculated for differing numbers of bedrooms. The rent distributions were modified to eliminate public housing and other units with similarly low rents, so that only market-rent units would be considered. FMRs are calculated for all metropolitan areas and non-metropolitan counties.FMR estimates are calculated for two-bedroom units, which are the most common rental units. Rent relationships between two-bedroom and other unit sizes are then calculated using local unit size rent relationships to the extent statistically feasible. For the past several years, bedroom ratios have been based on 1990 Census data. The FY2005 FMRs are the first to make use of 2000 Census data to more closely reflect market rent differentials between units with differing numbers of bedrooms. The rents for three-bedroom and larger units continue to reflect HUD’s policy to set higher rents for these units than would result from using normal market rents. This adjustment is intended to increase the likelihood that the largest families, who have the most difficulty in leasing units, will be successful in finding eligible program units. The adjustment adds 8.7 percent to the unadjusted three-bedroom FMR estimates and adds 7.7 percent to the unadjusted four-bedroom FMR estimates. The FMRs for unit sizes larger than four bedrooms are calculated by adding 15 percent to the four-bedroom FMR for each extra bedroom. For example, the FMR for a five-bedroom unit is 1.15 times the four-bedroom FMR, and the FMR for a six-bedroom unit is 1.30 times the four-bedroom FMR. The FMRs for single-room occupancy units are 0.75 times the zero-bedroom (efficiency) FMR.
A further adjustment is made for areas with local bedroom-size intervals above or below what are considered to be reasonable ranges or where sample sizes are inadequate to accurately measure bedroom rent differentials. Experience has shown that highly unusual bedroom ratios typically reflect inadequate sample sizes or peculiar local circumstances that HUD would not want to utilize in setting FMRs (e.g., luxury efficiency apartments in New York City that rent for more than typical one-bedroom units). Bedroom interval ranges were established based on an analysis of the range of such intervals for all areas with large enough samples to permit accurate bedroom ratio determinations. The final ranges used were as follows: efficiency units are constrained to fall between 0.65 and 0.83 of the two-bedroom FMR, one-bedroom units must be between 0.76 and 0.90 of the two-bedroom unit, three-bedroom units must be between 1.10 and 1.34 of the two-bedroom unit and four-bedroom units must be between 1.14 and 1.63 of the two-bedroom unit. Bedroom rents for a given FMR area were then adjusted if the differentials between bedroom-size FMRs were inconsistent with normally observed patterns (e.g., efficiency rents were not allowed to be higher than one-bedroom rents and four bedroom rents were set at a minimum of three percent higher than three-bedroom rents).
For low-population, non-metropolitan counties with small Census recent-mover rent samples, Census-defined county group data were used in determining rents for each bedroom size. This adjustment was made to protect against unrealistically high or low FMRs resulting from insufficient sample sizes. The areas covered by this new estimation method have fewer than 33 two-bedroom Census sample observations.
After base 2000 Census estimates were established for each FMR area and bedroom size, they were updated from the estimated Census date of April 1, 2000, to April 1, 2005 (the midpoint of FY2005). Update factors for the 2000 through end of 2003 period were based either on the area-specific Consumer Price Index (CPI) survey data that were available for the largest metropolitan areas or on HUD regional RDD survey data.
For areas with local CPI surveys, CPI annual data on rents and utilities were used to update the Census rent estimates. Three-quarters of the 2000 CPI change factor was used to bring the FMR estimates forward from April to December of 2000. Annual CPI survey data could then be used for calendar years 2001, 2002, and 2003. Trending to cover the period from January 1, 2004, to April 1, 2005, was then needed. An annual trending factor of three percent, based on the average annual increase in the median Census gross rent between 1990 and 2000, was used to update estimates from the end of 2003 (i.e., the last date for which CPI data were available) until the midpoint of the fiscal year in which the estimates were used. The 15-month trending factor was 3.75 percent (3 percent times 15/12).
For areas without local CPI surveys, the same process was used except that regional RDD survey data were substituted for CPI data. Regional RDD surveys were done for 20 areas – the metropolitan and nonmetropolitan part of each of the 10 HUD regions. Areas covered by CPI metropolitan surveys were excluded from the RDD metropolitan regional surveys.
B. FMRs Based on Post-2000 Census Surveys
There are a number of areas where AHS and RDD telephone surveys of rents have been conducted since the 2000 Census. Both the AHS and RDD surveys have been proven to provide statistically reliable results within the limits of their stated confidence intervals.The RDD technique involves use of large, randomly selected samples to obtain data on current rents paid for one- and two-bedroom rental units occupied by recent movers. RDD surveys exclude public housing units, newly built units and non-cash rental units. They do not exclude substandard units because there is no practical way to determine housing quality from telephone interviews. These surveys, however, also exclude units without a telephone, and past analysis has shown that the slightly downward rent estimate bias caused by including some substandard units is almost exactly offset by the slightly upward bias that results from only surveying units with telephones. This relationship held true across a variety of areas.
RDD surveys that meet HUD criteria have a high degree of statistical accuracy. There is a 95 percent likelihood that the 40th or 50th percentile recent mover contract rent estimates developed using this approach are within three to four percent of the actual 40th or 50th percentile. Virtually all survey estimates of contract rent will be within five percent of the actual 40th or 50th percentile value.
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F. FMRs for Federal Disaster Areas Under the authority granted in 24 CFR part 888, the Secretary of HUD finds good cause to waive and hereby waives the regulatory requirements that govern requests for geographic area exception FMRs for areas that are declared disaster areas by the Federal Emergency Management Agency (FEMA). HUD is prepared (1) to grant disaster-related FMR exceptions up to 10 percent above the applicable FMRs for those areas. HUD field offices are authorized to approve such exceptions for single-county FMR areas and for individual county parts of multi-county FMR areas that qualify as disaster areas under the Robert T. Stafford Disaster Relief and Emergency Assistance Act, if (2) the PHA certifies that damage to the rental housing stock as a result of the disaster is so substantial that it has increased the prevailing rent levels in the affected area. Such exception FMRs must be requested in writing by the responsible PHAs. Exception FMRs approved by HUD during FY2005 will remain in effect until superseded by the publication of the final FY2007 FMRs, and replace lower, published FMR values.
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VI. Manufactured Home Space Surveys The FMR used to establish payment standard amounts for the rental of manufactured home spaces in the Housing Choice Voucher program is 40 percent of the FMR for a two-bedroom unit. HUD will consider modification of the manufactured home space FMRs where public comments present statistically valid survey data showing the 40th percentile manufactured home space rent (including the cost of utilities) for the entire FMR area. Manufactured home space FMR revisions are published as final FMRs in Schedule D. Once approved, the revised manufactured home space FMRs establish new base year estimates that are updated annually using the same data used to estimate the Housing Choice Voucher program FMRs. The FMR area definitions used for the rental of manufactured home spaces are the same as the area definitions used for the other FMRs.
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Fair Market Rents for the Housing Choice Voucher Program Schedules B and D—General Explanatory Notes
1. Geographic Coverage
a. Metropolitan Areas—FMRs are market-wide rent estimates that are intended to provide housing opportunities throughout the geographic area in which rental-housing units are in direct competition. HUD uses the OMB Metropolitan Statistical Area (MSA) and Primary Metropolitan Statistical Area (PMSA) definitions, but the current definitions from the June 6, 2003 publication have not yet been incorporated. Use of these new geographic definitions will be considered for use in future FMR publications. Schedule B FMRs are issued for the same metropolitan area definitions used by HUD in FY 2004 with the exceptions discussed in paragraph (b). The OMB-defined metropolitan areas closely correspond to housing market area definitions.b. Exceptions to OMB Definitions—The exceptions are counties deleted from several large metropolitan areas whose old OMB metropolitan area definitions were determined by HUD to be larger than the housing market areas. The FMRs for the following counties (shown by the metropolitan area) are calculated separately and are shown in Schedule B within their respective states under the “Metropolitan FMR Areas” listing: Metropolitan Area Counties Assigned County-Based FMRs Chicago, IL DeKalb, Grundy and Kendall Counties Cincinnati-Hamilton, OH-KY-IN Brown County, Ohio; Gallatin, Grant and Pendleton Counties in Kentucky; and Ohio County, Indiana Dallas, TX Henderson County Flagstaff, AZ-UT Kane County, UT New Orleans, LA St. James Parish Washington, DC-MD-VA-WV Berkeley and Jefferson Counties in West Virginia; and Clarke, Culpeper, King George and Warren Counties in Virginia
c. Nonmetropolitan Area FMRs—FMRs also are established for nonmetropolitan counties and for county equivalents in the United States, for nonmetropolitan parts of counties in the New England states and for FMR areas in Puerto Rico, the Virgin Islands and the Pacific Islands.
d. Virginia Independent Cities—FMRs for the areas in Virginia shown in the table below were established by combining the Census data for the nonmetropolitan counties with the data for the independent cities that are located within the county borders. Because of space limitations, the FMR listing in Schedule B includes only the name of the nonmetropolitan County. The full definitions of these areas, including the independent cities, are as follows:
Virginia Nonmetropolitan County FMR Area and Independent Cities Included With County County Cities Allegheny Clifton Falls, Covington Augusta Staunton and Waynesboro Carroll Galax Frederick Winchester Greensville Emporia Henry Martinsville Montgomery Radford Rockbridge Buena Vista and Lexington Rockingham Harrisonburg Southhampton Franklin Wise Norton2. Bedroom Size Adjustments Schedules B(1) and B(2) shows the FMRs for 0-bedroom through 4-bedroom units. The FMRs for unit sizes larger than 4 bedrooms are calculated by adding 15 percent to the 4-bedroom FMR for each extra bedroom. For example, the FMR for a 5-bedroom unit is 1.15 times the 4-bedroom FMR, and the FMR for a 6-bedroom unit is 1.30 times the 4-bedroom FMR. FMRs for single-room-occupancy (SRO) units are 0.75 times the 0-bedroom FMR.
…This document can be found in its entirety at www.huduser.org/Datasets/FMR/FMR2005F/Final_FY2005_FMR_Preamble.pdf
A Quick Note on 50th Percentile Rents
According to an interim rule published in 2000, (65 FR 8870) HUD is required to set FMRs at the 50th percentile rent for all unit sizes in each FMR area that meets all of the following criteria:
1. The FMR area contains at least 100 census tracts;
2. 70 percent or fewer of the Census tracts with at least 10 two bedroom rental units are census tracts in which at least 30 percent of the two bedroom rental units have gross rents at or below the two bedroom FMR set at the 40th percentile rent; and
3. 25 percent or more of the tenant-based rental program participants in the FMR area reside in the 5 percent of the census tracts within the FMR area that have the largest number of program participants.
This is done to promote residential choice, help families move closer to areas of job growth, and to deconcentrate poverty. The analysis is based on all rental units, not just rental units occupied by recent movers, to ensure sufficient sample size at the census tract level. Based on these criteria, HUD sets FMRs in 39 metropolitan areas at the 50th percentile gross rent.
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