Out of Reach
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Rental Housing At What Cost? October, 1998 |
Explanation of Fair Market Rents
Excerpts from Federal Register Notice of Proposed FY 1999 FMR’s
(Federal Register, Tuesday May 5, 1998, 24 CFR Part 888, [Docket
No. FR-4362-N-01], Fair Market Rents for the Section 8 Housing Assistance
Payments Program--Fiscal Year 1999)
SUMMARY: Section 8(c)(1) of the United States Housing Act of 1937 requires the Secretary to publish FMRs annually to be effective on October 1 of each year. FMRs are used for the Section 8 Rental Certificate Program (including space rentals by owners of manufactured homes under that program); the Moderate Rehabilitation Single Room Occupancy program; housing assisted under the Loan Management and Property Disposition programs; payment standards for the Rental Voucher program; and any other programs whose regulations specify their use...
SUPPLEMENTARY INFORMATION: Section 8 of the United States Housing Act of 1937 (the Act) (42 U.S.C. 1437f) authorizes housing assistance to aid lower income families in renting decent, safe, and sanitary housing. Assistance payments are limited by FMRs established by HUD for different areas. 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, safe, and sanitary rental housing of a modest (non-luxury) nature with suitable amenities...
Method Used to Develop FMRs
FMR Standard: FMRs are gross rent estimates; they include shelter rent and the cost of utilities, except telephone. HUD sets FMRs to assure that a sufficient supply of rental housing is available to program participants. To accomplish this objective, FMRs must be both high enough to permit a selection of units and neighborhoods and low enough to serve as many families as possible. The level at which FMRs are set is expressed as a percentile point within the rent distribution of standard quality rental housing units. The current definition used is the 40th percentile rent, the dollar amount below which 40 percent of the standard quality rental housing units rent. The 40th percentile rent is drawn from the distribution of rents of units which are occupied by recent movers (renter households who moved into their unit within the past 15 months). Newly built units less than two years old are excluded, and adjustments have been made to correct for the below market rents of public housing units included in the data base.
Data Sources: HUD used the most accurate and current data
available to develop the FMR estimates. The sources of survey data used
for the base-year estimates are:
(1) the 1990 Census, which provides statistically
reliable rent data for all FMR areas;
(2) the Bureau of the Census' American Housing Surveys
(AHSs), which are used to develop between-Census revisions for the largest
metropolitan areas and which have accuracy comparable to the decennial
Census; and
(3) Random Digit Dialing (RDD) telephone surveys
of individual FMR areas, which are based on a sampling procedure that uses
computers to select statistically random samples of rental housing.
The base-year FMRs are updated using trending factors based on Consumer
Price Index (CPI) data for rents and utilities or HUD regional rent change
factors developed from RDD surveys. Annual average CPI data are available
individually for 99 metropolitan FMR areas. RDD regional rent change factors
are developed annually for the metropolitan and nonmetropolitan parts of
each of the 10 HUD regions. The RDD factors are used to update the base
year estimates for all FMR areas that do not have their own local CPI survey.
State Minimum FMRs: FMRs are established at the higher of the local 40th percentile rent level or the Statewide average of nonmetropolitan counties, subject to a ceiling rent cap. The State minimum also affects a small number of metropolitan areas whose rents would otherwise fall below the State minimum.
Bedroom Size Adjustments: FMRs have been calculated separately for each bedroom size category. For areas whose FMRs are based on the State minimums, the rents for each bedroom size are the higher of the rent for the area or the Statewide average of nonmetropolitan counties for that bedroom size. For all other FMR areas, the bedroom intervals are based on data for the specific area. Exceptions have been made for some areas with local bedroom size rent intervals below an acceptable range. For those areas the intervals selected were the minimums determined after outliers had been excluded from the distribution of bedroom intervals for all metropolitan areas. Higher ratios continue to be used for three-bedroom and larger size units than would result from using the actual market relationships. This is done to assist the largest, most difficult to house families in finding program-eligible units. The FMRs for unit sizes larger than 4 bedroom 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.
RDD Surveys: RDD surveys are used to obtain statistically-reliable FMR estimates for selected FMR areas. This survey technique involves drawing random samples of renter units occupied by recent movers. RDD surveys exclude public housing units, units built in the past two years, seasonal units, non-cash rental units, and those owned by relatives. A HUD analysis has shown that the slight downward RDD survey bias caused by including some rental units that are in substandard condition is almost exactly offset by the slight upward bias that results from surveying only units with telephones.
Approximately 8,000-12,000 telephone numbers need to be contacted to achieve the target survey sample level of 200 eligible recent mover responses. RDD surveys have a high degree of statistical accuracy; there is a 95 percent likelihood that the recent mover rent estimates developed using this approach are within 3 to 4 percent of the actual rent value. Virtually all of the estimates are within 5 percent of the actual value....
Geographic Coverage
a. Metropolitan Areas.--FMRs are housing
market-wide rent estimates that are intended to provide housing opportunities
throughout the geographic area in which rental housing units are in direct
competition. The FMRs shown in Schedule B are determined for the same areas
as the Office of Management and Budget's (OMB) most current definitions
of metropolitan areas, with the exceptions discussed in paragraph b. HUD
uses the OMB Metropolitan Statistical Area (MSA) and Primary Metropolitan
Statistical Area (PMSA) definitions for FMR areas because they closely
correspond to housing market area definitions.
b. Exceptions to OMB Definitions.--The
exceptions are counties deleted from several large metropolitan areas whose
revised 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 and Counties Deleted
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: 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. Nonmetropolitan area FMRs are set at the higher of the local 40th percentile rent level or the Statewide average of nonmetropolitan counties. (The State minimum also affects a small number of metropolitan areas whose rents would otherwise fall below the State minimum.)
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 complete definitions of these areas including the independent cities are as follows:
Virginia Nonmetropolitan County FMR Area and Independent Cities Included
County: Cities
Alleghany: Clifton Forge and 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: Norton
2. Bedroom Size Adjustments.--Schedule B 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....
4. Arrangement of FMR Areas and Identification of Constituent
Parts
- The FMR areas...are listed alphabetically by metropolitan FMR... within each State....
- The constituent counties (and New England towns and cities) included in each metropolitan FMR area are listed immediately following the listings of the FMR dollar amounts. All constituent parts of a metropolitan FMR area that are in more than one State can be identified by consulting the listings for each applicable State....
