HUD Archives: Description of HUD's New Policy on Fair Market Rents

DESCRIPTIONS OF HUD's NEW POLICY ON FAIR MARKET RENTS

September 12, 2000

Overview

HUD's new Fair Market Rent (FMR) policy provides targeted relief to areas where market conditions are preventing families from successfully using Section 8 Housing Choice vouchers. Where it is necessary to ensure the effective operation of the housing voucher program, HUD will raise Fair Market Rents from the 40th to the 50th percentile of recent movers. This will ensure that families with vouchers have access to at least half of all standard quality rental units in those areas.

Section 8 Housing Choice vouchers increase affordable housing choices for very-low income households by allowing families with children and disabled and elderly households to choose privately-owned rental housing. The Housing Choice voucher program combines Section 8 vouchers and certificates into a single program that today helps more than 1.4 million households across the United States.

The new policy is designed to achieve two fundamental program objectives:

1. Ensuring that voucher-holders can find suitable housing. In many areas, the current Fair Market Rents -- based on the 40th percentile of recent movers -- are adequate to allow families with Section 8 vouchers to rent suitable housing. In some areas, however, difficult market conditions are preventing families from finding affordable units. The new policy authorizes public housing agencies -- who administer the voucher program -- to use voucher payment standards based on the 50th percentile rent where fewer than three-fourths of the families issued vouchers succeed in using them to find housing.

2. Ensuring that voucher-holders have access to a broad range of housing opportunities throughout the metropolitan area. One of the goals of the Section 8 program is to ensure that voucher-holders are free to move to neighborhoods of their choice throughout the metropolitan area. To advance this objective, HUD will increase FMRs to the 50th percentile in metropolitan areas where there is both concentration among voucher-holders and evidence suggesting that this problem may be due to the distribution of affordable rental units in the area. Some 39 metropolitan areas initially meet these criteria.

This new policy is innovative in at least three respects:

Where appropriate, it increases FMRs all the way to the 50th percentile, rather than simply back to the 45th percentile standard used prior to 1995. The 45th percentile provides only modest relief that will often be insufficient to remedy the problems that have been identified. The Department elected to utilize the 50th percentile to provide more substantial relief to areas experiencing problems.

It saves the taxpayers money by increasing FMRs only where necessary to remedy specific problems. An across-the-board increase would have raised FMRs everywhere, even in those areas where they were already adequate to permit the successful use of vouchers. The new policy efficiently targets increases only in those areas experiencing problems.

In keeping with sound management principles, housing agencies that choose to utilize the higher 50th percentile FMR will be held accountable for results through the use of new performance measurements. The measures will help to ensure that the higher FMRs achieve the intended results of improving mobility and the rates of success of voucher recipients.

Targeted Increases in Fair Market Rents to Ensure that Voucher-Holders Can Find Suitable Housing

Unlike the old housing certificate program, in which maximum subsidy levels were governed by the FMR, maximum subsidies under the Housing Choice Voucher Program are governed by a "payment standard." This gives public housing agencies greater flexibility to adapt the program to local market conditions. Rather than being required to set subsidy levels at the FMR that applies to the entire metropolitan area which may be too low or too high for the particular communities they serve PHAs already have discretion to set the voucher payment standard amounts anywhere between 90 and 110 percent of the FMR.

Many public housing agencies can run a successful voucher program within this normal 90 to 110 percent range of the current 40th percentile FMR. In some cases, however, even the maximum 110 percent of the FMR is too low to enable families to find suitable housing with a voucher. The new policy solves this problem. Where a PHA has raised its voucher payment standard to 110 percent of the FMR, but still finds that fewer than 75 percent of all families that receive a voucher over the course of six months can find housing with their vouchers, it will be eligible to set its payment standard based on a 50th percentile rent .

Housing agencies that qualify for the higher payment standards will still retain the flexibility to vary their payment standard by area. The range of payment standards available to them will simply be 90 to 110 percent of a 50th percentile rent, rather than of a 40th percentile rent.

Targeted Increases in Fair Market Rents to Ensure that Voucher Holders Have Access to a Broad Range of Housing Opportunities Throughout the Metropolitan Area

One of the goals of the Section 8 voucher program is to provide participating families with access to a broad range of housing opportunities. Families should not be restricted by low subsidy levels to a narrow range of neighborhoods, and should especially not be restricted to areas of high poverty concentration. Moreover, to advance welfare-to-work objectives, families with vouchers should have access to housing in areas of job growth or with good transportation access to job centers.

To advance these important program objectives, HUD will raise FMRs to the 50th percentile in those metropolitan areas where there is both: concentration among voucher-holders and evidence suggesting that this problem may be due to the distribution of affordable rental units in the area.

This two-part test ensures that scarce resources are properly targeted on the areas most in need of assistance. As a first step in identifying the areas in need of assistance, there obviously needs to be evidence of concentration among voucher holders. Because this concentration may be due to low FMRs or to other factors that are unrelated to FMRs, such as family choice, HUD has added a second test to identify those areas where affordable rental housing is not well-distributed throughout the metropolitan area.

Specifically, HUD will increase FMRs to the 50th percentile for areas meeting both of the following criteria:

25 percent or more of all voucher holders in the metropolitan FMR area reside in the five percent of census tracts with the greatest number of program participants; and

70 percent or fewer census tracts within a metropolitan FMR area are "accessible" to voucher-holders at the current FMR. For the purposes of this analysis, census tracts have been defined as "accessible" to voucher-holders where 30 percent or more of two-bedroom rental units in the tract fell below the 40th percentile FMR in the last decennial census.

Because mobility is an issue primarily for large metropolitan areas, this policy targets FMR increases only on metropolitan areas with more than 100 census tracts.

Performance Measurement

HUD is committed to ensuring that its money is spent in a manner that achieves the desired outcomes. To this end, housing agencies that choose to adopt a 50th percentile rent will be held to performance standards designed to measure whether they have achieved concrete results. The specific standards are as follows:

Housing agencies that receive authority to base payment standards on a 50th percentile rent because fewer than 75 percent of voucher-holders are able to find housing will be given more than a year to raise their success rates to 75 percent, with the aid of the higher FMR. They will also be expected to show that they are utilizing at least 95 percent of their allocated funds. If they fail to achieve these objectives within that time-frame, they will lose five points on their Section 8 Management Assessment Program (SEMAP) score. Subject to the availability of funds through the Housing Voucher Success Fund (proposed in HUD's FY 2001 budget), HUD will provide funding for housing search assistance to help housing agencies meet this goal.

Housing agencies that elect to take advantage of the higher FMRs granted to promote mobility and deconcentration will be expected to show progress in achieving these goals. For such PHAs, the current "bonus" measure of deconcentration outcomes in SEMAP will become a part of their regular SEMAP score.

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