National Housing Law Project Housing Law Bulletin

HUD-Lowered Fair Market Rents Mean Fewer Affordable Units

As a cost-cutting measure, HUD published a notice of proposed Fiscal Year 1996 Fair Market Rents (FMRs) at the 40th percentile, down from the earlier 45th percentile level.¹ In a separate final rule published the same day, 24 C.F.R. Part 888 was revised to redefine the FMR rent standard, lowering it from the 45th to the 40th percentile effective September 14, 1995.²

On September 18, 1995, HUD published as final the new FMRs at the 40th percentile. It excluded 31 areas, which will continue to use the FY 1995 FMRs at the 45th percentile, pending final HUD action in response to public/PHA comment.³ Publication of a notice is expected next year to announce any warranted FMR revisions for these areas where HUD determines that a rental housing survey submitted by an affected PHA offers a reasonable basis for a change in the FMR.

It should be noted that both the House and Senate adopted FMRs at the 40th percentile for FY 1996 in their HUD funding bills. These bills await conference to reconcile differences in other areas.⁴

Reduction of the FMR from the 45th to the 40th percentile will, in many markets, reduce housing choices available to eligible Section 8 participants. Section 8 subsidies are capped at the dollar amount below which 40 percent of standard quality housing units rent in each geographic area. HUD's three sources for arriving at base-year estimates for FMRs are (1) the 1990 United States Census, (2) the Census Bureau's American Housing Surveys, and (3) HUD's Random Digit Dialing (RDD) telephone surveys of individual FMR areas. This last is a HUD-compiled statistical sample of rents in recently occupied rental units in the private market.

In response to recent criticism that FMRs in rural areas are not high enough to permit operation of an effective program, HUD implemented a new minimum FMR policy which sets FMRs at the higher of the local FMR or the statewide average FMR for non-metropolitan counties.⁵ These rural FMRs are capped at the higher of the local FMR or the statewide FMR, but subject to a ceiling rent cap of $450 on the non-metropolitan state averages.

This procedure, according to the preamble in the final rule,⁶ addresses the concern that PHAs in sparsely populated rural areas have difficulty developing valid FMRs. Their FMRs may be skewed by small sample size as well as a larger incidence of substandard housing and assisted housing with below-market rents. The state minimum policy is designed to resolve this problem. In addition, HUD has made a determination also to apply the new state minimum policy to a few metropolitan areas that would otherwise have had FMRs below the statewide non-metropolitan county average. HUD reserves the right to alter this policy based upon future public comment and review.

1. 60 Fed. Reg. 42,290 (Aug. 15, 1995).
2. Id. at 42,222.
3. 60 Fed. Reg. 48,279 (Sept. 18, 1995). Among the excluded areas are Boston, Massachusetts; Washington, D.C., Maryland, Virginia and West Virginia; San Francisco, Oakland and San Jose, California; and Tampa/St. Petersburg/Clearwater, Florida.
4. H.R. 2099, FY 1996 Appropriations for VA, HUD and Independent Agencies, 104th Cong., 1st Sess. (adopted by the House July 31, 1995, and by the Senate Sept. 27, 1995).
5. 60 Fed. Reg. 42,290 (Aug. 15, 1995, effective Oct. 1, 1995).
6. Id. at 42,296.

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