01-11697. Fair Market Rents for the Housing Choice Voucher Program and Moderate Rehabilitation Single Room Occupancy Program: Fiscal Year 2002

AGENCY:

Office of the Secretary, HUD.

ACTION:

Notice of proposed fiscal year (FY) 2002 fair market rents (FMRs).

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 to determine payment standard amounts for the Housing Choice Voucher program, to determine initial renewal rents for some expiring project-based Section 8 contracts, and to determine initial rents for HAP contracts in the Moderate Rehabilitation Single Room Occupancy program. Other programs may require use of FMRs for other purposes. Today's notice proposes revised FMRs that reflect estimated 40th and 50th percentile rent levels trended to April 1, 2002.

DATES:

Comments Due Date: July 9, 2001.

Electronic Data Availability

This Federal Register Notice is available electronically from the HUD news page: http://www.hudclips.org/​cgi/​index.cgi. Federal Register Notices also are available electronically from the U.S. Government Printing Office web site: http://www.access.gpo.gov/​su_​docs/​aces/​aces140.html.

ADDRESSES:

Interested persons are invited to submit comments regarding HUD's estimates of the FMRs as published in this Notice to the Office of the General Counsel, Rules Docket Clerk, Room 10276, Department of Housing and Urban Development, 451 Seventh Street SW., Washington, DC 20410. Communications should refer to the above docket number and title and should contain the information specified in the “Request for Comments” section. To ensure that the information is fully considered by all of the reviewers, each commenter is requested to submit two copies of its comments, one to the Rules Docket Clerk and the other to the Economic and Market Analysis Staff in the appropriate HUD Field Office. A copy of each communication submitted will be available for public inspection and copying during regular business hours (7:30 a.m.—5:30 p.m. Eastern Time) at the above address.

FOR FURTHER INFORMATION CONTACT:

Gerald Benoit, Director, Real Estate and Housing Performance Division, Office of Public and Assisted Housing Delivery, telephone [phone], is responsible for decisions on how fair market rents are used. For technical information on the methodology used to develop fair market rents or a listing of all fair market rents, please call HUD USER at 1-800-245-2691 or access the information on the HUD Web site, http://www.huduser.org/​datasets/​fmr.html. Further questions on the methodology may be addressed to Marie Lihn, Economic and Market Analysis Division, Office of Economic Affairs, telephone [phone], (e-mail: [e-mail]). Hearing-or speech-impaired persons may use the Telecommunications Devices for the Deaf (TTY) by contacting the Federal Information Relay Service at 1-800-877-8339. (Other than the “800” TTY number, telephone numbers are not toll free.)

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. Housing assistance payments are limited by FMRs established by HUD for different areas. In the voucher program, the FMR is used to determine the “payment standard amount” used to calculate the maximum monthly subsidy for an assisted family (see Section 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, safe, and sanitary rental housing of a modest (non-luxury) nature with suitable amenities.

Publication of FMRs

Section 8(c) of the Act requires the Secretary of HUD to publish FMRs periodically, but not less frequently than annually. HUD's regulations provide that HUD will develop FMRs by publishing proposed FMRs for public comment and, publish final FMRs after evaluating public comments (see 24 CFR 888.115).

Schedule B of the proposed FY 2002 FMR schedules at the end of this document lists the fair market rents for existing housing, including housing assisted under the housing choice voucher program. Schedule D lists FMRs for the rental of manufactured home spaces in the housing choice voucher program for areas where HUD has approved FMRs greater than 40 percent of the 2-bedroom FMR, based on public comments.

For the purpose of determining the maximum initial gross rent (at the beginning of the HAP contract term) for a unit assisted in the Section 8 moderate rehabilitation Single Room Occupancy (SRO) program, the fair market rent is 120 percent of the applicable existing housing fair market rent in Schedule B (see 24 CFR 882.408(a)). For the purpose of determining renewal gross rents for a HAP contract under the moderate rehabilitation program (other than a contract under the Section 8 moderate rehabilitation SRO program), the FMR is the applicable existing housing fair market rent in Schedule B.

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 for most areas, 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.

The interim rule establishing 50th percentile FMRs was published on October 2, 2000 (65 FR 58870) and became effective on December 1, 2000. HUD set fair market rents for 39 areas at the 50th percentile rent (i.e., the median rent) effective January 2, 2001 (66 FR 162). HUD set the 50th percentile FMRs to give lower-income families who participate in the voucher program access to a broader range of housing opportunities throughout a metropolitan area. FMRs have been increased to the 50th percentile rent in those 39 areas metropolitan areas based on the criteria established in the interim rule, which seeks to promote residential choice, help families mover closer to job growth areas, and deconcentrate poverty.

Paragraph 888.113(c) provides:

(c) Setting FMRs at the 50th percentile rent to provide a broad range of housing opportunities throughout a metropolitan area.

(1) HUD will set the FMRs at the 50th percentile rent for all unit sizes in each metropolitan FMR area that meets all of the following criteria at the time of annual publication of the FMRs:

(i) 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;

(ii) The FMR area contains at least 100 census tracts; and

(iii) 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.

(2) If the FMRs are set at the 50th percentile rent in accordance with paragraph (c)(1) of this section, HUD will set the FMRs at the 50th percentile rent for a total of three years.

(i) At the end of the three-year period, HUD will continue to set the FMRs at the 50th percentile rent only so long as the concentration measure for the current year is less than the concentration measure at the time the FMR area first received an FMR set at the 50th percentile rent. HUD will publish FMRs based on the 40th percentile rent for FMR areas that do not qualify for continued use of the 50th percentile rent.

(ii) For purposes of this section, the term “concentration measure” means the participants in the FMR area who reside in the 5 percent of the census tracts within the FMR area that have the largest number of program participants.

(iii) FMR areas that do not meet the test for continued use of FMRs set at the 50th percentile will be ineligible to use FMR set at the 50th percentile for a period of three years.

(iv) A PHA whose jurisdiction includes one or more FMR areas that are no longer eligible to use FMRs set at the 50th percentile may be eligible for a higher payment standard under Section 982.503(f).

Schedule B of this document lists the proposed 2002 FMRs for all areas, including FMRs for the 39 FMR areas where the FMR is set at the 50th percentile rent level (as specified in Section 888.113(c)), and other areas, where the FMR is set at the 40th percentile rent. An asterisk in Schedule B identifies the 39 FMR areas for which HUD has set 50th percentile FMRs.

HUD has set 50th percentile FMRs for the following metropolitan FMR areas:

Albuquerque, NM

Atlanta, GA

Austin-San Marcos, TX

Baton Rouge, LA

Bergen-Passaic, NJ

Buffalo-Niagara Falls, NY

Chicago, IL

Cleveland-Lorain-Elyria, OH

Dallas, TX

Denver, CO

Detroit, MI

Fort Lauderdale, FL

Fort Worth-Arlington, TX

Grand Rapids-Muskegon-Holland, MI

Houston, TX

Kansas City, MO-KS

Las Vegas, NV-AZ

Miami, FL

Minneapolis-St. Paul, MN-WI

Newark, NJ

Norfolk-Virginia Beach-Newport News, VA-NC

Oakland, CA

Oklahoma City, OK

Orange County, CA

Philadelphia, PA-NJ

Phoenix-Mesa, AZ

Richmond-Petersburg, VA

Sacramento, CA

Salt Lake City-Ogden, UT

San Antonio, TX

San Diego, CA

San Jose, CA

St. Louis, MO-IL

Tampa-St. Petersburg-Clearwater, FL

Tulsa, OK

Ventura, CA

Washington, DC-MD-VA

West Palm Beach-Boca Raton, FL

Wichita, KS

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 Survey (AHS), which is 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 contract rent and residential utility cost data are available individually for 96 metropolitan FMR areas and for the four Census Regions. RDD regional rent change factors are developed annually for the metropolitan and nonmetropolitan parts of each of the 10 HUD regions. The utility component of RDD surveys is updated using CPI regional utility cost change factors. The RDD factors are used to update the base year estimates for all FMR areas that do not have their own local CPI survey.

Utility Costs

HUD's standard methodology for incorporating changes in utility costs into FMRs relies on the most current CPI data on annual changes in residential utility costs. Annual rather than point-to-point monthly comparisons (e.g., July 1999 to July 2000) are used because monthly utility price indices are volatile and often not reflective of the annualized cost of utilities. The annual cost indices take into account changes in prices and consumption patterns over the course of a year.

In developing the proposed FMRs for FY 2002, HUD has determined that the standard methodology does not adequately capture the unusual increases in natural gas prices that occurred at the end of calendar year 2000. (The standard methodology does capture increases in fuel oil prices, however.) The standard FMR methodology captures a 17 percent increase in natural gas prices from 1999 to 2000, but December 1999 to December 2000 prices increased by an average of 37 percent and Department of Energy projections for 2002 are very similar to the December 2000 prices. For purposes of estimating FY 2002 FMRs, the Department has therefore modified the natural gas inflation component to use December-to-December costs when available, and to use second half to second half of the year figures for CPI areas where December 2000 data were not available. This is a one-time change made to respond to unusual circumstances; HUD expects to return to the standard methodology next year.

The impact of this change is modest for most areas for three reasons. First, the change accounts for increases in the price of natural gas per unit of consumption, but not for increases in consumption associated with the unusually cold winter of 2000-2001. Second, on a national level, natural gas comprises only 27 percent of utility costs, and utility costs typically average 8-15 percent of total rent costs in metropolitan areas. This means, for instance, that a 50 percent increase in natural gas prices only increases FMRs by a little over 1 percent in the typical metropolitan area. Finally, since FMRs reflect monthly housing costs, the increase in FMRs due to this methodological change is spread across the course of an entire year rather than just the December-February heating season. The impact of this change would appear to be more substantial if it were aggregated over a three or four month heating season, rather than the entire year.

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. These State minimums have the effect of increasing FMRs for a number of nonmetropolitan areas plus a small number of metropolitan areas.

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 1990 Census rent relationships 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.

Random Digit Dialing (RDD) Rent Surveys

RDD surveys are used to obtain statistically-reliable FMR estimates for selected FMR areas. This telephone survey technique involves drawing random samples of renter units occupied by recent movers. RDD surveys exclude public housing units, other assisted units for which the market rent cannot be determined, 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 12,000-15,000 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.

Today's notice includes proposed FMR revisions based on RDD surveys conducted in early 2001 for the following areas:

Proposed FMR increases above normal update factor:

Cleveland County, NC

Jackson County, NC

Knox County, IN

Louisville, KY

Minneapolis-St. Paul, MN

Muncie, IN

Payne County, OK

Phoenix, AZ

Polk County, NC

Rutherford County, NC

San Diego, CA

San Francisco, CA

San Luis Obispo-Atascadero-Paso Robles, CA

St. Louis, MO-IL

St. Mary's County, MD

Stockton-Lodi, CA

Vallejo-Fairfield-Napa, CA

Proposed FMR decreases:

Dallas, TX

Detroit, MI

Hartford, CT

Newark, NJ

Survey Supports Increasing FMRs by normal update factor:

Chicago, IL

Greensboro-Winston-Salem-High Point, NC

McDowell County, NC

Milwaukee, WI

Philadelphia, PA-NJ

Riverside-San Bernadino, CA

San Jose, CA

Manufactured Home Space FMRs

In the tenant-based voucher program, a family that owns a manufactured home may receive assistance for the rental of a manufactured home space. The FMRs used to calculate the housing assistance payment for rental of a manufactured home space are generally 40 percent of the applicable Section 8 existing housing FMRs for two-bedroom units. Cost of utilities is now included in the manufactured home space rent (see 24 CFR 888.113(e)).

HUD will consider modifications of manufactured home space FMRs where public comment demonstrates that the 40 percent FMRs are not adequate. In order to be accepted as a basis for revising the manufactured home space FMRs, comments must contain statistically valid survey data that show the 40th percentile space rent for the entire FMR area.

The published manufactured home space FMRs are updated annually using the same data used to update the other FMRs.

Request for Comments

HUD seeks public comments on FMR levels for specific areas. Comments on FMR levels must include sufficient information (including local data and a full description of the rental housing survey methodology used) to justify any proposed changes. Changes may be proposed in all or any one or more of the bedroom-size categories on the schedule. Recommendations and supporting data must reflect the rent levels that exist within the entire FMR area.

HUD recommends the use of professionally-conducted Random Digit Dialing (RDD) telephone surveys to test the accuracy of FMRs for areas where there is a sufficient number of Section 8 units to justify the survey cost of $12,000-$15,000. Areas with 500 or more program units usually meet this cost criterion, and areas with fewer units may meet it if actual two-bedroom rents are significantly different from the FMRs proposed by HUD. In addition, HUD has developed a version of the RDD survey methodology for smaller, nonmetropolitan PHAs. This methodology is designed to be simple enough to be done by the PHA itself, rather than by professional survey organizations, at a cost of $5,000 or less.

PHAs in nonmetropolitan areas may, in certain circumstances, do surveys of groups of counties. All grouped county surveys must be approved in advance by HUD. PHAs are cautioned that the resulting FMRs will not be identical for the counties surveyed; each individual FMR area will have a separate FMR based on the relationship of rents in that area to the combined rents in the cluster of FMR areas. In addition, PHAs are advised that counties whose FMRs are based on the State minimum will not have their FMRs revised unless the grouped survey results show a revised FMR above the State minimum level.

PHAs that plan to use the RDD survey technique should obtain a copy of the appropriate survey guide. Larger PHAs should request HUD's survey guide entitled “Random Digit Dialing Surveys; A Guide to Assist Larger Public Housing Agencies in Preparing Fair Market Rent Comments.” Smaller PHAs should obtain a guide entitled “Rental Housing Surveys; A Guide to Assist Smaller Public Housing Agencies in Preparing Fair Market Rent Comments.” These guides are available from HUD USER on 1-800-245-2691, or from HUD's Worldwide Web site, in Microsoft Word or Adobe Acrobat format, at the following address: http://www.huduser.org/​datasets/​fmr.html.

HUD prefers, but does not mandate, the use of RDD telephone surveys, or the more traditional method described in the survey guide intended for small PHAs along with the simplified RDD methodology. Other survey methodologies are acceptable as long as the surveys submitted provide statistically reliable, unbiased estimates of the gross rent. Survey samples should preferably be randomly drawn from a complete list of rental units for the FMR area. If this is not feasible, the selected sample must be drawn so as to be statistically representative of the entire rental housing stock of the FMR area. In particular, surveys must include units of all rent levels and be representative by structure type (including single-family, duplex and other small rental properties), age of housing unit, and geographic location. The decennial Census should be used as a starting point and means to verify whether the sample is representative of the FMR area's rental housing stock.

Local rental housing surveys conducted with alternative methods must include the following documentation:

—Identification of the 40th percentile or 50th gross rent (gross rent is rent including the cost of utilities) and the actual distribution (or distributions, if more than one bedroom size is surveyed) of the surveyed units, rank-ordered by gross rent.

—An explanation of how the rental housing sample was drawn and a copy of the survey questionnaire, transmittal letter, and any publicity materials.

—An explanation of how the contract rents of the individual units surveyed were converted to gross rents. (For RDD-type surveys, HUD requires use of the Section 8 utility allowance schedule.)

—An explanation of how the survey excluded units built within two years prior to the survey date.

—The date the rent data were collected so that HUD can apply a trending factor to update the estimate to the midpoint of the applicable fiscal year. If the survey has already been trended to this date, the date the survey was conducted and a description of the trending factor used.

—Copies of all survey sheets.

Since FMRs are based on standard quality units and units occupied by recent movers, both of which are difficult to identify and survey, HUD will accept surveys of all rental units and apply appropriate adjustments.

Most surveys cover only one- and two-bedroom units, in which case HUD will make the adjustments for other size units consistent with the differentials established on the basis of the 1990 Census data for the FMR area. When three- and four-bedroom units are surveyed separately to determine FMRs for these unit size categories, the commenter should multiply the 40th percentile survey rents by 1.087 and 1.077, respectively, to determine the FMRs. The use of these factors will produce the same upward adjustments in the rent differentials as those used in the HUD methodology.

Accordingly, the Fair Market Rent Schedules, which will be codified in 24 CFR part 888, are proposed to be amended as follows:

Dated: May 2, 2001.

Mel Martinez,

Secretary.

Fair Market Rents for the Housing Choice Voucher Program

Schedules B and D—General Explanatory Notes

1. 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-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. 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.

3. FMRs for Manufactured Home Spaces

FMRs for manufactured home spaces in the housing choice voucher program are 40 percent of the two-bedroom existing housing program FMRs, with the exception of the areas listed in Schedule D whose manufactured home space FMRs have been modified on the basis of public comments. 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 existing housing FMRs. The FMR area definitions used for the rental of manufactured home spaces in the housing choice voucher program are the same as the area definitions used for other FMRs.

4. Arrangement of FMR Areas and Identification of Constituent Parts

a. The FMR areas in Schedule B are listed alphabetically by metropolitan FMR area and by nonmetropolitan county within each State. The exception FMRs for manufactured home spaces in Schedule D are listed alphabetically by State.

b. 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.

c. Two nonmetropolitan counties are listed alphabetically on each line of the nonmetropolitan county listings.